Moneybox

Uwe Reinhardt is a very thoughtful and well-informed guy, but his post on debating doctors' compensation strikes me as almost too thoughtful and well-informed. Amidst many hundreds of words of discussion of the subject he totally buries the lede:

Standard economic theory suggests that over all, American doctors are overpaid, although perhaps not the primary-care specialties. This position leans on the fact that at existing incomes there is still considerable excess demand for places in medical schools among bright American youngsters – not to mention a huge pool of highly qualified foreign applicants. This suggests that the lamented doctor shortage in the United States is the result of an artificially constrained supply of medical school places and residency slots, which serves to inflate physician incomes above what they would be in a better functioning market without supply constraints.

That's really what you need to know about the subject. At current wages, the supply of qualified doctors could easily be increased. Alternatively, if doctors' wages were reduced there would be no decline in the supply of qualified doctors. That's because the supply of qualified doctors is being doubly restricted, first by regulations that make it exceedingly difficult to import qualified doctors from abroad and second by cartelization that prevents medical schools from training more doctors.

One really good piece of evidence on this that Bryan Caplan has highlighted is the mysterious vanishing male doctor:

It used to be that almost no women were trained as medical doctors. Then society changed for the better and massive barriers to women entering the medical profession were lowered. But rather than leading to an increase in the total supply of doctors, the entry of women into medicine has crowded out male doctors because we "forgot" to increase the number of slots in medical schools. Yet even as we produce fewer doctors than the market would support, many states insist on protecting doctors from competition from qualified nurse practitioners. If we changed scope of practice rules, liberalized immigration rules, and increased the number of medical school spots, we could easily have more medical personnel per capita and lower unit costs.

Given what's been in the news lately, it's no surprise that the IRS isn't very popular. But looking at this chart, I was amazed to see that pre-scandal, the American public took a pretty sunny view of the Internal Revenue Service.

That's very much contrary to the prevailing mythology in popular culture and politics that makes the public out to be a much of big-time haters. And I have to say that I think this shows a great deal of wisdom on the part of the American people. Nobody likes paying taxes and everyone wishes they had more money, but the fact that handing money over to the government isn't fun is hardly a sign of a poorly functioning agency. Based on what we knew in 2009, the IRS really did seem to be doing a good job of a difficult task. Based on what we know now, the IRS turns out to have been handling the tough job of regulating 501(c)(4)s pretty poorly.

You heard it here first from me in April, but I want to reiterate that over the next 18 months you're going to read a lot of stories about problems with Affordable Care Act implementations. Many of those stories are going to be accurate. But fundamentally Affordable Care Act implementation is going to work out great, and people are going to love it.

The latest evidence comes to us today from California, America's largest state and one of the states that's tried the hardest to actually implement Obamacare. As Sarah Kliff explains, their exchanges are getting set up, and it looks like premiums for "silver" and "bronze" plans are both going to be lower than was previously expected. Far from a "train wreck," in other words, the biggest single set of clients for the program is getting something like a nice, smooth high-speed train ride. There was also good news from Oregon recently, where insurers that had initially come in with high premium bids are now asking to resubmit with cheaper offerings in the face of competition. And the Affordable Care Act's goal of slowing the growth in aggregate health expenditures is also coming true.

Now of course not every state is going to have as happy an experience as California and Oregon.

There are huge swathes of the country where public officials have been deliberately refusing to try to make the new law work well, and congressional Republicans are also doing their best to try to stymie implementation. Those efforts will succeed. Residents of California, Oregon, Maryland, Massachusetts, New York, and other eager implementers will see much larger gains from the new law than residents of Texas, Florida, and Alabama. And since a very large share of uninsured Americans live in those red states, this will be a real tragedy for the country. But even in those places, people are going to end up better off than they were pre-Obamacare, and the basic logic of politics is that over time state officials in most places should put some effort into trying to make things work.

You have to remember a few basic facts about ACA implementation coverage over the next 18 months. One is that the media has a large negativity bias. The other is that the aspirations of the law are quite high, and the status quo is quite bad. That means any time the situation improves but doesn't improve as much as the Obama administration wanted things to improve, that will tend to be covered as "bad news for Obamacare." That tendency will be re-enforced because Republicans will be eager to trumpet Obamacare's shortcomings (to make Obama look bad), and advocates for the poor will also be eager to trumpet Obamacare's shortcomings (to build pressure for improvement). So you'll hear lots of completely accurate stories about things not working quite as well as proponents had hoped. Just recall that this is always how things go. Back 10 years ago, Democrats were banking on implementation problems with Medicare Part D to spark a backlash against the Bush administration. The implementation problems were real enough, but at the end of the day, more seniors got cheaper medicine than ever before, and they liked it. Or roll the clock back to the mid-1960s and there was tons of hand-wringing around Medicare implementation.

The key difference is that journalists tend to cover new programs relative to politicians' promises about them, while beneficiaries judge new programs in terms of the impact on their lives. And the bottom line here is that a small number of high-income individuals are going to pay more taxes on their investment income, while a large number of working-class Americans are going to get free or discounted health insurance. There are plenty of writers out there who I read and respect who quite genuinely believe that taxing rich people's investment income in order to bolster the living standards of the bottom third of the population is disastrous long-term public policy, but in concrete terms, this has all the hallmarks of a successful and popular initiative.

Durable goods orders plunged 5.9 percent in March, which raised fears that we might be in for another "spring swoon" after a promising winter. But the April report (PDF) shows a 3.3 percent increase—well above consensus expectations.

This is generally a noisy data series, so people look to nondefense capital goods excluding aircraft parts for a more stable read of underlying economic activity. That index rose 0.9 percent in March and then 1.2 percent in April.* Not wild boom times but, again, no sign of a spring swoon. There are going to be plenty of job losses directly related to sequestration over the next several months, but the private sector is chugging along pretty nicely.

Correction, May 24, 2013: This post originally said orders on nondefense capital goods rose 1.3 percent in April.

Another day, another retailer posts a bad earnings result even as the economy improves. Today's victim is Sears Holdings Corp—i.e. both Sears and K-Mart—which has suffered declining sales for years. This year "sales at stores open at least a year fell 3.6 percent" and even more striking they lost $279 million in the quarter. A year ago Sears turned a $189 million profit.

Each company has its own particular problems, but as I noted even mighty Walmart is feeling the pain. The fact is that operating big stores full of physical objects that customers can buy just isn't the kind of sound business model that it used to be. Retailers are going to have to offer a compelling reason to shop in physical stores. That could be because your goods are perishable (Whole Foods) or because your shop is a kind of advertising platform and service hub (Apple). Or maybe you're a restaurant or a health care clinic. Or maybe there's just something really fun and awesome about your shopping experience that a large swathe of the population is really into. There are lots of options out there, but also lots of companies stuck in a basically dying model.

Peter Eavis' rundown of Tesla paying off its Energy Department loan early and successfully includes the to-be-sure phrase that "Tesla has not fully weaned itself from government support" because electric vehicle purchasers are eligible for some pretty generous tax credits.

This is true, but it's also entirely appropriate for the government to offer subsidies to early adopting EV buyers. As I wrote earlier if you believe in the future success of the Model S it probably makes more sense to buy Tesla stock than to buy a Tesla. That's because there are major network effects here. Gasoline-fueled cars are practical because America is full of gasoline stations and has lots of infrastructure to refine oil and ship it to those stations. If you owned the only gasoline-powered car in North America, the technology would strike everyone else as slightly absurd. The range of the car would be severely limited, and importing the refined petroleum products you need in small volumes from across the ocean would be laughably expensive. It's early-adopting EV buyers who are laying the groundwork for the infrastructure that makes electric vehicles practical technology. If you think that the drastically cleaner air that would result from a large-scale switch away from internal combustion engines is valuable, then subsidies of various kinds are a completely reasonable way of dealing with the network effects issue.

Now it's quite right to say that current policy is not exactly optimal. A $20 per ton carbon tax with the funds used to lower other taxes would be much better nudge than a regressive tax credit initiative. But you rarely get optimal policy, and the course we're taking is a reasonable and practical one.

If you order a nice scotch from a bar, how do you know that the bartender's serving you the real thing and not some garbage dressed up in a nice bottle? Well in theory if you're prepared to pay a premium for your liquor you ought to be able to taste the difference. But New Jersey investigators' "Operation Swill" revealed today that quite a few Jersey establishments are pulling the wool over their customers' eyes. One unnamed bar mixed rubbing alcohol with food dye and sold it as scotch.

Perhaps most striking is that 13 of the 29 cited establishments are outlets of TGI Fridays, so it's fully possible that similar issues exist at other Fridays' in other states.

I'm always glad to see a null finding reported, so I liked this paper (PDF) by Robert Fairlie and Jonathan Robinson about what happened when they gave computers to randomly selected California schoolkids whose families had no computer at home. The short answer is nothing.

The slightly longer answer is that the kids reported an almost 50 percent increase in time spent using a computer, with the time divided between doing homework, playing games, and social network. But there was no improvement in academic achievement or attendance or anything else. There wasn't even an improvement in computer skills. At the same time, there was no negative impact either. The access to extra computer games didn't reduce total time spent on homework or lead to any declines in anything. They broke it down by a few demographic subgroups and didn't find anything there either. It's just a huge nada. Nothing happening.

I think this is an important finding because it helps shed some light on the socioeconomic disparities in educational outcomes. We know that kids from higher-income households do much better in school than poor kids. But that of course raises the question of why that is exactly or what one might do about it. For example, would cash transfers to low-income parents make their kids do better in school? If access to home computers was associated with improved school performance, that would be strong evidence that simply fighting poverty with money could be highly effective education policy. The null finding tends to suggest otherwise, that the ways in which high-income families help their kids in school don't relate to durable goods purchases and may be things like social capital or direct parental involvement in the instructional process that—unlike computers—can't be purchased on the open market.

Media discussions of "college" or "college costs" tend to get very confused because media people overwhelmingly attended (and expect their children to attend) highly selective institutions of higher education. The big gap is between people who went to very selective private schools (Yale! Princeton!) and those who went to very selective public schools (Michigan! UVA!) while the large majority of Americans who go to much less selective institutions tends to get ignored. In particular, we hear very little about community colleges even though these are the schools that tend to serve the marginal student and where higher education as a ladder of opportunity for low-income people will either succeed or fail.

But here's a striking fact. If you've been paying any attention at all over the past decade, you've heard a lot about states cutting back on their funding of higher education. What you hear less about is that high-end public institutions of higher learning—the "public research universities" in the chart above—have responded to these funding cuts by drastically increasing per student spending in failed effort to keep up with the prestigious private universities who've been ramping up spending in an even more dramatic way. Consequently, tuition hikes have compensated for over 100 percent of of the funding cutbacks. The schools that have truly faced sharp resource constraints are the community colleges that you don't hear about. Their aggregate spending is essentially flat, meaning that due to the magic of Baumol's Cost Disease they've had to respond to funding cutbacks by reducing service levels even while raising tuition. What makes it especially egregious is that these institutions started off spending less to begin with. Community college students have the greatest level of need, but they receive the least resources and they're increasingly pressed but tend to get overlooked in media accounts of funding arguments that instead focus on exclusive schools with a much more affluent client base.

At any rate, I'm inspired to mention this by an excellent new report The Century Foundation put out today (PDF) that takes a look at the divergent fortunes between community colleges and selective schools over the decades. I knew about the funding disparities, and it's obvious that community colleges serve poorer students and more minorities but I didn't know that the socioeconomic gap in student bases has grown over the past 25 years.

New Census Bureau numbers are out today and they show that three of the five fastest-growing cities and eight of the fifteen fastest-growing cities in America are located in the state of Texas.

It's notable, though, that New York City also added an awful lot of people. Of course working from NYC's enormous population base it's not a huge percentwagewise increase. But New York is already very dense and is also very heavily regulated in terms of new housing units, so it's relatively difficult to add population. But big picture Texas dominates in terms of population growth. There's something of a chicken-and-egg issue here where many people (especially policymakers in Texas) say the population is growing fast because the economy is relatively strong. There's something to that (and certainly that's the case in the Midland-Odessa are) but I think it's primarily the other way around. Texas' combination of relatively stringent mortgage regulation, relatively lax house-building regulation, and relatively warm weather have made it a place with abundant and growing supply of affordable housing. That in-migration of people makes Texas a good place to invest in building houses and restaurants and hospitals and shopping malls and all the rest.