Marginal Revolution

Justin Wolfers update

Our former guest blogger is now a "regular guest blogger" (is that an oxymoron?) at Freakonomics blog, along with Ian Ayres and Sudhir Venkatesh.  He's also starting a blog on elections and prediction markets over at wsj.com, his first post is here.  Plus we are sure he is doing many many other things as well.

What Mexicans are reading

Paulo Coelho, Isabel Allende, Stephen King, Anne Rice, other vampire stories, Paulo Coelho, The Secret, Emotional Intelligence, Isabel Allende, and Paulo Coelho.  You don't see Dan Brown or Lord of the Rings nearly as much as you used to.  Did I mention Paulo Coelho?

Spontaneous knots

Someday this will be turned into a theory of business cycles.  We've already done collapsing sandpiles.

How To Spend It

Have you ever read that FT supplement and wondered how and why the mix of products is changing with increasing income inequality?  Anna Yurko tackles this question:

The distribution of consumer incomes is a key factor in determining the structure of a vertically differentiated industry when consumer's willingness to pay depends on his income. This paper computes the Shaked and Sutton (1982) model for a general specification of consumers' income distribution to investigate the effect of inequality on firms' entry, product quality, and pricing decisions. The main findings are that greater inequality in consumer incomes leads to the entry of more firms and results in more intense quality competition among the entrants. This is due to the elasticity of consumer demand for quality being higher in more inegalitarian economies. More intense quality competition among firms causes them to locate their products in higher ranges of the quality spectrum, closer to each other, decreasing the degree of product differentiation. Competition between more similar products tends to reduce their prices. However, when income inequality is very high, the top quality producer chooses to serve only the rich segment of the market, and the low price elasticity of demand of these consumers allows him to charge a higher price. The conclusion is that income inequality has important implications for the degree of product differentiation, price level, industry concentration, and consumer welfare.

My version of the argument is this: growing income inequality means greater elasticity of demand, thus causing quality competition to displace price competition for some market segments.  More concretely, there is often more profit from serving the very top, who will always pay more for something just a wee bit different or a wee bit better.  So stay away from producing the mid-level cheeseburger, where price elasticity of demand will kill your profits.  You can't charge the rich very much for it, and the presence of the poor keeps the price down for the middle class.  Here is the paper.  Anna is currently a job market candidate at the University of Texas, here is her CV.

The girl with the X-Ray eyes

"She must be some kind of Russian fraud," was the first thing I said to Yana and Natasha.  We were riding in a bus through rural Mexico and they played a Discovery Channel show about Natasha Demkina, a girl who claims to be able to see through human bodies and diagnose their medical conditions.  Here is Wikipedia on the girl.  I found this article revealing:

...a lot of text messages were being sent between her and her companions during the test, something the scientists had expressly forbidden.

Here is another skeptical account, and here.  Here is a good Bayesian discussion.  Here is the Amazing Randi.  No, I do not believe in the paranormal, nor is her record even close to perfect, but still the girl seems to have a remarkable ability to read clues from ailing human beings.  (She doesn't seem to be interested in seeing through animal bodies or for that matter inanimate objects.)  I am glad to hear she wants to become a doctor.  What I find odd is her apparently unique ability to pull off this fraud; is there not free entry into the sector?  I also find it interesting that the Discovery Channel finds this story "true enough" to broadcast in some countries, but not others.

Artists who died in 2007

Here is the list.  I hadn't known about Sneaky Pete Kleinow, or Edward Yang (director of "Yi Yi," one of my favorite films), or Teresa Stich-Randall.  My favorite Oscar Peterson album was The Trio, the one with Joe Pass that is.

In Praise of Uncertainty

Writing in the comments, David R. Henderson asks me to list three policy areas where my views are uncertain.  Since this blog (or at least this author) has been streaming uncertainty for over four years, this strikes me as an odd request.  But perhaps it is useful to have such a list in one place, so here goes:

1. We must address the looming crisis in medical care costs but how?  I am uncertain as to how much means-testing Medicare will ease future budgetary pressures.  I do favor means-testing, mostly through lack of better ideas, but it is a) notoriously difficult to enforce, b) often unfair (do we measure income or wealth? current or lifetime?) and c) an implicit hike in marginal tax rates.  And if you could talk me out of means-testing, I am not sure which recommendation would come next.

2. I favor further experimentation with school vouchers, but to what extent?  There are many good school districts that probably would not be improved much if at all, and the resulting political hand-wringing would be costly and also could give vouchers a bad name.  Should vouchers be isolated experiments or implemented on a near-universal basis?  Near-universal vouchers run the risk of becoming the new middle class entitlement.

3. I don't see a Social Security "crisis" in the numbers, but I do believe we should be fiscally conservative with the program, most of all because of forthcoming Medicare expenditures.  Yet this view would be wrong if the growth rate of the economy exceeds the real rate of interest.  We could then spend as much on Social Security as we wanted to.  (Growth-optimistic conservatives rarely emphasize this conclusion, I might add.)  I do not expect such a result, but I give it a probability of about 30 percent.

4. I am uncertain how much the United States should "move first" with costly anti-global warming measures, assuming that China and other nations are not very cooperative.

5. To what extent is the ongoing loss of biodiversity a very serious problem?  I suspect in the long run this will prove a more important issue than global warming, but I am not sure.  I also don't know what to do about it; property rights and better quotas for fishing is a good idea but that only dents the larger problem.

6. I favor legalizing or decriminalizing many drugs, but I am not sure how far this process can go when so many actual and potential drug customers are under eighteen years of age.  Can we really sell crack cocaine in the 7-11, provided there is an ID check for every buyer?

7. I am pro-immigration relative to either current policy or the median voter, but I am uncertain how many immigrants the United States could take in.  I'm not just whinging about not knowing where the decimal point goes.  More generally, we don't know when the social and political fabric will start to crack in counterproductive fashion.

8. I am highly uncertain about most of the major questions in foreign policy, for a start try Pakistan or the Koreas or nuclear proliferation.  Even if you think we shouldn't have gotten involved in the first place, that doesn't mean immediate withdrawal is our best option.  And while I know more about economics than foreign policy, I find that the more I learn about a given foreign policy area, the more uncertain I become.

9. Virtually any question in water policy.  This is a good, complex area for shaking up policy preconceptions.

That's a lot of uncertainty.  I could go on, but that's already most of the major policy issues today.  Don't forget this: even if your view is the one "most likely to be right," in absolute terms your view, like mine, is probably wrong relative to the sum of competing views. 

In other words, it is hard for me to see why, in these and many other areas, we should be highly certain of the views we hold.

At some point I'll give you my take on "What I Think We Should Be (Nearly) Certain About."  But I am not yet sure what should go in that post.

Addendum: Here are Arnold Kling's certainties and uncertainties.

The good news is...

In 2005, the two state airlines – Mexicana and Aeroméxico – were hived off for privatisation and permits were granted for five new low-cost carriers. The following year, the number of air passengers grew by almost 12 per cent, more than in all the previous five years combined.  Flights from Mexico City to Cancún now can be had for less than $100. Previously it had been cheaper to fly to Cancún from New York.

The bad news is...

...huge swathes of the economy – beer, oil, soft drinks, cement, television, electricity and telephony to name a few – are still dominated by one or at most two big companies.

Legally protected companies for the most part, I might add.  If you are listing the major problems of Mexico, we have:

1. Drug trade and corruption and crime, all rolled into one big package.

2. Bad educational system for most of the country, and bad cultural norms for education.  Most people are literate but you don't see many people reading.

3. State-sponsored monopolies.

Going back to the bright side, the numbers of the Mexican middle class continue to grow, grow, and grow.  The shopping malls in Puebla and Veracruz are excellent, and they are not just for a fair-skinned minority elite.  They are packed with middle class people, shopping, and turning Mexico into a middle class country.  It really is happening, and I see it more and more each time I visit.

The most frequently pirated material of 2007

That is one way to discover what is hot.  On the other hand, the most frequently pirated movie of 2007 was Resident Evil: Extinction, with Milla Jovovich, so perhaps we do not have a representative sample of consumers here.

What if Paul Krugman were right about trade and wages?

For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net.

That is Paul Krugman, here is more.  I have yet to see the evidence that trade has a significant negative impact on middle class wages, but for sake of argument assume it is true.  However benevolent it may sound, strengthening the social safety net would not be my policy recommendation number one.  After all, if Samuelson-Stolper factor price equalization is the main mechanism at work, wages would have a long way to fall downwards and if anyone in the middle class is to keep working, the safety net must eventually be cut, not increased.  You might think we can fund all these trade-losers by taxing capital but of course the incidence of taxes on capital sometimes falls on labor, not to mention that at some point the Laffer Curve kicks in. 

Is not the appropriate policy recommendation to create a budget surplus, create a U.S.A. Sovereign Wealth Fund, and invest the resulting capital in the corporate winners from this entire process?  In other words, we would be giving the trade-losers a more direct share in capital.  Since output is rising and wages are falling, the return to capital must be rising; let's make money off of that.

You might not trust the government with such investments but it is awkward for Krugman to push that argument too hard.  Alternatively, you might think that share prices already have capitalized these gains, but that is hard to square with the view that Krugman is reporting a new result about trade.  Share prices are driven by liquidity to some extent, and if you know something about the returns to labor and capital that the rest of the world does not, there ought to be a way to make money.  Why spend more on consumption (a stronger safety net today) if the rate of return on investment is rising so high and we are going to need even more of a safety net in the future?

The costs of media bias

A majority of Americans view news organizations as politically biased, creating a strong incentive for firms to try to present themselves as impartial. This paper argues that the desire to appear unbiased leads to information loss.  In the formal model, firms withhold information in an effort to appear neutral. It is shown that information loss is exacerbated by competition, policies that regulate content are welfare reducing, and that regulating the size of the market can increase the amount of information revealed. Finally, the introduction of imperfectly informed sources of news, such as blogs, can decrease the incentives for traditional news outlets to provide information, yet they may also enhance welfare when information is being suppressed.

That's from Jeremy Burke of Duke, who is on the job market this year.  Paul Krugman often makes this complaint, namely that newspapers often prefer a "He said, he said" story over simply telling the truth.  One message of this paper is that the problem isn't so easy to stop.  Newspapers aren't just being lax, rather they are maximizing their profits and reputation.  The discussion of blogs starts on p.22 of the paper; it is basically pro-blog but the ability of the blogosphere to speak truth can substitute for the requirement that newspapers do so, rather than forcing newspapers into truth.

Good sentences

But it's much easier for Pakistani actors to manipulate US policy than the reverse.

There is more on Bhutto here and here.  And here is another interesting post from The Atlantic.

Addendum: The second link is now corrected.  Here is a new one as well.

Polynesian chickens in Chile

...radiocarbon dating and DNA analysis of a chicken bone excavated from a site in Chile suggest Polynesians in oceangoing canoes brought chickens to the west coast of South America well before Europe's "Age of Discovery."

The full story is here, via Jason Kottke.  And I still think those Olmec heads are portraits of Africans...

Speak English, lower taxes

Megan McArdle writes:

It is hard for high levels of taxation to survive a right of exit; Europe has mostly been protected (so far) by its many languages, which make it harder to move. But as the EU increases labor mobility, expect to hear more about harmful tax competition.

The story is about skilled Danes leaving the country so as to avoid higher taxes.  The last time I was in Denmark I was struck how many service workers could not speak Danish (will a Spaniard or Hungarian really learn that language?) and in the workplace communicated in English.  Greater policy competition is one of the most important results of so many Europeans speaking good English.  High taxes and differential incomes, in turn, increase the incentive for people to learn good English, thereby creating a self-reinforcing dynamic.  I've long thought that Europe will become more like the United States than vice versa, most of all through mobility and diversity, but I don't think that is a very popular view.

Why is New Zealand poorer than Australia?

Via Craig Newmark, here is one short article. the conclusion:

"Prosperity does not come by accident,'' Mr Rennie said.  "Australia has a stronger political consensus around policies for growth, which contributes to investor confidence.''

Sorry but I can't buy it.  Throughout the 1990s New Zealand economic policy probably "led" Australian policy, yet Australia has gained on New Zealand since that time.  I'll instead cite booming resource prices (there is more gain in selling minerals to China than agricultural products), economies of scale from having a larger country, and most of all the Kiwi brain drain.  In percentage terms, many more of the smartest New Zealanders leave their home country -- often for Australia I might add -- than vice versa. 

Mexican economies of scope

Traffickers are drawn to musical acts because they provide an easy platform to launder money. There are other easy options, but none is so culturally prestigious. It is the glamour of the music scene that makes it irresistible to narcotraffickers, said Rolando Coro, a well-known disc jockey at Radio Tremendous in Morelia.

"They show up at the dances, these drug traffickers, and order the expensive whiskey, not just a glass, but the whole bottle," Coro said. "They have pretty women following them around. It's fun for them."

Bands that make deals with drug traffickers get a crucial leg up on the competition. Tzin Tzun, the promoter, can spot them with ease.

Here is the full story, with further information about the recent killings of Mexico's most popular musicians.  I wondered about this:

"Bands start to get popular and sometimes they want to keep more of the money," Tzin Tzun said.

Department of Human Rationality

According to the San Francisco Chronicle, police found a shoe and blood in an area between the gate and the edge of the animal's 25- to 30-foot-wide moat, raising the possibility that one of the victims dangled a leg or other body part over the edge of the moat...

One zoo official insisted the tiger did not get out through an open door and must have climbed or leaped out. But Jack Hanna, former director of the Columbus Zoo, said such a leap would be an unbelievable feat and ''virtually impossible.''

Instead, he speculated that visitors could have been fooling around and might have taunted the animal and perhaps even helped it get out by, say, putting a board in the moat.

Ron Magill, a spokesman at the Miami Metro Zoo, said it was unlikely a zoo tiger could make such a leap, even with a running start.

The story is here.  And I agree with what Robin Hanson is probably thinking: it was signaling behavior.  Maybe from the tiger too.

Update: Here is one story, here is more, some of you rail in the comments but the initial interpretation is looking correct.  Note also that the tiger, after killing the first boy, went 300 yards to track down the other two boys and not anyone else.

Subprime fact of the day

Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3 percent -- own a home in foreclosure...

Here is the link, from Mark Thoma.  This is one big reason why I'm not yet convinced by the economic pessimists.  The article also notes how many estimates of the S&L crisis of the 1980s were exaggerated, and suggests the same tendency may be happening today.

Addendum: This piece is a good statement of the case for pessimism.

The latest evidence on racial discrimination and wages

I haven't read through this closely, but it seems to be a very important paper:

...we show that, relative to white wages, black wages: (a) vary negatively with a measure of the prejudice of the "marginal" white in a state; (b) vary negatively with the prejudice in the lower tail of the prejudice distribution, but are unaffected by the prejudice of the most prejudiced persons in a state; and (c) vary negatively with the fraction of a state that is black. We show that these results are robust to a variety of extensions, including directly controlling for racial skill quality differences and instrumental variables estimates. We present some initial evidence to show that racial wage gaps are larger the more racially integrated is a state’s workforce, also as Becker's model predicts.

Here is the paper.  This version is $5 cheaper.

What have we learned about economic growth

Not as much as you think.  Here is Charles Kenny's closer:

In short, the last six years has not changed the basic conclusion that the growth literature has taught us much less about how to get rich than it has about who is already rich.  There is nothing particularly new in recent growth theory, but perhaps that is no surprise because there is remarkably little new in growth, either – the rich today are by and large those who were rich yesterday. That there might not be a holy grail of growth policy, however, is no reason for people of economic faith to stop looking, so no doubt the next six years will see another 13,000 articles on the subject to review.

Five books from Germany

Jeff, a Facebook friend, wrote on my Wall:

Which five German books should I read, before I return to Amerika [my translation]?

He seems to read German.  I will recommend: Goethe's Faust, Rilke's Duino Elegies or Sonnets to Orpheus, Thomas Mann's Buddenbrooks, Franz Kafka short stories (don't forget "Ein Landarzt,"), and Hermann Hesse's Glass Bead Game.  Non-fiction does seem to count for the query, although it would not crack my list of top five.  Schopenhauer tempts as well.  Do you have better ideas for him?

The tastiest sentence I read today

The trigger for the large, calorie-hungry brains of ours is cooking, argues Richard W. Wrangham, the Ruth B. Moore Professor of Biological Anthropology at Harvard University's Peabody Museum of Archaeology and Ethnology.

Here is another bit:

...it turns out that there are no records of people having a large amount of their food come from raw food.

Here is much more, interesting throughout.  Thanks to Yan Li for the pointer.

Ron Paul as President

Bryan Caplan defends the prospect of a Ron Paul presidency.  Here is Megan McArdle.  Here's yet another perspective.  Here is Ezra Klein.  Here is Paul himself.

The Ron Paul phenomenon reminds me of the old America First movement, with Misesian 100 percent reserve banking theory on top.  He is making (one version of) libertarianism much more popular by allying it with nationalist and also states' rights memes.  That includes his stances on immigration, NAFTA, China, devolution of powers, and "The Constitution."  Even when the policy recommendations stay libertarian, I fear that the wrong emotions will have the staying power.  Evaluating a politician is not just about policy positions; for instance personally I am skeptical of most forms of gun control but I worry when a candidate so emphasizes a pro-gun stance.

Many libertarians see the Paul candidacy as their chance to have an impact and they may well be right.  There is also no one else for them to support.  But, raw milk or not, I am not myself tempted to take a stance this year in favor of any of the candidates, Paul included.  Liberty is lacking in the United States but I'd like to see it more closely bundled with reasonableness, moderation, and yes pragmatism; I am looking to advance on all fronts at the same time.  Call me fussy if you wish.

I fear that Ron Paul is so taken with his own ideas that he is unable to see how or when his views might ever be wrong; it is in that sense I consider him insufficiently intellectual.  (Admittedly all the other candidates are too open to whatever is politically popular at the moment.)  Openness also means ability to improvise, which is a critical leadership quality; many of the challenges of the presidency are the surprises, 9/11 being one example of many.

The America Firsters, by the way, were right about many things, but they were very wrong about a few very big things, such as World War II and the civil rights movement.  They also suffered a virtually total eclipse for decades.  I don't see nationalist and states' rights memes as a path toward a future with more human liberty.

Ron Paul is changing the ideological landscape of American politics and the fabric of modern classical liberalism.  No matter what your point of view, I recommend that you take the Ron Paul phenomenon very seriously indeed.

Addendum: Here are good remarks from Arnold Kling and Steve Horwitz.

Rental markets in everything

Fancy handbags.  That's in case you didn't get the gift you wanted today.

Thanks to Josh Chaffin for the pointer.

On the Uses of Mistletoe

Happy Holidays to all!

Stolen

It's one of my favorites, let's hope they give it back.  In the meantime, Merry Christmas everybody!

Father Christmas?

A conversation between the 6yr old and the 9yr old.

"Big fat man.  Flying reindeer.  All around the world in one night.  That's crazy."

"Yeah."

"But who does bring the presents?  Do you think Daddy brings the presents?"

"Nah, if it was Daddy we would just get cash."

Markets in everything, lawsuit edition

...some wealthy investors are starting to dabble in lawsuit investment, bankrolling some or all of the heavy upfront costs in return for a share of the damages in the event of a win...

Here is the full story, thanks to John De Palma for the pointer.

Wrong on Race

Here is Bruce Bartlett´s new book, here is an overview.  Incendiary, etc.  The positive suggestion is that the Republicans should, and will need to, start courting black voters, and that greater electoral competition in this manner will help the courted parties.  The main theoretical question is when the statute of limitations runs out for holding the background of a party against that party.  I don't have a clear view on that question, although for individual candidates I think that the time horizon should be quite long.

Addendum: Here is a Matt-Bruce exchange.  Perhaps I posted this link without enough explanation.  What I find so interesting is why Bartlett remains a Republican, or from the synopsis seems to.  After all, he has come close to endorsing Hillary.  Whether you like that or not, it is a big step for someone from his market-oriented background.  Does he stay a Republican because he thinks Republicans are better on race issues?  I haven't read the book, but I thought there were many interesting issues going on in this new work of his.  I am sorry to have given rise to an exchange with nasty comments.  They've been deleted.  I might add I believe there is plenty of racism all around; the interesting positive question is why it takes one form (more open) in Republican circles and another very different form in Democratic circles.  Wage and other data show that discrimination is not especially concentrated in Republican areas, I hope to post more on that topic soon.

Inefficient credit booms

This paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks. In particular, it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post.  Even though, from a first-best perspective the equilibrium always displays under-borrowing, from a second-best point of view excessive borrowing can arise.  The inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market.  This generates a pecuniary externality that is not internalized in private contracts.  The model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis.

Here is the paper, here is an ungated version.  If I understand this model correctly,  People invest too much ex ante.  If those (correlated) investments turn bad ex post, they have to sell lots of their assets to pay off their debts.  Those sales make asset prices more volatile, and what appear to be pecuniary externalities (falling and volatile prices) in fact bring real macroeconomic costs, as should be familiar to any observer of the current scene.  One implication is that government should prevent overborrowing, for instance by instituting capital requirements.  Bad outcomes are then less likely to require a fire sale of assets.

Expect to see more along these lines.  It may not sound like the Austrian theory of the trade cycle, but in both cases entrepreneurs overinvest in holding vulnerable positions.  The Austrians postulate a "thin skull" response to low interest rates (too much investment in long-term production processes); this model starts with a distinction between private and social returns.  Here is another interesting paper by the same researcher.

Blogging Death in LA

The LATimes has a blog, The Homicide Report, that covers murders in LA.  Here is one entry:

Timothy Johnson, 37, a black man, was shot multiple times at 939 E. 92nd Street in Watts at about 3:23 a.m. Sunday, Nov. 25, and died at the scene. Police officers had received a "shots fired" call and found him. He had been visiting friends in the area.

He had gone to a party that night, then had stopped on his way home to socialize with friends outside. His shooters came by walking or driving. He was hit multiple times. When officers arrived, he was alone, dead on the ground, and the people who had been outside with him had disappeared. A pit-bull puppy chained in the yard was curled on his body.

The comments begin as you might expect from families and friends.

... The life of an African American Man in LA has proven to be a fight till the death. I am struggling now as I sit here looking at your picture. All the years we spent growing up together, supporting each other and just loving one another. I Love you!! You were my cousin by birth but my brother at heart.

Love Kim

Posted by: Khaleelah Muhammad | November 28, 2007 at 04:50 PM

but then a darker story is revealed:

To all the people speaking glowing words about this man ... im sure some of you know and for those that dont, this man was a killer and it was known by LAPD that he has blood on his hands. Trust me he got what he deserved and what i prayed for. He now has to meet GOD face to face and face the people that HE has killed

Posted by: Satisfyied Person | November 29, 2007 at 11:03 AM

Many entries excerpted in the LATimes can be found here, all of the comments (start at the bottom and work up) are here.

The sources of fuel efficiency: a counterintuitive result

Matt Yglesias writes:

Via Andrew Sullivan, Eric dePlace notes that "You save more fuel switching from a 15 to 18 mpg car than switching from a 50 to 100 mpg car." And so you do. A 15 MPG car would require 1,000 gallons of gas to drive 15,000 miles while an 18MPG car could get it done in just 833 gallons. That saves 167 gallons of gasoline. By contrast, since a 50 MPG only uses 300 gallons to go 15,000 miles, upgrading to 100 MPG can't save that much gas -- the super-efficient car uses 150 gallons.

It is tricky, because the consumption basket and number of miles driven will not stay constant across alternatives, but this logic is worth keeping in mind nonetheless.

$500 a barrel for oil?

With energy five times as expensive ... we would take a substantial hit to incomes. Our living standard would decline by about 11 percent. But we would still be fantastically rich compared to the pre-industrial world. ... Our income would still be above the current living standards in Canada, Sweden or England. Oh, the suffering humanity! At current rates of economic growth we would gain back the income losses from having to convert to solar power in less than six years....

That is Greg Clark, link here.

Questions you dare not ask

Cowen's Third Law used to read "All propositions about real interest rates are wrong," so I hesitate to tread on this ground.  The question is, when inflation comes, why doesn't the expectation of that inflation lead to proportional increases in nominal interest rates, thus keeping the real rate constant?  The studies I've seen all indicate a less than one-to-one Fisher effect.  I can think of a few hypotheses:

1. People systematically underestimate the forthcoming rate of price inflation.  (Still?)

2. People have generally adaptive expectations, but they will adjust quickly and rationally to big enough jolts.  And maybe inflation rises slowly, but deflations come all of a sudden.  So it seems there are more periods when people's expectations are lagging an inflation than a deflation, and that will produce the data pattern stated above.

3. People have generally rational expectations in a game against nature, but they are playing a game against the Fed.  The Fed is smarter than the people.  And the Fed has studied Newcomb's Paradox so it can, on average, figure out when a dose of inflation will surprise people (in a positive way, of course, socially speaking).  So every now and then we get these surprise bursts of inflation, but no comparable surprise bursts of deflation, which of course would not help output any.  In this set-up the Fisher effect won't fully hold.

4. A Mundell-Tobin effect is operating, so real rates of return are falling because the inflation moves people out of currency and into capital.

5. The new money enters through the loanable funds market, thereby depressing real interest rates.

6. Sometimes things just don't work out the way you think they ought to.

Once you consider the tax system, you realize how much the cards are stacked against our attempt to explain this.  Many people can deduct their nominal interest payments from their taxes, and that implies we should see a more than one-to-one Fisher effect from inflation.  But we don't.

You'll also note that under most of these explanations the specified dose of inflation does not have a significantly negative effect on private savings.  If the inflation is expected, the nominal interest rate adjusts.  If the inflation is not expected, it doesn't scare off savings.

Do you have other ideas?  I believe the incomplete Fisher effect is a result which holds both across time and across countries, but maybe you know the latest paper which I don't.

Puebla

Most of all this is a town of baked sweets, they use sugar and milk as well as in Calcutta.  Sweet milky creme thingies with walnuts, camotes, amaranth with honey, flan, fried coconut cookies, fresh potato chips with tamarind and chili and many other delights.  There is a whole book Dulceria in Puebla, they weren't kidding.  Mole poblano almost seems like an afterthought.  The produce is also superb; I never had tasted real cucumber before today.  The city is much more beautiful than I had expected and Arabic influences are seen all over, there is even Jerusalem Tortilleria and Beyrut Tacos to add to your dining delights, not to mention the Arabic influence on the baking and of course the architecture.  I used to tell people I don't like sweet things, but due to globalization that fiction is becoming increasing difficult to maintain.

Sartorial arbitrage

Canadian shoppers taking advantage of the parity between the U.S. and Canadian dollars are leaving behind more than cash when the head home.

They're leaving behind their old clothes.

Some Canadian shoppers wear their new clothes home to avoid paying a duty when they cross back into Canada [TC: do we reallly need the link behind that word?]. The old clothes get left behind in parking lots, dressing rooms and restrooms at malls and shopping plazas in the Buffalo-Niagara Falls region.

At the Fashion Outlets mall just outside the city of Niagara Falls, managers have placed collection bins near the exits where Canadians customers can deposit their unwanted items.

Here is the story.  Thanks to Bill Griffiths for the pointer.

Mexican update

...public finances have rarely been in better shape. Thanks to policies put in place by Ernesto Zedillo, who presided over the country during and after the tequila crisis at the end of 1994, the budget is balanced.

In 2000, it was still running a budget deficit equivalent to 1.1 per cent of gross domestic product. Net public debt, meanwhile, has fallen consistently and is now just 23 per cent of GDP. Moreover, much of the external debt was swapped for peso-denominated debt during Mr Fox’s administration.

This year, net external debt accounts for roughly 7 per cent of GDP compared with 24 per cent in 1995. “It has all become boring,” says Damian Fraser of UBS in Mexico City. “But that is fine. We love boring.”

Even inflation, which has started to creep up again after it dipped below that of the US for the first time in 2005, still appears to be under control.

Consensus forecasts from the private sector suggest it will finish the year at about 3.85 per cent.

Here is much more.  But no, one correction is needed, Mexico is never a boring place:

Mexico’s country music stars are being killed at an alarming rate — 13 in the past year and a half, three already in December — in a trend that has gone hand in hand with the surge in violence between drug gangs here.  None of the cases have been solved. All have borne the signs of Mexican underworld executions...

Evil, ticket-gulping bots?

What high tech wonder-tools does RMG use to defeat Ticketmaster's captchas, the annoying jumble of characters used to prove your humanity? Is it Optical Character Recognition? Something even more futuristic, maybe web 3.0-ish? Nah. Cipriano Garibay, president of RMG Technologies, boasts: "We pay guys in India $2 an hour to type the answers."

Here is the full story of why concert events must move more and more toward market-clearing prices.  Thanks to Aaron Steinberg for the pointer.

Incentives

When I come to my office, I take my sweater off.  When I go home, I put my sweater back on.

Subprime policy recommendations

Congress should simply outlaw adjustable-rate mortgages, which basically ask borrowers to treat their home mortgages like stocks...Congress should also ban private lenders and brokers from issuing sub-prime loans of any kind.

I am curious as to whether subprime marriages should be outlawed as well.  Starting a small business?  How about having a kid?  Of course we shouldn't give them credit cards.  Outlawing loan sharks will be easy too.

The weakness of these policy recommendations is a sign of how lost our current understanding is.  In most policy areas, the left has a better idea than simply shutting down the market.  The reality is that we don't know how to legislate against bubbles.  Nor is it mentioned that there's not a clear definition of what a subprime loan is or how such a ban would be enforced in practice.  Remember the good ol' days when Joseph Stiglitz argued that credit rationing meant that banks made too few loans to high-risk borrowers?

Here is the much longer piece, which has a good deal of content.  The economic history in the linked article is very, very wrong, no matter what your political point of view.  Imagine discussing the S&L crisis of the early 1980s without even mentioning the high inflation of the late 1970s or the resulting low levels of bank capitalization.  It's fair enough to blame the right for relative silence on the real estate bubble -- a clear case of market failure -- but this article has to go in the Hall of Shame.

Why do teenagers take too many risks?

It turns out they estimate the costs of drinking and drug-taking pretty accurately, they simply see the benefits as higher than older people do.  If anything the teenagers see the risky activity as riskier than it really is.  For that reason, a focus on informing teenagers about the true risk of the activity might alleviate rather than heighten their concerns.

Obviously the teenagers are wrong in pursuing so much risk. 

There is then a breathtaking conclusion.  First, teenagers need to be taught how to recognize the "gist" of a situation, namely to go beyond explicit calculation and see it as older people do.  Second:

Dr. Reyna warned: “Younger adolescents don’t learn from consequences as well as older adolescents do. So rather than relying on them to make reasoned choices or to learn from the school of hard knocks, a better approach is to supervise them.”

In other words, young teenagers need to be protected from themselves by removing opportunities for risk-taking — for example, by filling their time with positive activities and protecting them from risky situations that are likely to be tempting or that require “behavioral inhibition.”

Here is the full article.  I conclude that we still don't know why teenagers take so many risks.

Sorry!

Typepad is swallowing some of your comments as spam; I'm working to liberate them.  Our apologies, the problem should be cleared up soon and even right now most comments are getting through.  The bottom line is that there are far many more comments on Ron Paul (and the federal budget) than you might have thought.  I recommend that you read them all, especially the ones critical of me.

By the way I regard Obama as the most intellectual candidate; having been a law professor is part of that.  Of course that needn't make him the best candidate; Woodrow Wilson was an intellectual but a disaster as President.  There is no doubt that Ron Paul is very widely read and is an admirable defender of individual liberty.  I've also met him and I believe his IQ is high.  But if you think that he is intellectual, ask yourself what standards of evidence and procedural rationality he applied when he wrote this.  Sorry people, but I have to call 'em as I see 'em.  As I said in my previous post, I'm still happy with the idea of protest votes for Paul.

And by the way, as long as I'm courting controversy, here's a study on how much early environment shapes the brain and IQ.

The most underrated and overrated cultural events of the year

From Prospect (UK), here is a long list, my picks were:

Overrated
Hollywood movies. US ticket sales recovered this year, but to what end? This was a year for microculture, such as Facebook, Twitter and YouTube. The bigger visual productions of the year won't much stand the test of time. On the bright side, television drama continues to rise in quality.

Underrated
The iPhone. The world really did change on 29th June 2007. We now have handheld personal computers and personal entertainment centres, yet they are no larger than a thin pack of cards. And no, I’m not a techie, a gadget freak or an Apple lover. The device itself is beautiful as well.

Going meta on you again, the most frequently cited overrated event was the movie version of Atonement, then the new Philip Roth book (the latter received one pick for underrated as well).  Receiving one or more underrated picks were (I think) the new Hugh Brogan book on Tocqueville (which is excellent), the new Adam Thirlwell novel (no US edition yet), and Nicola Barker's Darkman.

Where should you give your money to charity?

This site offers many interesting tips.  Here are their recommendations for how to save lives.  Their first pick, Population Services International, distributes condoms and insecticide-soaked bednets.  Here is a New York Times article about their operation.

The pointer is from Michael Vassar, a regular MR commentator.

Who Benefits from the Federal Government?

A common response to my post showing that The Rich Pay for the Federal Government was that the rich also get more benefits from the federal government.  Let's go to the numbers.  Here's a chart showing federal spending categories for 2007.  (Click to expand.)

Social Security, the biggest category, doesn't benefit the rich at all because net Social Security payments are heavily biased against the rich.   According to Eugene Steuerle and Adam Carasso of the liberal Urban Institute a two earner couple earning $230,000 a year (thus putting them at the mean household income for the top 20%) and scheduled to retire in 2030 will pay $227,886 more in social security taxes than they receive in benefits (in present value).

Defense is the next biggest category.  To me a lot of "defense" spending doesn't benefit anyone but let's be generous and say that the rich benefit from military spending in proportion to their income share which for the top 20% means 55%.  Thus $301b.

Medicare benefits the rich less than the poor since they are healthier (plus they must pay higher premiums) but let's say that Medicare benefits the rich in proportion to their population.  If we say the top 20% are rich and assume that this is the same in the 65 and older category then 20% of Medicare goes to the rich.  $78.8b.

Medicaid doesn't benefit the rich.  The rich do use unemployment insurance but at far lower rates than the poor.  Does welfare benefit the rich?  Not directly but maybe from the warm glow.  I don't think the benefits of charity are what most people mean when they say that the rich benefit from the federal government but who knows.  Let's again be generous and say that the warm glow goes just to the rich and that it is worth 20% of the benefit to the poor.  $73.4b

Everything else includes the example that people always seem to mention first, roads!  Alas, the entire transportation budget is just $77 billion, not much there even if a lot of it goes to the rich.  By my judgment a lot of "everything else" has low value but again let's be generous and say that the rich benefit from everything else in proportion to their income share (.55).  $233b.

Excluding the national debt gives us a total of $687 billion out of $2597 billion going to the rich or 26%.  If we assume that the division of the national debt is the same as for the government as a whole (since this is just past expenditures) the percentage is still 26%.

Thus in a generous accounting the rich get 26% of the benefits of federal spending and pay 68.7% of the costs.  In percentage terms the rich get about 37 cents on the dollar.

Alternatively stated about 63 cents of every dollar in taxes paid by the rich is transferred down.  Given that the median voter is a taxeater not a taxpayer we should not be too surprised, although this is a smaller number than I would have guessed before I did the calculation.  From an efficiency point of view we should be happy that the rich don't get too much - transferring resources creates a lot of waste but transferring resources from the rich to the rich is especially wasteful. 

The basic point is clear; In the United States, one can argue for taxing the rich on the ability to pay principle but not on the benefit principle.

Addendum: Thanks to Ted Frank for catching a math slip-up on my part which I fixed raising the total to 26%.

The monetary economics of Ron Paul

Here, here, and here.  I agree all around, noting only that inflation does, for mysterious reasons, seem to be a slight tax on savings (nominal interest rates don't adjust completely to inflationary expectations, but don't ask me why not).  But that doesn't change the overall argument very much.  I'll put the main point yet another way: with a commodity standard the money supply is often pro-cyclical, shrinking during business downturns.  Who wants to risk that?

I haven't followed Ron Paul closely, and while I like many of his libertarian ideas, I am discomforted by his overall anti-intellectual demeanor.  He strikes me as the kind of person who has a natural attraction to conspiracy theories.  However he is only allowed to believe the ones that coincide with his libertarian ideology.  Which isn't so many (most of those theories are dreamt up by non-libertarians and thus have anti-libertarian elements), and that means he ends up sounding more somewhat sensible than he really is.

I don't doubt Paul's sincerity, but I would like to know his theory of why most economists -- even market-oriented ones -- don't agree with him on monetary policy.  I suspect he thinks he knows some secret that others do not. 

There's what a politician believes, and how a politician believes.  As I get older I put increasing weight on the latter.  As a protest vote, Ron Paul seems fine, but hearing him or reading about him just makes me depressed.  A good rule of thumb is not to get too excited about any candidate whose actual election would make the Dow lose thousands of points.

Addendum: If you'd like a different point of view, here is Alina Stefanescu on Ron Paul.

Veracruz bleg

The second part of our Mexico trip will be to Veracruz.  Again your suggestions are most welcome...

Can theory override intuition?

Robin Hanson writes:

For good policy advice, what is the best weight to place on economic theory, versus (individual or cultural) intuitive judgment? [TC: that's Robin reproducing someone else's words]

My guess is over 75% weight, so I try to mostly just straightforwardly apply economic theory, adding little personal or cultural judgment [TC: that's Robin].

In a nutshell, this is the major difference between Robin and me.  In my view there is no such thing as "straightforwardly applying economic theory," unless your prescriptions are limited to "we cannot prove that Giffen goods do not exist."  Theories are always applied and interpreted through our personal and cultural filters and there is no other way it can be.  Robin believes in an Archimedean point for using theory, I do not.  Furthermore we often need to apply personal and cultural judgment to offset the sometimes-erroneous judgments and biases built into the economic way of thinking.  Robin's post is the clearest example I have seen of what I call Robin's logical atomism.

Further meta-list selections for the year

Again, this is me reporting what I think are the consensus picks, not my personal opinions:

1. Best jazz album of the year: Charles Mingus Sextet with the Eric Dolphy, Cornell 1964.  Personally I like this CD very much, but I wouldn't recommend it to anyone who doesn't already know most of the essential Mingus.  Dee Dee Bridgewater, who sings jazz over a kora background from Mali, was another popular selection.  I often find jazz singing too facile but the African mix provides an appropriately meaty counterweight.

2. World music: Tinariwen, Aman Iman: Water Is Life.  They're the desert nomads who were described as the world's greatest rock and roll band by Slate.com.  Runner-up would be Segu Blue, by Bassekou Kouyate and Ngoni Ba.  Acoustic string music from Mali is in this year, plus there is Bembeya Jazz National, from Guinea.  Here is a very good NPR list of top world music picks.

3. Haitian CD: Erol Josue, Regleman.  A clear winner in this category.

4. Lee Perry collection: Ape-ology.  The best of the best.  Again.  It's funny, but this category has a winner just about every year.  In the Coasian durable goods monopoly game, price is falling rapidly...

The year in books, economics

Here is David Leonhardt's list.  Here is David Leonhardt's very good column on why fee-for-service is such a fundamental problem behind American health care institutions.

Now he tells us

Jim Cramer says buy index funds.

Markets in everything

Yes, everything, drive your friend (or enemy) crazy with obscure postcards:

You are bidding on a rare chance to traumatize a treasured friend or relative with baffling, mind-numbing, mystery correspondence from abroad.

Here is the arrangement:

I will be spending the Christmas holiday in Poland in a tiny village that has one church with no bell because angry Germans stole it. Aside from vodka, there is not a lot for me to do.

During the course of my holiday I will send three postcards to one person of your choosing.

These postcards will be rant-ravingly insane, yet they will be peppered with unmistakable personal details about the addressee. Details you will provide me.

The postcards will not be coherently signed, leaving your mark confused, guessing wildly, crying out in anguish.

"How do I know this person? And how does he know I had a ferret named Goliath?"

Your beloved friend or relative will try in vain to figure out who it is. Best of all, it can't possibly be you because you'll have the perfect alibi: you're not in Poland. You're home, wherever that is, doing whatever it is you do when not driving your friends loopy with international prankery.

Your target will rack their brains in the shower. At dinner. During long drives. At work. On the golf course.

"Who did I tell about the time I got fired by a note on my chair?" they'll ponder,  "And where the hell is Szczeczinek?"

But wait, there's more.

To add to the sheer confusion and genuine discomfort, one missive will be on an original promotional postcard announcing the 1995 television premiere of Central Park West on CBS.

Another will be a postcard celebrating Atlanta's disastrous hosting of the 1996 summer Olympic games.

Your mark will be at a complete loss, desperate for answers, debating contacting people he or she hasn't talked to in years.

"I know this will sound weird," they'll say, "but by any chance were you in Eastern Europe ranting about cantaloupe... twelve years ago... right before some show with Mariel Hemingway debuted?"

When you decide to end the torment is completely up to you. If you can, I recommend owning up on 1 April 2008 - giving you nearly half a year of joy and a George Clooney-esque level of prankage. If you can't hold it in that long, I totally understand.

Here is the ebay link, so far there are 35 bids, and thanks to George Whitfield for the pointer.

The best sentence I read tonight

This might be the best written tedious fantasy book that I have come across for a while.

That's from an Amazon review of Patrick Rothfuss's The Name of the Wind, which is in fact the best written tedious fantasy book that I have come across for a while.  Recommended.

The scope of mortgage fraud

BasePoint Analytics LLC, a recognized fraud analytics and consulting firm, analyzed over 3 million loans originated between 1997 and 2006 (the majority being 2005-2006 vintage), including 16,000 examples of non-performing loans that had evidence of fraudulent misrepresentation in the original applications.  Their research found that as much as 70% of early payment default loans contained fraud misrepresentations on the application.

That is from a Fitch Ratings report (summary here, with an eventual link to buy it), the rest makes for very gory reading as well.  Thanks to a loyal MR reader for the copy of this report.

Buy self-constraint at StickK.com

The Yale Economic Review informs me:

...stickK.com , scheduled to launch in December 2007, will provide "commitment contracts" that let individuals set a goal, choose consequences for failing to comply, and decide how to verify their progress.  With the options of choosing to lose money every time they fail and designating third-party verifiers to check their success, users will face powerful incentives to meet their goals.

The very smart Dean Karlan and Ian Ayres are behind the idea.  I've long predicted this won't work; one group of potential customers doesn't really want to change, the other group is unwilling to give up control.  It's not exaggerating to say that human nature is on the line here, and that if I am wrong this is probably the most important idea you will ever encounter.

The Rich Pay for the Federal Government

Despite all the deductions, loopholes and clever accountants the federal income tax is strongly progressive.  Moreover the federal tax system remains progressive even if you include the payroll tax, corporate taxes and excise taxes.  The chart below with data from the Congressional Budget Office, shows the effective tax rate by income class from all federal taxes. Effective tax rates are considerably higher on the rich than the poor.

The effective tax rate is higher on the rich and the rich have more money – put these two things together and we can calculate who pays for the federal government. The final column in the table shows the share of the 2.4 trillion in federal tax revenues that is paid for by each income category. The remarkable finding is that the rich and especially the very rich bear by far the largest share of the federal tax liability.  The top 10% of households by income, for example, pay more than half of all federal taxes and the top 1% alone pay over a quarter of all federal taxes.

(Click the table if it is not clear.)

Who Killed Davey Moore?

Matt Yglesias points us to the following:

Federal Reserve Chairman Alan Greenspan said Monday [February 2004] that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

By the way, Greenspan's recent Op-Ed claims he is not to blame, plus he disavows blame in his NPR segment the other morning. 

The other day I wrote of widespread fraud; I was referring to the fact that many lower income borrowers lied on their mortgage applications or failed to provide documentation of income.  Do any of you have figures here?

The New York Times today blames many factors, including lax and fragmented regulators, but most of all the irresponsible practices of mortgage-lending affiliates of nationally chartered banks.  Here are the now well-known warnings of Ed Gramlich.

If you are curious to evaluate my record as a prognosticator, my earlier posts on whether we are in a housing bubble are here [TC: it turns out I didn't buy close to the peak] and here.  Am I to blame?  Here is Alex's insightful post.  Most to the point, here is my post "If I Believed in Austrian Business Cycle Theory."

Some of the Austrians blame Greenspan for lowering short-run interest rates to one percent.  From another direction, here are tales of a real estate bubble on the moon.

I browsed through a New York Fed conference summary the other day; it was about "systematic risk" and it was held about a year ago.  I did not see a word about housing bubbles.  The surprise was not the bubble, but rather than its collapse could be such a source of systemic risk and that it could freeze broader credit markets so much. 

Paul Krugman claimed that the fundamental problem is lack of solvency, but he doesn't make a clear enough distinction between insolvent homeowners (for sure) and insolvent banks (has he bought puts?).  I haven't seen an estimate of the losses that is large enough to imply anything close to widespread bank insolvency.

Matters would be easier to understand if they were either much better or much worse than they are; it is the current state of hovering which is so puzzling.

Here is Bob Dylan on what went wrong.  It's the best account I've heard so far.

Singapore fact of the day

Using the latest data available, the United Nations Department of Economic and Social Affairs puts Singapore’s foreign-born population in 2006 at 42.6 percent.

That's by Kerry Howley of Reason, here is the full article, which argues that Singapore's guest worker program is working.  But such high levels of immigration work through:

Singapore’s willingness to accommodate conservatives through policies of segregation that Americans would probably find odious...[Singapore has] a system that invites immigration while emphasizing legality and distance.  A comfort with hierarchy expresses itself as a comfort with inequality, and countries that can tolerate inequality can allow huge influxes of poor people.

The same could be said for many of the Gulf States; few members of the Dubai ruling class are saying to themselves: "We wanted workers but we got human beings in return."  Loyal MR readers will know that I am generally pro-immigration, but this article is a good place to start for thinking through possible conflicts between immigration and liberalism. 

The best sentence I read today

Trying stuff is cheaper than deciding whether to try it.

That's in the context of the internet, here is the link and full argument.

Here's the runner-up best sentence(s) for today.

Demand curves slope downward, even in the humanities

A series of new policies in the humanities and the social sciences at Harvard University are premised on the idea that professors need the ticking clock, too. For the last two years, the university has announced that for every five graduate students in years eight or higher of a Ph.D. program, the department would lose one admissions slot for a new doctoral student. The results were immediate: In numerous departments that had for years had large clusters of Ph.D. students taking eight or more years to finish, professors reached out to students and doctorates were completed.

No exceptions were made, and Harvard officials believe that their shift shows that there is no reason for a decade-long humanities Ph.D.

Here is more, I would say only that they did not go far enough.  You might think that this causes a lowering of standards, but I'll predict that the people who leave sooner are no less smart (do some of you wish I had written "stupider"?) or accomplished than if they had stayed longer.

Elsewhere from InsideHigherEd.com, here is a study of economists and plagiarism.

A simple theory of liberal arts education

At the margin, that is.

Information in the modern world is virtually free, and well-defined tasks can be outsourced very cheaply, if need be.  Don't specialize in those.

Bias is everywhere, and overcoming bias yields great gains.  Empirically, our biases stem strongly from our nationality, our language, and our cultural background.  (It is, by the way, remarkable how much libertarianism is an Anglo-American phenomenon.)

To overcome those biases we should travel, spend some time living in other countries, and learn other languages.  In other words, the more knowledge is held in the minds of other people, the more competent we wish to be in assessing who is right and who is wrong, and that requires exposure to lots of different points of view.

Judgment, judgment, judgment.  That's the scarce asset which most people underinvest in, and which yields especially high returns.  It can't be outsourced very well either.

Marketing is becoming all-important as well.  That also requires judgment and the ability to see things from other people's points of view.  Again, live abroad and learn other languages.

At the very least, date foreign women (or men).

It is in contrast a common presumption that learning other languages, for English speakers, is becoming obsolete, if only because so many other people speak English.  I would think this raises rather than lowers the return to learning other languages.  Last fall, while visiting at Middlebury economics, I voiced these opinions and encountered little agreement.

Addendum: Here is commentary from Ed Lopez.

Illegal Immigration and local government finance

The CBO has a good review of the literature on the costs of illegal immigration for state and local governments.  Key grafs:

Over the past two decades, most efforts to estimate the fiscal impact of immigration in the United States have concluded that, in aggregate and over the long term, tax revenues of all types generated by immigrants—both legal and unauthorized—exceed the cost of the services they use....However, many estimates also show that the cost of providing public services to unauthorized immigrants at the state and local levels exceeds what that population pays in state and local taxes.

...The amount that state and local governments spend on services for unauthorized immigrants represents a small percentage of the total amount spent by those governments to provide such services to residents in their jurisdictions.

For example,... the Oklahoma Health Care Authority estimated ...that, since fiscal year 2003 (the first fiscal year considered), the services provided to unauthorized immigrants have accounted for less than 1 percent of the total individuals served and cost less than 1 percent of the total dollars spent for Medicaid services.

If you look, you can find some places where the costs are significant, in San Diego for example 9 percent of the law enforcement budg