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    Oscar Markets

    Jan 29 • Behavioral Economics, Demand, Supply, and Markets, Financial Markets • 341 Views

    Can a crowd be smarter than an individual? In The Wisdom of Crowds, business columnist James Surowiecki, says “Sometimes, yes.” Starting with a crowd betting on the weight of an ox and ending with the crowd and democracy, Surowiecki looks at “collective intelligence.”

    At intrade or Hollywood Stock Exchange (HSX), you can decide whether the collective intelligence of the crowd is correct about probable Oscar winners. Participating in a prediction market, someone purchases a “security” that reflects an opinion about a future event. Reflecting the group’s opinion, more purchases push price upward. Currently, in the intrade and HSX futures markets, The Social Network, with the highest price among the nominees, is the front runner.

    At the Iowa Electronic Markets run by the University of Iowa Business School faculty, you can even vote on future fed funds rates.

    The Economic Lesson

    Surowiecki divides “collective intelligence” into 3 categories: cooperation problems, coordination problems, and cognition problems.

    Cooperation problems focus on how people work together. The issues they look at include legislative compromise (or gridlock) and getting a large group together for a dinner.

    Coordination problems display how many independent individuals impersonally coordinate their behavior. Examples would take us to rush hour traffic and stock markets.

    Cognition problems involve information that makes one answer more accurate than another. Predicting future monetary policy, the future weight of an ox, and who will win the Oscars are cognition problems.

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  • More on the States

    Jan 29 • Government, Households • 356 Views

    You an look that This interactive US map to see what is happening to states’ tax revenue. 4 categories of state funds: general revenue (largest category), federal funding, bonds, restricted state funds (e.g. gas tax for road maintenance) Nelson A. Rockefeller Institute of Government state tax revenue health care a major drain Medicaid, providing insurance, but Mass. in doing all of this has much more expense than predicted.

    Put together with new Moody’s assessment of states’ credit 

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    Hot Spotting Medical Care

    Jan 28 • Demand, Supply, and Markets, Economic Debates, Government, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 331 Views

    These are the statistics: 900 people; 4,000 hospital visits; $200 million in medical bills from January 2002 through June 2008. The place is Camden, N.J. where a relatively small number of people were responsible for a huge proportion of the city’s medical expenses. 

    The problem then, is to figure out how to control their needs. Surgeon and New Yorker Magazine staff writer Atul Gawande gives us some answers in “The Hot Spotters.”

    Inspiring, discouraging, and fascinating, the article focuses on 3 case studies. In Camden, the solution was one physician who statistically identified medical “hot spots.” Next, using a patient-by-patient focus with a team of doctors, nurses, and social workers, specific problems were targeted with coordinated care. Health improved, hospital visits diminished, costs dropped. It worked.

    The other 2 stories illustrated different approaches in different places but they, too, had success. The common denominator was statistical and human understanding of the high cost patient with many ailments.

    In a follow-up blog comment, Dr. Gawande characterized several responses to the national implications of his article as “defeatist, catastrophist, or triumphalist.” You might enjoy reading the exchange. 

    The Economic Lesson

    Sometimes, the law of demand can backfire. Occasionally, we do not want people to decrease quantity demanded when price goes up.

    In “Hot Spotting,” Dr. Gawande tells us about a firm that tried unsuccessfully to cut medical costs by increasing the co-pay for each medical exam. More “skin-in-the-game” was supposed to eliminate unnecessary doctor visits. Some recipients, though, eliminated necessary doctor visits and necessary prescriptions. As a result, they wound up with expensive emergency room care and chronic illness. 

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    Waste and Cost

    Jan 27 • Economic Debates, Environment, Regulation, Thinking Economically • 333 Views

    Who could possibly have disagreed with President Obama when, in his State of the Union address, he said we have to eliminate wasteful regulations? 

    Some very important people.

    Emory University economics professor, Paul Rubin, explained in a WSJ article that the key opponents are the agencies that currently oversee the rules.

    Which rules? The President referred to duplications with salmon oversight. The NY Times cited rules about highways signs and sweeteners and dry cleaning machines. For example, highway signs can have no more than one upper case letter in a word. It took 7 years for the E.P.A. to coordinate with the FDA on whether saccharin was a toxic substance.

    You can see where this is going. At each agency, once you take away a responsibility, they have less to do. Less to do means diminished power, a lower budget, fewer employees. Will regulators support their own demise?

    The Economic Lesson

    Again, it is all about opportunity cost, cost and benefit. For tax payers, the benefit will probably exceed the cost when deciding whether to eliminate redundant or seemingly minor regulations. For regulatory commission employees, the opposite is true according to Professor Rubin, who cited his Reagan administration experience at the Federal Trade Commission and the Consumer Product Safety Commission.

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    Who Should Do Drug Research?

    Jan 26 • Economic Debates, Government, Macroeconomic Measurement • 286 Views

    Yes or No? Government should pay for high school education? A court system? Roads? Lighthouses? Drug research?

    In his blog, Mike Mandel disagrees with spending plans for the National Institutes of Health. As described by the NY Times, a National Center for Advancing Translational Sciences will be established because the private sector has not been creating enough new drugs. The Center’s mission will be to do the basic research that a private firm could then take over and commercialize. Mandel says that government instead should create incentives that encourage private sector innovation. One suggestion is to make the drug approval process less expensive. 

    The Economic Lesson

    What are your criteria for government’s economic role? You could create a “continuum.” At one end would be the belief that government should only fund “public goods” that, as defined in a Planet Money podcast, are things, “…that we all need that will make our lives better, but the market will not and cannot provide.” At the other end, you could say that government has vast spending responsibilities for all things that improve our lives. Where is your “dot” on this scale?

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