Marginal Revolution

Assorted links

1. This is not a Belgium

2. How to focus in clutch moments

3. Is the Riemann hypothesis being solved?  More here, on de Branges (gated, but excerpted in the comments section).

4. The latest books on happiness

On the way to the airport

Here are my tips for how to survive a trip to or from NYC's LaGuardia airport, always a daunting experience.  You will notice the piece is on Mark Bittman's new New York Times food blog, which you should be reading anyway.  Don't forget these words of mine:

Just think how much you are saving: what’s really scarce in life is your time and the mere willingness to get up and go. Just do it.

Elsewhere in the world of food blogging, there is a new blog on the economics of food and wine.

The realignment of the regulatory powers

Two thoughts: First, the very active role of the Fed in the Bear Stearns crisis must, in the long run, give rise to a fundamental revaluation of the role and powers of the SEC, the entity technically responsible for investment banks.  The SEC now appears relatively toothless.

Second, the more commitments made by the Fed, the more we lose the (quasi) independence of our central bank; for a large commitment Treasury sign-off is needed.  The realignment of the regulatory universe will eventually emerge as a big story from the current crisis, though it is hardly commanding much attention right now.

Paul Volcker comments.

Sherry Glied's new health care paper

It is one of the best health care papers in recent times, it is here, I cannot find an ungated version.  Glied reminds us that only about 1/3 of American health care spending comes from private insurance.  Moving to international comparisons, the more general point is that:

...there is no persistent and regular relationship between the structure of system financing and the rate of growth in per capita health expenditures in a health system...the efficiency of operation of the health care system itself appears to depend much more on how providers are paid and how the delivery of care is organized than on the method used to raise the funds.

In other words, as I've stressed before, the health care cost problem comes from immediate suppliers, namely doctors and hospitals, and not from health insurance companies.

The best parts of the paper concern equity.  It is GPs which help the poor, not additional spending on technology or surgery; see p.18 for other comparisons along these lines.  Furthermore, and this you should scream from the rooftops, consider this:

...patterns of health service utilization in developed countries suggest that the marginal dollar of health care spending -- money used to purchase high tech equipment or specialist services -- is less progressively spent than the average dollar.

In other words, egalitarians should not allocate marginal government spending to health care.  And there is evidence that the more a government spends on health care, the less it spends helping people in money ways.  That is, there is crowding out. 

Finally, Glied offers a summary comparison:

Putting $1 of tax funds into the public health insurance system effectively channels between $0.23 and $0.26 toward the lowest income quintile people, and about $0.50 to the bottom two income quintiles. Finally, a review of the literature across the OECD suggests that the progressivity of financing of the health insurance system has limited implications for overall income inequality, particularly over time.

Highly recommended.

The economics of "bailouts"

Paul Krugman writes:

...(according to Reinhart and Rogoff) the resolution of Sweden’s financial crisis imposed a fiscal burden — that is, required a taxpayer-financed bailout — equal to 6 percent of GDP. That would be $850 billion in America today. Just saying.

It's worth noting that such costs consist mostly of transfers rather than real resource costs.  Most of the costs of overinvestment in housing already have been borne in the form of lower living standards, namely we have fewer non-housing goods and services.  Making debt obligations whole again does involve higher taxes but most of the money is sloshed around; the government doesn't dynamite any factories or homes.  It should bother you if you think taxes are already too high but of course that doesn't describe everyone.  Furthermore if the destruction of the debt claim would otherwise have been deflationary, some of that debt can be monetized (thus, taxes don't go up) without raising the risk of inflation.  (TC: the Swedish number seems to be wrong, see the first comment.)

Here are a few other points about bailouts, or non-bailouts, as the case may be:

1. Most plans for Fed assistance aren't bailouts at all.  It is pretty easy for the Fed or Treasury to virtually wipe out shareholders.  The real "bailouts" come when the institutions are allowed to stay open and continue taking risks.

2. The Fed's regulatory powers make crisis deals less than fair.  If you, as a bank, don't accept the Fed's terms, you can be prosecuted or thrown in jail or at least ruined by your friendly regulator.  Being an advocate of the rule of law, I'm not entirely comfortable with this arrangement, but it does mean that the Fed has a much easier time managing crises. Keep in mind also that the failing banks are indeed the most likely ones to have been criminal, so the unfairness is not usually being applied to the innocent.

3. If you think the managers were in charge, and will remain in charge, the real moral hazard problem is the severance pay for the failed managers, not the so-called bailouts.

4. If you're a critic of bailouts, you can't have it both ways.  If the Fed or Treasury is guaranteeing loans, yes that does put taxpayer dollars on the line.  But if you think the system can hold up, as do most bailout critics, those guarantees are unlikely to cost very much.  The Fed or Treasury may even turn a profit.  If you think the system cannot hold up, the bailout is probably necessary even if costly.  So you can't claim: "The bailout isn't needed" and also "The bailout will burden taxpayers." 

Addendum: By the way, do read David Leonhardt on "what really happened."