Intro Econ Homework Question

I'm quite pleased with the question I just made up:

Suppose you are a central planner in a communist country, and it is your job to set the price of rutabagas.  The first person assigned to this job set a price of 10.  This resulted in 40 tons of rutabagas supplied and 70 tons of rutabagas demanded.  The result was shortages, which led to long lines, which led to riots, which led to the planner getting arrested and shot.  That person's replacement set a price of 20.  This resulted in 80 tons of rutabagas supplied and 60 tons of rutabagas demanded, which led to 20 tons of rutabagas being thrown away to rot, which led to the planner getting arrested and shot.

Assuming that the supply and demand are linear, what price should you set for rutabagas so you do not get arrested and shot?

 

Panhandlers

Here's an interesting story: a reporter hands prepaid credit cards to panhandlers and sees what they do with them.  The story is a good snapshot of people at the bottom of society, and a reminder of their humanity.

New York Mosque Controversy

I have been meaning to write about this odious kerfluffle.  Instead, I'll just link to Ron Paul's comments and President Obama's speech

Here's a fun game.  I will quote various bits from the statements.  See if you can tell who said each one:

Defending the controversial use of property should be no more difficult than defending the 1st Amendment principle of defending controversial speech.

The justification to ban the mosque is no more rational than banning a soccer field in the same place because all the suicide bombers loved to play soccer.

It is repeatedly said that 64% of the people, after listening to the political demagogues, don't want the mosque to be built. What would we do if 75% of the people insist that no more Catholic churches be built in New York City? The point being is that majorities can become oppressors of minority rights as well as individual dictators. Statistics of support is irrelevant when it comes to the purpose of government in a free society—protecting liberty.

 I believe that Muslims have the same right to practice their religion as everyone else in this country. And that includes the right to build a place of worship and a community center on private property in Lower Manhattan, in accordance with local laws and ordinances. This is America. And our commitment to religious freedom must be unshakeable. The principle that people of all faiths are welcome in this country and that they will not be treated differently by their government is essential to who we are. The writ of the Founders must endure. 

There is no doubt that a small portion of radical, angry Islamists do want to kill us but the question remains, what exactly motivates this hatred?

 And let us also remember who we're fighting against, and what we're fighting for. Our enemies respect no religious freedom. Al Qaeda's cause is not Islam -- it's a gross distortion of Islam. These are not religious leaders -- they're terrorists who murder innocent men and women and children.

And the reason that we will win this fight is not simply the strength of our arms -- it is the strength of our values. The democracy that we uphold. The freedoms that we cherish. The laws that we apply without regard to race, or religion, or wealth, or status. Our capacity to show not merely tolerance, but respect towards those who are different from us -- and that way of life, that quintessentially American creed, stands in stark contrast to the nihilism of those who attacked us on that September morning, and who continue to plot against us today. 

The House Speaker is now treading on a slippery slope by demanding a Congressional investigation to find out just who is funding the mosque—a bold rejection of property rights, 1st Amendment rights, and the Rule of Law—in order to look tough against Islam.

The only way to tell the difference is to look at tone.  The president is more conciliatory, and the outsider is more accusatory. 

If Ron Paul and Barack Obama are saying the same thing about something, then they are probably right.  It takes something really extreme to unite these two guys.  It boggles my mind that any American could oppose the construction of a religious center on private property with private money.  The people who are making a stink of this have no clue what the values of our country are.  It honestly and deeply frightens me that so many people can be persuaded to agree with them.

Intro Econ Class

I've been busy with the start of the semester, so I haven't had time to write anything to post.  So to keep some content up, here are the class notes from my last class.  I have a rule that if you bring a laptop to my class, you have to send me notes or lose points, and you can get bonus points for good notes.  These are not perfect, but they are still pretty good.

The notes help me because they tell me what I did not communicate well.  For example, I am trying to teach how important it is to distinguish between levels and rates.  Even though the standard of living has grown at an exponential rate over the last century, it is not proper to say that the standard of living in 2010 is exponentially higher than it was in 1910, as many did on their homework.  I'll have to clarify that next class.

 

8/25/10

 

Mr. AW is not a Doctor of Professor. Refer to him as just Mr. AW.

For the extra credit game, just put a number. You do not have to give an explanation unless it is specifically asked for. People are still putting too high numbers. Other people are over-estimating the rationality of their classmates and giving numbers that are too low.

There are no office hours on Wednesday, any more.

Do not expect Mr. AW to e-mail you back on Sunday. He might, but it's not likely. If you send it Saturday you are guaranteed a response.

For peer grading: Mr. AW will send the assignment out in an e-mail. To submit your response, click "reply" to the e-mail. Mr. AW's e-mail will appear in the To: field. You will copy your graders in the CC field. To find your graders, look at the numbered list Mr. AW is going to send out. Find your own name. For the next assignment, your graders are the three people following you in the list. If you are number N, your graders are N+1, N+2, and N+3.

If you want to submit a draft, only send it to Mr. AW. The final must be sent to all four by 8:00 AM Monday.

The grade on an assignment is an average of the 3 grades given by your peers.

When Mr. AW sends out the answer key, you will reply to that e-mail three different times, once for each person you are grading. Make sure you copy the person you are grading for each e-mail. Do not edit the subject line of the e-mail. In the email, write:

Name: Total

Grade Breakdown.

Grades are due Wednesday at 8:00 AM.

You do not earn points for grading, but you do lose points for not grading assignments sent to you.

 

Regarding the first homework assignment:

While technology does increase at an exponential growth, standard of living does not. However, it is not correct to say our standard of living is exponentially higher than it was 100 years ago. Exponential growth is a rate of change, while our standard of living is a level, not a rate. Standard of living is not a matter of desire. Desire is always infinite. Standard of living is based on how well you are able to provide for your wants and needs in a society.

Remember marginal cost versus total cost.

 

1. Do you play fantasy football? Do you think it could be compared to the stock market?

                Mr. AW does not, but he knows how it works. Yes, Fantasy football works much like the stock market. The value of players fluctuates with real-world activity, and people are always trying to make the most points by creating the best team. While the fantasy football "market" does not change as quickly or as much as the real stock market, it reflects the Efficient Market Hypothesis and other stock market theories.

 

2. Monsento (sp?) created a soy bean seed that monopolized the soy bean market. How do monopolies work?

                Mr. AW used the example of an oil company. There is a demand curve based on how much people want a good. As the demand goes up, prices go up.  The curve does not change, normally, just the position on the curve. Normally, the supply curve is the cost of producing something. The price is usually where the demand curve meets the supply curve. If you have a monopoly, you get to pick where on the demand curve you want your price. By increasing your price, you increase your profit, but you end up selling less. Generally, a monopoly likes to sell at just a little higher price than where the demand curve meets the supply curve. They sell a little less, but they make enough money. Monsento only has a monopoly on round-up ready seeds, which increases choices for farmers and could eventually be bad for the company.

 

3. When will the government interfere in monopolies?

                All monopolies are illegal in the United States. It is not allowed to set prices like that in our market system. Foreign companies, such as oil companies, are monopolies or cartels, and there isn't anything we can do about it.

 

4. Why does the US have such strict restrictions on monopolies?

                The other governments may not be powerful enough to control monopolies. Other times, they may be "in cahoots" with the monopolies to make more money.

 

5. Monopolies are illegal. Are there no monopolies in the United States?

                Monopolies are illegal except when you create something new. A patent or copyright is a legal monopoly. For example, Apple has a monopoly on the iPod, because they created it. However, Apple does not have a monopoly on portable music players. Having monopolies on older products is bad for consumers.

 

6. Apple has a monopoly on the iPod. Is that illegal?

                The patent on the iPod gives Apple the monopoly rights on the iPod. Therefore, as a reward for creating the iPod, Apple is the only one allowed to produce it. That does not mean that Apple controls the market by selling the only MP3 player in existence. There are many other portable music players.

 

7. How long do patents last?

                Patents usually last for about 20 years. For drugs, the patent is given when the drug is tested, and testing takes about 10 years, and therefore it is an effective patent of 10 years.

 

8. Does Apple get a new patent for every new iPod they make?

                Apple gets a new patent for every new thing they create, like a new computer chip, new design, new interface. It must be innovative and fairly specific. The idea of a patent is that others cannot copy what you make.

 

9. Could we say, then, that patents hurt conceptual thought?

                That argument does exist. There are a lot of tradeoffs. However, when a patent is published, you release all of the technical details of the product, meaning others could duplicate your product if you had the means. It is just illegal to do so. So in the terms that patens stop others from getting the same information, no. It does not limit growth in that form.

 

10. How do day traders make money?

                A day trader is someone who plays around in the stock market. Most stock market investors just buy and hold. Day traders normally don't make money. They usually lose money. The stock market fluctuates a lot. A day trader tries to use this to buy low and sell high. They try to profit minute-to-minute or hour-to-hour.  They do not know if they are going to make money at all. The stock market takes a "random walk." Whatever patterns it has had in the past are generally irrelevant. It is impossible to predict what will happen merely by watching stock prices.

 

11. Isn't knowing insider information illegal?

                Yes, it is illegal, normally. If you are in the position to change the price of the stock and stand to profit from it, you could run into trouble. If you know something no one else knows, and you cannot affect the price of the stock and you aren't in the company, you normally would not get into trouble.

 

12. If a company gives you stock options in your 401k, how is that not insider trading?

                You are not allowed to chose when exactly to use your stock option, so it cannot be considered insider trading. Say you are given the option to buy a stock at $5. If the stock is worth $3, you don't want to buy. However, if the price goes up to $10, you could buy the stock from the company at $5 and sell it for $10, if you wanted. There are limits on stock options so this program is not exploited. You should announce using stock options weeks in advance.

 

13. Can you talk about the arms trade? Where do countries get their weapons?

                Usually the weapons come from the former Soviet Union. The AK-47 was designed to be cheaply mass-produced. When the Soviet Union dissolved, the factories still existed. The new leaders used these factories to sell weapons to the highest bidder.

 

14. Does the local economy suffer for countries buying weapons?

                Owning a lot of weapons in a chaotic system is just bad in general. The US has good rules for using weapons only for defense, and strict consequences. In other countries, the large amount of money spent on weapons is the least of your worries.

 

15. Is it true that if drugs and the black market are made legal, would that fund drug lords in other countries?

                No. Profits would go to companies specializing in these areas, and they would be taxed. Criminals and drug lords would have to compete with companies operating under the rule of law, and they would not be able to do so.

 

16. Somalia is ruled by different fighting factions. How does that area have an economy?

                An economy is just buying at selling. Somalia has much less of an economy, because they don't trust each other. They would have almost no international trade.

 

17. If making drugs legal would be bad for criminals, why not make Marijuana legal?

                It should be legal, but many people misunderstand its effects. It should be taxed based on the amount of damage it could cause. Drug usage would probably increase a little, but there would be few other negative side effects.

 

18. If you increase the price of drugs, would that not promote buying from criminals?

                Not really, no. People do not like to deal with criminals. If they get a problem with a criminal, they can't really complain. If a rule of law company messed up, they could complain and it would be legal to do so. People like and are encouraged to buy from regular companies.

 

19. Doesn't the government want to protect people from bad drugs?

                The FDA wants to test drugs extensively to make sure its safe. Because there are so many tests, it usually takes 10 years for a drug to reach the market. By keeping a drug off the market for 10 years, you make sure it is safe, but many people lose 10 years of potential drug usage that could help them.

To make sure that drugs are completely beneficial, we could stop producing new drugs and only use drugs that have been tried and tested. Other extremists believe in much shorter testing. That increases the likelihood of bad drugs entering the market and having to be removed and compensated for.

 

20. You identified the housing industry as one of the main causes of the current recession. Will housing help fix the recession?

                The housing market likely will not help fix the recession. We built enough houses for many years to come, and that means the housing market will not pick up for quite a few years. This isn't true for every region, but the national average for the housing market will continue to be down for a while.

 

21. In the BP oil spill, why didn't they have a plan and why didn't they implement the plan more quickly?

                The plan they had failed, because so many things happened at once. Several different safety features failed at the same time, and there were other human error factors that played a part.

 

22. I heard that BP had something like 200 safety problems in a year, where Exxon had only 1.

                That's true, because BP subcontracts to other companies, and does not pay them for safety. When a company is being paid solely on output, they will cut corners when it comes to safety restrictions

 

Reasonable Doubt

I keep meaning to post things, but then I get busy with school work.  So here's something you need to read about our justice system.

How do prosecutors typically respond to the work of the Innocence Project, given that you're essentially challenging the validity and quality of their work?

You can divide prosecutors into two classes: those who believe in DNA wholeheartedly and want to cooperate with us, and those who oppose us. There's still a whole category of prosecutors and detectives who say, "No, I'm sure [the guy I convicted] is guilty. I can't tell you how, I can't give you a logical explanation, but he's guilty."

What's scary is that these people are part of a system that's predicated on logic and reasoning to see that justice is done. Yet they will ignore all logic and reason to protect their egos and their psyches. And it requires a complete disconnect, too, because these guys rely on DNA to convict bad guys all the time. But when the DNA works against them, they say something must have gone wrong.

The End of Men

Long but good article.

I don't have much to add or comment on.  I became aware of this general trend a few years ago, from conversations with the women who worked in the office at the company I worked at.  They did not have college degrees but had decent jobs, and their standards for what constituted a good husband were frightfully low.  I can paraphrase them, with small exaggeration, as "sometimes has a job, does not beat or insult me or the kids, and sometimes helps around the house."

Teaching Effectiveness

This is a very good article about teaching effectiveness:

 

The Times used a statistical approach known as value-added analysis, which rates teachers based on their students' progress on standardized tests from year to year. Each student's performance is compared with his or her own in past years, which largely controls for outside influences often blamed for academic failure: poverty, prior learning and other factors.

No matter what you may think about standardized tests, they are the only measure we have.  In theory, the best way to measure teacher effectiveness would be to look at lifetime earnings and social outcomes of their students, but that would require massive amounts of data to separate the effect of individual teachers, and you would not get results until after the teacher was dead.  Standardized tests do measure knowledge, and a good teacher will result in children who know more.  'Teaching to the test' may be demeaning for a good teacher, but often it is the only way to force a bad teacher to do anything.  The best teachers are those who teach they way they want to, teach a lot of stuff, and still get students who know everything on the standardized test.

Contrary to popular belief, the best teachers were not concentrated in schools in the most affluent neighborhoods, nor were the weakest instructors bunched in poor areas. Rather, these teachers were scattered throughout the district. The quality of instruction typically varied far more within a school than between schools.

I wonder if this will change as measurement improves.  Right now, poor students have about the same teacher lottery ticket as rich students.  But if school systems get better at identifying and rewarding good teachers, that might change.  If measurement only results in moving teachers around, the results could be bad.  But hopefully good measurement will mean that the average quality goes up a lot as bad people are either fired or told how to improve.

Many of the factors commonly assumed to be important to teachers' effectiveness were not. Although teachers are paid more for experience, education and training, none of this had much bearing on whether they improved their students' performance.

Other studies of the district have found that students' race, wealth, English proficiency or previous achievement level played little role in whether their teacher was effective. 

So what did?

 On visits to the classrooms of more than 50 elementary school teachers in Los Angeles, Times reporters found that the most effective instructors differed widely in style and personality. Perhaps not surprisingly, they shared a tendency to be strict, maintain high standards and encourage critical thinking.

 But the surest sign of a teacher's effectiveness was the engagement of his or her students — something that often was obvious from the expressions on their faces. 

Engaging with students is a black art, one that I am still working on.  But anyone can be more strict and maintain high standards.  Encouraging critical thinking is hard, because you have to actually know what it is, which few people do.  But it is something you can put in a curriculum and lesson plan for teachers to follow.

Many teachers and union leaders are skeptical of the value-added approach, saying standardized tests are flawed and do not capture the more intangible benefits of good instruction. Some also fear teachers will be fired based on the arcane calculations of statisticians who have never worked in a classroom.

People in private industry get fired all the time because of 'arcane calculations' like failing to meet sales targets or production quotas.  Public school personnel decisions seem to work mainly on politics and how much the principal likes you.  Is it any wonder that we are failing our students?  The only way to run an effective organization is to measure output well and reward people based on that measurement in a consistent way.

Teachers are afraid of evaluations like this, but if used well they can be a great tool for self-improvement:

Even at Third Street Elementary in Hancock Park, one of the most well-regarded schools in the district, Karen Caruso stands out for her dedication and professional accomplishments.

A teacher since 1984, she was one of the first in the district to be certified by the National Board for Professional Teaching Standards. In her spare time, she attends professional development workshops and teaches future teachers at UCLA.

She leads her school's teacher reading circle. In her purse last spring, she carried a book called "Strategies for Effective Teaching."

Third Street Principal Suzie Oh described Caruso as one of her most effective teachers.

But seven years of student test scores suggest otherwise.

In the Times analysis, Caruso, who teaches third grade, ranked among the bottom 10% of elementary school teachers in boosting students' test scores. On average, her students started the year at a high level — above the 80th percentile — but by the end had sunk 11 percentile points in math and 5 points in English.

Caruso said she was surprised and disappointed by her results, adding that her students did well on periodic assessments and that parents seemed well-satisfied.

"Ms. Caruso was an amazing teacher," said Rita Gasparetti, whose daughter was in Caruso's class a few years ago. "She really worked with Clara, socially and academically."

Still, Caruso said the numbers were important and, like several other teachers interviewed, wondered why she hadn't been shown such data before by anyone in the district.

"For better or worse," she said, "testing and teacher effectiveness are going to be linked.… If my student test scores show I'm an ineffective teacher, I'd like to know what contributes to it. What do I need to do to bring my average up?"

I get the impression that this is a dedicated woman who really wants to help her students but has no clue how to actually do it.  The educational establishment has steered her in the wrong directions and crippled her teaching effectiveness:

During recent classes observed by a reporter, Caruso set clear expectations for her students but seemed reluctant to challenge them. In reviewing new vocabulary, for instance, Caruso asked her third-graders to find the sentence where the word "route" appeared in a story.

"Copy it just like it's written," she instructed the class, most of whom started the year advanced for their grade.

"Some teachers have kids use new words in their own sentences," Caruso explained. "I think that's too difficult."

She dismissed the weekly vocabulary quizzes that other teachers give as "old school."

I expect that she will improve her teaching style based on these test results, and that everyone will be better off.

Yasukuni

It annoys me that journalists almost always describe Japan's Yasukuni shrine as "the resting place for the souls of some of Japan's worst war criminals."  That phrase or something close to it is always thrown around, and it generates an impression that the place is nothing more than a monument to war crimes.  People act like it is some kind of insult to the rest of the world when a Japanese political leader goes to that shrine to pay his respects.

This is wrong.  The Yasukuni shrine is the Japanese equivalent of Arlington cemetery.  It is dedicated to the memory of people who fought and died for their country.  It is one of the most sacred places in the country, and the main monument for military heroes.  It is dedicated to the memory of over two million military personnel, and Shinto religious doctrine states that the actual spirits of those soldiers live in that shrine.

I know for a fact that genocidal war criminals are buried at Arlington.  There are people honored in America's 'most sacred ground' that have done horrible things, things that would be considered war crimes by modern standards.  But we know that Arlington is not honoring war crimes, exploitation, and conquest.  It honors military service and sacrifice.

Imagine how you would feel if foreign journalists always insisted on calling Arlington "the resting place for American war criminals."  Imagine how you would feel if foreign governments or Native American tribes condemned an American president for visiting Arlington, and insisted that he had no right to do so.  You would be rightly appalled at their arrogance and ignorance.  It would be an insult to our country's history and sovereignty.

Now, I know that the Japanese have not done a good job of apologizing for or admitting the wrongness of their past actions.  They do not disown their past militarism in the way that Germany has disowned the Nazis.  But there is no evidence at all that the Japanese will ever again attempt military conquest of any kind.  They are not a threat, there is no reason at all to feel threatened by them.  We should respect their beliefs and sovereignty and allow them to honor their war dead as they see fit.

And we should also remember that we have never apologized for our wartime policy of annihilating Japanese civilian population centers with firebombing and nuclear weapons.

Changing World

The following is really bizarre and startling when you think about it:

In poor countries, internet use is still patchy. The penetration rate in Kenya is just 10%.

I remember when less than 10% of people in the USA had Internet access.  Now The Economist is complaining that only 10% of people in Kenya have it.

Venting Debunked

'Holding in' your anger makes you a better person than doing something to 'release' it:

The people in both groups were told they were going to have to compete against the person who graded their essay.  One group first had to punch a bag, and the other group had to sit and wait for two minutes.

After the punching and waiting, the competition began.

The game was simple, press a button as fast as you can. If you lose, you get blasted with a horrible noise. When you win, blast your opponent. They could set the volume the other person had to endure, a setting between zero and 10 with 10 being 105 decibels.

Can you predict what they discovered?

On average, the punching bag group set the volume as high as 8.5. The timeout group set it to 2.47.

The people who got angry didn't release their anger on the punching bag, it was sustained by it. The group which cooled off lost their desire for vengeance.

In subsequent studies where the subjects chose how much hot sauce the other person had to eat, the punching bag group piled it on. The cooled off group did not.

Your habits have a large effect on your mental states.  If you act angry more often, you will become an angry person.  If you act peaceful more often, you will become a more peaceful person.

Ibuprofen Study Fail

Earlier, I linked approvingly to an article that mentioned a study* on ibuprofen use during running.  The study claimed to show that ibuprofen did not help and may actually hurt.  I accepted the conclusions because it matched with my prior prejudices and I assumed that it would have to be a good study to get published.

But some of the phrasing used in the article bugged me, so after a while I decided to go back and read the study for myself.  I am glad that I did:

Athletes were placed into ibuprofen (n = 33) and control groups (n = 30) based on their historical use during training and competition, and their willingness to use or avoid ibuprofen before and during the race. 

This is a shockingly bad research design.  Anyone with any decent knowledge of statistics, or even a good dose of common sense, will immediately see the problem.  Athletes were allowed to select into the groups.  The ibuprofen group consisted of people who felt that they needed it.  The drug-free group consisted of people who felt confident enough to take the race without any chemical help.  There is a good reason to believe that these two groups of people are not the same.  The drug-free group was probably healthier and/or more tolerant of pain to begin with, and any differences between the two groups will not solely be due to the drug.  In statistics lingo, we have a serious identification problem caused by self-selection.  

In more common speech, this study is like looking at people who choose to take cough medicine versus people who do not, measuring how much they cough, and concluding that cough medicine makes you cough more.  It is entirely possible that ibuprofen is very effective at controlling pain, and that the people who chose to take it would have been in a much worse condition if they had not chosen to take it.

The study authors do provide something of an apology for this:

Permission for a randomized, placebo controlled research design was not granted by the race medical board because of ethical concerns regarding compliance in athletes suffering from pain during the latter stages of the race.

and

Thus further research is warranted using a stronger research design under laboratory conditions to determine what mechanisms best explain the elevated post-race cytokine levels in the ibuprofen users. 

In order to really to a proper experiment, you would have to select people at random and secretly replace their ibuprofen with a placebo that looks and tastes and feels exactly the same.  Clearly this would be unethical, so the next best thing would be to recruit volunteers and randomly assign them to a placebo or various doses of the real thing.  This would not be a true estimate because it would still be a self-selected group (people who are willing to take the chance of getting a placebo) rather than the general population, and it will also be biased by the fact that people know they might be getting a fake.   But it would be the best we could do, and we would be reasonably confident that differences between the different groups are due entirely to the drug dose.

This experiment tells us almost nothing.  It is true that there were no observable differences between the two groups in terms of body measurements or how well they did on the race.  There is no clear 'smoking gun' like a drug-free group that is healthier and ran faster.  But they should have asked the participants to fill out a questionnaire on things like pain tolerance, history of pain during races, and attitudes to medication.  It would be a serious mistake to say that this study shows that ibuprofen does not help people.

But science proceeds one small step at a time.  Hopefully this study will be what it takes to convince someone to do a proper placebo-controlled experiment.  Then we will know what the drug really does for people.

*Ibuprofen use, endotoxemia, inflammation, and plasma cytokines during ultramarathon competition; David C. Nieman et al; Brain, Behavior, and Immunity; Volume 20, Issue 6, November 2006, Pages 578-58

You probably can't read it directly unless you are at a university that pays for access to electronic journals.

Insurance Stupidity

I am a real tightwad with my money.  I make a sport of living as cheaply as possible.  But there a few things where I will spend the money for quality.  One of them is my eyeglasses.  I don't get designer frames, but I always go for the high-tech lightweight titanium frames and the best quality thin lightweight polycarbonate lenses.  It is worth paying the money for something that literally affects every minute of my waking life.

The school health insurance has a $300 per year 'wellness benefit' that will pay for things like glasses and physicals and vaccines.  I had not spent any of it this year, and it resets on the 15th, so I got a pair of glasses today and will be getting a tetanus shot tomorrow.

The insurance will pay 100% of expenses at certain eye doctors, but will only pay 80% at Wal-Mart.  The problem is that good glasses at an eye doctors would cost over $400, while the same glasses will cost less than $300 at Wal-Mart.  So even though I pay 20%, I end up paying less out of pocket by going 'out of network' to Wal-Mart, because of the $300 payment cap.

When I turned in the paperwork, I asked the people in the office why Wal-Mart was not covered at 100%.  The answer was that, in order to be put in the 'network', you had to agree to give a discount to people with the insurance.  Wal-Mart does not have profit margins high enough to do that.

Of course, the eye doctors solve the problem by massively boosting the prices that they would theoretically charge to anyone without insurance, and then only serving people with insurance.  This is common practice among any medical provider that has to deal with insurance companies.  They set outrageous base prices and then claim to give a massive discount, but in reality they are far more expensive than they should be.

This is an example of how brain-dead bureaucratic stupidity is not limited to the government.  Any sane insurance company would compare prices and quality among various providers and then give favored status to those that provided the best value.  This would mean going with Wal-Mart for most people, and to more advanced eye doctors for people with things like blood pressure problems or really severe eye issues who need the better doctors.  The status quo encourages people to go to the expensive eye doctors, so the company has to pay a lot more money, and everyone has to pay higher premiums.

If I had the ability to choose a health insurer, I would go with whichever one gave full reimbursement to Wal-Mart vision center, both because of personal benefit and because it would be a sign of a sane and well-run organization.  But I do not choose; I am stuck with whatever the school chooses, and there is no selection pressure to cause any reform and end the stupidity of demanding discounts.

Spontaneous Order

Here's a good blog post: Spontaneous Order on the Road

At the town center, in a crowded four-way intersection called the Laweiplein, Monderman removed not only the traffic lights but virtually every other traffic control. Instead of a space cluttered with poles, lights, "traffic islands," and restrictive arrows, Monderman installed a radical kind of roundabout (a "squareabout," in his words, because it really seemed more a town square than a traditional roundabout), marked only by a raised circle of grass in the middle, several fountains, and some very discreet indicators of the direction of traffic, which were required by law.

...

A year after the change, the results of this "extreme makeover" were striking: Not only had congestion decreased in the intersection—buses spent less time waiting to get through, for example—but there were half as many accidents, even though total car traffic was up by a third.

And from the New York Times article it linked to:

Mr. Monderman drove him to a small country road with cows in every direction. Their presence was unnecessarily reinforced by a large, standard-issue European traffic sign with a picture of a cow on it.

"He said: 'What do you expect to find here? Wallabies?' " Mr. Hamilton-Baillie recalled. " 'They're treating you like you're a complete idiot, and if people treat you like a complete idiot, you'll act like one.'

Most of economics deals with questions of spontaneous order, and how it compares to central planning.  In most cases, having people think for themselves works much better than having a bureaucrat tell them what to do.  Our society is over-regulated. 

But one important caveat is that there are a few things, such as the legal and criminal justice system, where spontaneous order delivers far worse results than a centralized authority.  Civilization itself is only possible because the spontaneous order of small tribes was replaced with larger, centrally controlled nations.  Given that anarchy is so devastating, it is easy to understand why people err on the side of over-regulating.  Finding the right mix of regulation and spontaneous order requires a lot of experimentation, but we have to be cautious about it because the costs of a failed experiment can be quite high.

This is why it is good for political units to be small.  I would not want an entire nation to experiment with a new way of handling traffic.  That could easily be a disaster.  But when a few small towns in The Netherlands or Great Britian start experimenting, we gain a lot of useful data for a very low cost.  And if their experiemnt failed, the negative consequences would be limited to a small area.

When you have multiple independent jurisdictions with the ability to set their own policy, you can gather a lot of data about what works and what does not.  Then the things that work can be adopted more widely, and everyone slowly works their way to better governance.  This is known as 'the laboratory of federalism'.

Local Knowledge

Here's an example of how local knowledge can be useful:

In Indonesia, Panasonic found that fridges need big compartments to store lots of two-litre water bottles: Indonesians boil water to purify it in the morning and then place it in the fridge to cool.

I never would have imagined that people who are in a position to buy a refrigerator, and have access to a steady power supply, would not have access to clean water.   But it makes sense; you can get a cheap fridge for about $40 and power can be fairly easy to generate, but it takes a well-functioning government to supply clean water or produce the conditions for a reliable private supply.

What this means is that there is a market for a cheap, efficient electric water purifier, something that is more convenient and uses less fuel than boiling water on a stove.  It would probably be something like a coffee maker, you would pour water in the top and it heats it and sends it through a filter to produce a bottle of clean water.

Prediction

This kind of thing is the future of work and productivity:

It's not every day that people can get published in one of the world's leading scientific journals by playing computer games, but Foldit is no ordinary game. The brainchild of Seth Cooper from the University of Washington, Foldit taps into the collective efforts of tens of thousands computer gamers to solve scientific problems.

The goal of the game is to work out the complicated three-dimensional structures of different proteins. Proteins are feats of biological origami; they consist of long chains of amino acids that fold into very specific and complicated shapes. These shapes can reveal how proteins work but solving them is fiendishly challenging. 

Psychologists will get better and better at investigating what makes games fun, and then entrepreneurs will design work environments that feel like fun games.  Combine this with increasing technology, AI, and robotics, and eventually work of any kind will eventually be completely optional, so people will only do it if they enjoy it. 

Evidence Versus Belief

This is a good article about medicine.  Some excerpts:

Nieman, director of the Human Performance Lab at Appalachian State University, eventually did recruit the subjects he needed for the study, comparing pain and inflammation in runners who took ibuprofen during the race with those who didn't, and the results were unequivocal. Ibuprofen failed to reduce muscle pain or soreness, and blood tests revealed that ibuprofen takers actually experienced greater levels of inflammation than those who eschewed the drug. "There is absolutely no reason for runners to be using ibuprofen," Nieman says.

The following year, Nieman returned to the Western States race and presented his findings to runners. Afterward, he asked whether his study results would change their habits. The answer was a resounding no. "They really, really think it's helping," Nieman says. "Even in the face of data showing that it doesn't help, they still use it."

 

Not long ago, Deyo's wife developed a shoulder condition that left her in terrible pain for nearly a year. After exhausting other options, she decided to look into acupuncture, but before she could start, the pain suddenly eased. "She jokes that if she had started the acupuncture two weeks earlier, she would have been convinced that acupuncture cured her," Deyo says.

Whether or not the "do something, anything" approach is effective, aggressive action feels empowering to doctor and patient alike. In fact, studies have shown that patients who get more high-tech spine imaging are more satisfied with their care than those who don't, even though their outcomes are no better, and in some cases worse, than those who didn't get the imaging, Deyo says. "The people in these clinical trials have worse outcomes, but they're more grateful — they think they had the best care."

 

"Victims of overdiagnosis don't say, 'Look what the system did to me.' They say, 'Thank God the doctor saved me,'" says Thomas B. Newman, a physician and narrative medicine expert at the University of California, San Francisco. "Nobody can say I had an unnecessary mastectomy, and nobody would want to; it doesn't make a good story."

Theory of Consciousness

This is a good read.  It is speculation, not science, but the model it presents seems to describe the world well.

Chinese labor

This article about Chinese labor has two good things: a brilliantly subversive picture and the following quote:

"The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all"

--- Joan Robinson, Cambridge economist