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Physician Licensing

Arithmetic and Google's IPO

Domestic Policy Issues

Two Things

Cuba's Economy

Is Kerry Listening?

The Case for Free Trade

Money and Happiness

Medicare History

Home Building Trends


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Notable Recent Comments

Bernard Yomtov: ...It is not illegal for non-Ph.D's to teach at the university level. Indeed, many do....More
Brad Hutchings: I hope tax simplification is his #1 goal, as it appears to be Speaker Hastert's.... More
Nicky: This isn't the first time the benefits of education investment have been questioned...More
David: What both you and (surprisingly) Frank completely miss is that the current structure of American cities - sprawl, large single family homes, long commutes - isn't due to consumer preferences...More
Dan Brown: I would be surprised if the split in the labor market was as dramatic as predicted.....More
Rick Stewart: ...I used the term 'state paternalism' to mean the state attempting to take care of people who appear not to be able to take care of themselves....More

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August 03, 2004

Physician Licensing

Physician licensing is one of those issues where economics and ordinary intuition conflict. Most people believe that licensing serves to protect consumers from incompetent doctors. Economists worry that licensing is a form of supply restriction and rent-seeking. EconJournalWatch, a publication recommended by Alex Tabarrok, looks at the economics literature on the topic.

many economists view licensing as a significant barrier to effective, cost efficient health care. State licensing arrangements have limited innovations in physician education and practice patterns of health professionals...
Consumers would benefit from a regulatory environment in which health care provider organizations and hospitals are free to employ health manpower in flexible ways and medical training is offered in a variety of forms.

Arithmetic and Google's IPO

Allan Sloan warns investors away from Google's IPO.

A price of $135 a share would give Google a stock market value in the neighborhood of $36 billion...Google's profit and revenue have been exploding -- from $7 million on $86 million of revenue in 2001, its first profitable year, to $191 million on revenue of $2.26 billion in the 12 months ended June 30. (All year-ended-June-30 numbers are mine, derived from Google filings.) But Google's not a small start-up anymore. Limiting factors are already setting in.

Using a price-to-sales ratio of one, then Google should be valued at $2.26 billion, not $36 billion. At $36 billion, Google's price-revenue ratio will be over 15. When I wrote my essay, Yahoo! had a price-revenue ratio of 150. So the Google IPO would not start out as ridiculously overpriced as Yahoo! was in the latter stages of the dotcom bubble.

For Discussion. In 1999, few people thought that Yahoo! would lose its place as the top search engine. How secure is Google's position today?

Domestic Policy Issues

I argue that on domestic policy, President Bush should focus on Social Security and health care.

Our existing system was designed when reaching the age of 65 meant that your active life was probably over, and you were likely to die within a decade. Going forward, we need a system that can accommodate everything from early retirement to seniors taking on second careers and new challenges in their 80's. Personal accounts are the key to giving people more options as they age.

Two Things

Tim Worstall points to Glenn Whitman's post about the "two things" that can summarize a profession's wisdom. For economics, he nominates:

One: Incentives matter. Two: There’s no such thing as a free lunch.

Furthermore, people should know that international trade is a positive-sum game. And that markets alleviate shortages, while price controls cause them. And...

For Discussion. How many things belong on the list of "two (or more) things" that everyone should know about economics?

August 02, 2004

Cuba's Economy

Michael Munger, who will be guest-blogging here next week, has recently visited Cuba.

Our hosts were professors and were also well paid, earning in some cases more than $20 per month. The idea that someone would pay nearly $30 to make 18 overheads, on his own, amazed them. I later found out that many of the professors also drove taxis on nights and weekends, since they could make a month’s salary in tips in a couple of days.

July 29, 2004

Is Kerry Listening?

Russell Roberts writes,

The truth is that payroll taxes fund government spending generally. We ought to eliminate the ruse that payroll taxes fund social security, eliminate the payroll tax and roll it into the income tax. Then we could give the middle class a better tax cut than they get now.

For Discussion. What are the economic and political ramifications of Roberts' proposal?

July 27, 2004

The Case for Free Trade

Three recent pro-trade articles of interest. First, Peter Gordon refers to some academic surveys in support of the benefits of globalization. Second, the Washington Post argues that the Democrats' platform is too anti-trade. Finally, Joseph Stiglitz argues that international trade negotiations are too focused on issues that are important to rich countries, which leaves issues that would benefit poor countries unaddressed.

But some subsidies, like cotton subsidies in the United States, are rightly emblematic of America's bad faith. Eliminating this subsidy would help 10 million poor cotton farmers in sub-Saharan Africa. American taxpayers would also benefit. The only losers would be the 25,000 rich farmers who currently divvy up $3-4 billion in government handouts each year.

Developing countries also need access for the unskilled labor-intensive services in which they have a comparative advantage. These were off the agenda in earlier trade rounds, as the US pushed for liberalization of financial services - thus serving its own comparative advantage. Today, unskilled services remain largely off the agenda.

For Discussion. What other articles have you seen recently on the trade issue?

Money and Happiness

Robert H. Frank writes,

Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives.

Frank uses an interesting example to illustrate his thinking. He says that most people would rather live in a society where houses are smaller and commutes are shorter than where we end up in a free-market equilibrium. In my case, I happen to spend less time commuting and live in a smaller house than is typical for my income bracket. So I like his example. But I'm still not comfortable with the notion that forcing other people to live like me would make them happier.

For Discussion. Assuming that government intervention is needed in order to move society to an equilibrium in which there is less conspicuous consumption and more inconspicuous consumption, how would happiness be affected by the loss of personal freedom, which is an element of inconspicuous consumption? How would we know whether people were truly happier?

July 26, 2004

Medicare History

John Lanius points out that in April of 1961, then-private-citizen Ronald Reagan warned,

The legislative chips are down. In the next few months Americans will decide whether or not this nation wants socialized medicine . . . first for its older citizens, soon for all its citizens. The pivotal point in the campaign is a bill currently before Congress. The King bill (HR 4222), another Forand-type bill, is a proposal to finance medical care for all persons on Social Security over 65, regardless of financial need, through the social security tax mechanism. Proponents admit the bill is a "foot in the door" for socialized medicine. Its eventual effect--across-the-board, government medicine for everyone!

For Discussion. Was this fear about Medicare justified?

Home Building Trends

One way to track the increased affluence in America is to look at the trends in new home construction. This research report from the National Association of Homebuilders is filled with interesting facts. For example,

Some of the features that average home buyers want today used to be considered optional and were standard only in upscale luxury homes. Today, the difference between average homes and upscale/luxury homes is that upscale homes are larger, with top-of-the-line equipment and materials.

For Discussion. What characteristics of a standard middle-class home built around 1960 would be considered unacceptable in a standard middle-class home today?