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    How Much Should Grandma Pay?

    Jan 14 • Demand, Supply, and Markets, Economic Debates, Government, Thinking Economically • 281 Views

    When your Grandma gets her yearly physical, the doctor gets a check from the government. Did you ever wonder, though, who decides how much?

    Because she had to sign up for Medicare at 65, the market did not decide the price and neither did her doctor. Instead, The Wall Street Journal tells us it was RUC.


    The Relative Value Scale Update Committee

    Composed of 29 physicians, RUC  provides a suggested price list to the federal commission that creates the Medicare Physician Fee Schedule. The WSJ says that 90% of the recommendations are followed. 

    Rather than the market, a committee selects the prices that convey information and incentives. Your opinion?

    The Economic Lesson

    Why should we care about Grandma and the doctor? Because Medicare spending now is close to 12% of the federal budget. With 30 million or so baby boomers expected to pour into Medicare during the next 10 years, and 40 more million close behind, spending will skyrocket.

    What to do? Called “The Moment of Truth,” President Obama’s deficit commission report suggests that instead of pursuing “phantom savings,” Congress should implement “common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources.” You can look at the report here.



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    Random Technology Notes

    Jan 13 • Economic History, Innovation, Macroeconomic Measurement • 276 Views

    In 1810, Nicholas Appert, a cook and bottler, inserted some food in a Champagne bottle, sealed it, and placed it in boiling water. Described by James Burke in Circles: Fifty Roundtrips Through History, Technology, Science, Culture, a French newspaper said that this new way to preserve food “brought spring and summer to winter.” (p. 40) It also brought Appert a prize of 12,000 francs from the “Society to Encourage French Inventors” (an approximate translation).

    But that was only the beginning. From champagne bottles, the tin can was only an idea away. Developed in Great Britain by a gentleman who obtained Appert’s patent, the tin can enabled a British ship captain, looking for the Northwest Passage in 1818, to carry a supply of carrots and peas, gravy and roast veal.

    Fast forward to 2011. You will enjoy looking at a more recent innovation, a “robot” that dispenses ketchup (aka the Heinz Automato).


    The Economic Lesson

    In an Econtalk interview, George Mason University’s Robin Hanson explains that our interpretation of the impact of technology on economic growth depends on the time frame. Viewed in smaller increments, like the past century, we see relatively consistent growth rates of maybe 4%. However, when we step back and look at the past 10,000 years, then growth patterns look quite different. Instead of a consistent march forward, we see growth spurts. For example, the onset of farming represented a growth spurt as did the Industrial Revolution.

    Hanson believes that as each new spurt fueled future growth, the standard of living improved much faster than previously. Consequently, a current spurt could have an immediate impact. His name for the growth spurt phenomenon is technological singularity. 


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    Luxury or Necessity?

    Jan 12 • Behavioral Economics, Demand, Supply, and Markets, Households, Macroeconomic Measurement • 267 Views

    Can you live without your TV? Cell phone? Dishwasher? A Pew Research survey discovered that your answer in 2006 might have been different from now.

    Cars were at the top with 88% of all respondents saying they needed one. But still, the number was 3% less than 2006. For microwave ovens, the recession created a massive switch with 21% fewer people saying they had to have one. For cell phones, as you might have guessed, opinion remained constant. For 2006 and 2009, 49% of all survey participants said that the cell phone was a necessity.

    And, whether or not the recession directly affected you, your opinion about luxuries and necessities probably changed.

    The Economic Lesson

    Difficulty with paying rent or the mortgage was experienced by 21% of all respondents, contact with joblessness by 27%, and losing more than 20% in investment accounts by 47%. Seeing that so many people were specifically impacted while even those who had not been hit directly had a new outlook conveys the severity of the recent recession.

    Do you feel that the 2009 stimulus package was an appropriate response?


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    Solar Panel Comments

    Jan 11 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Environment, Government, International Trade and Finance • 264 Views

    Sometimes there’s much more behind a solar panel than you would expect.

    Solar energy was in the news because the U.S. Congress, hoping to support U.S. production, has prohibited the Department of Defense from buying Chinese made solar technology. And yet, Chinese made solar equipment is 20% cheaper than U.S. made solar equipment.  Choosing between deficit concerns and “Buy American,” you can see the answer.

    Like China, Germany is a major producer of solar panel equipment while the U.S. is not. And, like the U.S., Germany subsidizes solar panel purchases. One problem, though, is that Germany is not quite the right place for the panels. As one researcher said, “The lasting legacy is a massive bill, and lots of inefficient solar technology sitting on rooftops throughout a fairly cloudy country.”

    The Economic Lesson

    Incentives seem to be everywhere when looking at solar power. U.S. consumers buy more because the U.S. government gives them money for buying solar technology. Meanwhile, the Chinese government makes the panels cheaper by subsidizing their manufacture.

    A demand/supply graph perfectly illustrates the results. With price the y-axis and quantity the x-axis, supply shifts to the right as subsidies lower cost and encourage producers to make more. Meanwhile, demand shifts to right because buyers also receive subsidies. The result? For Chinese made solar panels, price is lower.


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    Mothers and Human Capital

    Jan 10 • Households, Innovation, Labor, Thinking Economically • 260 Views

    In The Wall Street Journal, a Chinese mother discusses her rules for her children which include: 1) only A’s, 2) no play dates, 3) no parts in school plays, 4) no TV,  5) no sleepovers, 6) play the piano or violin for several hours daily. Continuing with her rationale, she explains that she helps her children feel good about themselves because she makes sure that they excel.

    By contrast, according to this article, “Western” style childrearing emphasizes treating children’s psyches gently. They compliment and encourage. They leave room for individual decision-making and choices.

    Your comments about the different approaches?

    The Economic Lesson

    Defined as the education that makes us more productive, human capital can develop at home, at work, at school. As economists, we know that developing human capital is crucial for economic growth.

    Calling the 20th century “The Human Capital Century” in The Race between Education and Technology, Harvard’s Claudia Goldin and Laurence Katz discuss the spread and impact of universal secondary education. As the United States moved from mandatory primary education in a handful of states to universal, non-gender education through secondary school for everyone, the benefits spread far beyond the schoolhouse. Economists cite the correlation between education and technological progress, between education and health, and the summary result, between education and growth.

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