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“Thibs is a guru,” Gibson said. “He understands the game plan.
“He had me guarding Ray Allen. That’s how much confidence he has in everybody’s ability to guard on defense. He really drew up and knew what the team was gonna do.
Every time they ran down and ran offense, it was exactly what Thibs showed us on paper.”
I was watching Fox News and they were discussing whether the law needed to be changed so US citizens could be interrogated at length without being told their Miranda rights. The rationale is that the suspect is willing to give information if he knows it will not be used against him in a court. Also, he will be more pliable with no lawyer present. And if the information is very valuable, this is a price worth paying. (At least I think this was the gist of the Five on Fox crowd. I was a bit inebriated after a boozy conference meal at the Princeton Conference on Political Economy.)
The Five on Fox usually rail against rampant Leviathan – an uncontrolled government usurping the rights of honest, gun toting, red meat eating citizenry. That same Leviathan, if given the power to use domestic enemy combatant status, would apply it more and more broadly. A domestic enemy combatant is actually harder to define objectively than an assault weapon. A slippery slope would undoubtedly ensue and regular citizens would face being interrogated as enemy combatants. This is the risk of adopting the view of the illustrious Five.
But what about the benefits of greater Leviathan power, the power to interrogate true enemy combatants? We know Leviathan breaks the law at the risk of being held to account in court. There is no point running this risk in run of the mill cases. But there is a benefit in true enemy combatant cases. No jury will convict Leviathan in the latter case – the court of public opinion will replace the court of law. But egregious violations in run of the mill cases will surely lead to convictions by triggering the feeling “that could have been me” in jury members. So, roughly speaking, the law will be broken if and only if the case merits it.
Hence, there is no need for “domestic enemy combatant” status w.r.t. Miranda rights.
HT: I believe Becker and/or Posner made a similar argument years ago. If someone can tell me the reference I would be grateful.
[T]he Jets have invested an enormous amount of energy and money in Sanchez, and, assuming that no one will trade for him, they are contracted to pay him $8.25 million next year, whether he plays or not….
In a purely rational world, Sanchez’s guaranteed salary would be irrelevant to the decision of whether or not to start him (since the Jets have to pay it either way). But in the real world sunk costs are hard to ignore. Hal Arkes, a psychologist at Ohio State University who has spent much of his career studying the subject, explains, “Abandoning a project that you’ve invested a lot in feels like you’ve wasted everything, and waste is something we’re told to avoid.” This means that we often end up sticking with something when we’d be better off cutting our losses—sitting through a bad movie, say, just because we’ve paid for the ticket. In business and government, the effect pushes people to throw good money after bad.
Jeff and I have a paper, Mnemonomics: The Sunk Cost Fallacy As A Memory Kludge, that offers a primitive theory of this “Concorde effect” as a response to limited memory. Mark Sanchez was hired years ago. At that time there was a rationale for why he would be a great QB for the Jets and hence he was paid a high salary. This rationale for his hiring has been lost in the mists of time but his salary is recalled perfectly. His salary encodes the rationale for his hiring – the higher the salary the better must have been the rationale for his hiring. Even if we have forgotten the details, the rationale must have been good if Sanchez was paid a high salary. Therefore the higher the salary, the greater the chances of retention even when future events creates costs of retention. This is the Concorde effect. As far as Mark Sanchez goes, mnemonomics does not do too bad a job.
But an obvious alternate theory rests on reputation:
“Taking the original decision-maker out of the picture and letting a fresh pair of eyes look at the pros and cons can help,” Arkes says. He points to a…study of a bank that found that loan officers were reluctant to acknowledge that loans they’d made had gone bad, whereas new executives were far more likely to take the loss and move on. Whoever becomes the Jets’ new general manager will have no personal or reputational investment in Sanchez, which should make it easier for him to be more objective, though he’ll still have to persuade the head coach and the owner.
There’s surely a lot of truth to this theory. But there is a countervailing effect too. Managerial turnover generates limited memory – who knows why the previous CEO made the decisions he did? If he was smart, it would be good to accord his decisions some respect and see them through before trying out new ideas. Perhaps the best CEOs understand this. From our paper:
For example, when John Akers stepped down and Lou Gerstner became C.E.O. of IBM in 1993, he was determined to “carry out a set of policies put in place by none other than the much-maligned Akers.” He was not “rushing to make significant changes in vision” but was “still following through on Akers’ two-year-old restructuring.” He believed that “IBM has yet to test fully many if the changes Akers put in place” and said, “I want to make sure the current system is implemented before we try any alternatives.” We interpret Gerstner’s decision-making as follows: Akers’ old plans were initiated using information known to him at the time. By the time Gerstner arrived, the direct information was lost but was manifested indirectly in the strategic plan he inherited. Hence, this generated a bias to implement the old plan.
From Ian Millhiser at ThinkProgress:
As of this writing, every single state except Hawai’i has finalized its vote totals for the 2012 House elections, andDemocrats currently lead Republicans by 1,362,351 votesin the overall popular vote total. Democratic House candidates earned 49.15 percent of the popular vote, while Republicans earned only 48.03 percent — meaning that the American people preferred a unified Democratic Congress over the divided Congress it actually got by more than a full percentage point. Nevertheless, thanks largely to partisan gerrymandering, Republicans have a solid House majority in the incoming 113th Congress.
A deeper dive into the vote totals reveals just how firmly gerrymandering entrenched Republican control of the House. If all House members are ranked in order from the Republican members who won by the widest margin down to the Democratic members who won by the widest margins, the 218th member on this list is Congressman-elect Robert Pittenger (R-NC). Thus, Pittenger was the “turning point” member of the incoming House. If every Republican who performed as well or worse than Pittenger had lost their race, Democrats would hold a one vote majority in the incoming House.
Hence, the Democrats need a +7% swing to regain the House given the current structure of House districts.
From a Politico article about the fiscal cliff:
“For many Republicans, a cliff dive means blaming President Barack Obama for a big tax hike in the short term and then voting to cut taxes for most Americans next month. That’s an easier sell back home in Republican-heavy districts than a pre-cliff deal that raises taxes on folks making over $250,000 or $400,000, extends unemployment benefits and does little if anything to curb entitlement spending. If they back a bad deal now, they run the risk of facing primary challenges in two years.
For Democrats, the cliff is better than setting a rich man’s cutoff in the million-dollar range — or worse yet, extending the Bush tax cuts for all earners — and slashing Medicare and Social Security to appease Republicans. They, too, see an advantage in negotiating with Republicans who will feel freed from their promise not to vote to raise taxes once the rates have already gone up….
Another analogy: It’s a Nash equilibrium. John Nash, subject of “A Beautiful Mind,” the Oscar-winning film that revolved around game theory, explained how players act in a multiplayer game. Put simply, if each player understands his adversaries’ strategies, no one will alter their own course. Right now, Obama, Boehner and Reid are locked in on a course for the cliff, and there’s no obvious solution that would make any of them switch directions.”
In the next story, they will superimpose electoral incentives on the Nash demand game!
According to multiple Fox sources, Ailes has issued a new directive to his staff: He wants the faces associated with the election off the air — for now. For Karl Rove and Dick Morris — a pair of pundits perhaps most closely aligned with Fox’s anti-Obama campaign — Ailes’s orders mean new rules. Ailes’s deputy, Fox News programming chief Bill Shine, has sent out orders mandating that producers must get permission before booking Rove or Morris…Inside Fox News, Morris’s Romney boosterism and reality-denying predictions became a punch line. At a rehearsal on the Saturday before the election, according to a source, anchor Megyn Kelly chuckled when she relayed to colleagues what someone had told her: “I really like Dick Morris. He’s always wrong but he makes me feel good.”
Via Matt Yglesias:
Here is an email I got from the Romney campaign:
You’ve stepped up
Sandeep,This week, supporters from all over the country heeded our call to raise $7 million in 7 days to bring our message into new states. Because of you we have reached our goal in just 5 days and are now on air, sharing our plan to create 12 million new jobs.
Thank you for believing it’s time for real change, and that America can do better than the last four years.
Now, with 3 days left we are asking you to dig a little deeper to support our effort to raise $2 million by tonight.
Here is one from the Obama campaign:
Hey
Sandeep –
This is in your hands now.
Chip in $141, and let’s go win.
Turns out the Hey worked better in randomized trials and so they went with it.
From Schelling’s seminal Essay on Bargaining:
A potent means of commitment, and some-times the only means, is the pledge of one’s reputation. If national representatives can arrange to be charged with appeasement for every small concession, they place concession visibly beyond their own reach. If a union with other plants to deal with can arrange to make any retreat dramatically visible, it places its bargaining reputation in jeopardy and thereby becomes visibly incapable of serious compromise. (The same convenient jeopardy is the basis for the universally exploited defense, “If I did it for you I’d have to do it for everyone else.”) But to commit in this fashion publicity is required. Both the initial offer and the final outcome would have to be known; and if secrecy surrounds either point, or if the outcome is inherently not observable, the device is unavailable.
Grover’s Pledge has been signed by 219 members of the House and 39 Senators.
Tired of talking about nerdy poll aggregators? Time to turn to the Tech team of the Obama campaign. An interesting story by Alexis Madrigal at the Atlantic:
The team had elite and, for tech, senior talent — by which I mean that most of them were in their 30s — from Twitter, Google, Facebook, Craigslist, Quora, and some of Chicago’s own software companies such as Orbitz and Threadless, where Reed had been CTO. But even these people, maybe *especially* these people, knew enough about technology not to trust it. “I think the Republicans fucked up in the hubris department,” Reed told me. “I know we had the best technology team I’ve ever worked with, but we didn’t know if it would work. I was incredibly confident it would work. I was betting a lot on it. We had time. We had resources. We had done what we thought would work, and it still could have broken. Something could have happened.”
I associate the Republican Party with competition. The Party promotes free market ideals – even in education where it promotes charter schools and vouchers so that traditional public schools will have to improve if they want to successfully compete for students.
So why doesn’t the Republican Party embrace these ideals of fully? Republicans won reelection to the House in large part thanks to uncompetitive redistricting.
This makes the GOP weaker in the long run because it protects out of touch politicians from competition and from reality. Gerrymandering means that Republican Representatives can be oblivious to long-term demographic changes that are reshaping the electorate while Democratic Representatives in safe “districts” must disproportionately confront them. The lack of competition makes the Republican Party weaker and less responsive to demographic change. Only watching Fox News probably isn’t helping either.
The ramifications of this uncompetitive behavior likely influenced the outcome of the Presidential race and made it harder for Romney to win. Mitt Romney embraced positions associated with the far right of the Republican Party in order to win the primary nomination. Many of his opponents who forced this shift in Romney’s positions were elected to the House from uncompetitive districts. Bachmann’s district is estimated to be 8% more “Republican” than the nation.
If the Republican Party wants its next generation of leaders to be able to win state and national elections, it should embrace competition and renounce gerrymandering. It should create House Congressional Districts that reflect demographic trends. It should want to elect Representatives who could have a real shot at winning a state or a national election, not just those who can win in a District where the competition (and reality) have been eliminated.
In a striking last-minute shift, the Romney campaign has decided to invest its most precious resource — the candidate’s time — in a serious play to win Pennsylvania.
Mr. Romney’s appearance here on Sunday could be a crafty political move to seriously undercut President Obama, or it could be a sign of desperation. Either way, his visit represents the biggest jolt yet in a state that was until recently largely ignored in the race for the White House.
Over the last several days, with polls showing Mr. Obama’s edge in the state narrowing, Republicans have sprung into action and forced the Democrats to spend resources here that could have gone toward more competitive battleground states.
In a previous post, I discussed why it might be profitable to move ad budgets to non-battleground states if battlegrounds are saturated with coverage. Basically, if you are strong in the battleground states, by spending money in a non-battleground state, you can divert your competitor’s resources there too and, if you are weak, you have to go there out of necessity. Hence, you cannot determine whether Romney has momentum or not from his ad spending strategy. But what about his travel strategy? A candidate’s time is scarce, unlike his billion dollar ad budget, so it must be rationed carefully. So, what can we infer from the fact that Romney is campaigning in PA on Sunday?
The New York Times Electoral Map is useful to think through various scenarios. Romney needs to win NC, FL and VA to have any chance of making it to the White House. Visiting and campaigning in those states is part of his defensive strategy – he has no option but to devote attention to them. As everyone is saying, OH is the key to the door of the White House.
What should Romney do if he knows the President has a significant lead in OH? There is no point campaigning even more in VA, NC or FL because even if he wins them, he cannot win the Presidency without some other states. He has to shift campaigning to some other states to make it to 269 electoral votes so the House can give him the Presidency. Then, it might seem he should shift his time to CO, IA, NH or WI. But to make it to 269, Romney would have to win WI, CO and one of the other two (according to my manipulation of the NYT map). This is a tall order. On the other hand, if he wins PA with one of these other four states, he is through. MN does not have enough electoral votes to counterbalance a loss of OH so the choice comes down to MI versus PA. If Romney is closer in PA than MI, that breaks the tie. So, to summarize, it makes more sense to campaign in PA and try to win one other state than to try to win WI, CO and one other.
What if Romney is ahead in OH? Then, he still needs one of CO, NH, IA or WI to win. Not focussing on those states and defending OH, VA etc. exclusively could cost him the Presidency. In this scenario, Romney does not have the luxury of the time to campaign in PA.
Hence, the Romney campaign’s focus on PA only really makes sense if they know President Obama is well ahead in OH. There is no Romentum.
UPDATE (11/3): From NBC,
On party ID
In these surveys, Democrats enjoy a nine-point party-identification advantage in Ohio and a two-point edge in Florida. Republicans have argued that a nine-point advantage is too large in this current political environment; it was eight points in the Buckeye State during Obama’s decisive 2008 victory.
If you cut that party ID advantage in half, Obama’s six-point lead in Ohio is reduced to three points.
The Romney campaign is expanding ad buys beyond the battleground states. Is there a huge swell of enthusiasm so Romney is trying for a blowout or is it a bluff?
The traditional model of political advertizing is the Blotto game. Each candidate can divide up a budget across n states. Each candidate’s probability of winning at a location is increasing in his expenditure and decreasing in the other’s. These models are hard to solve for explicitly. What makes this election unusual is that the usual binding constraint – money – is slack in the battleground states. Instead, full employment of TV ad time and voter exhaustion with ads makes further expenditure unnecessary. But, you can still spend the money on improving your get-out-the-vote operation or to expand your ad buy to other states. Finally, you can send your candidate to a state. Your strategy varies as function of how close the race is.
If the battleground states are increasingly unlikely to be in your column, then a get out the vote strategy will not be enough to tip them back in your favor. Better to try to make some other state close by advertizing and mobilizing there. You must maintain your ad buy though in the battleground states to keep your competitor engaged so that they cannot divert resources themselves.
If the battleground states are close, then a get out the vote operation is quite useful even if ad spending is at its maximum. Better to do that than spend money in other locations where you are way behind.
If you are far ahead in the battleground states, you have to keep on spending there as your competitor is spending there either because he might win or to keep you spending there. But, cash you have sloshing around should be spent “expanding the map”. This gives you more paths to victory and also exerts a negative externality on your opponent, forcing him to divert resources including perhaps the most valuable resource of all, the candidate’s time.
So, you might spend heavily in a state even when you have little chance there. This always has the benefit of diverting your opponent’s attention. This means there is an incentive for a player to invest even if he is far ahead in the battleground states. But there is also an incentive to invest when you are behind as you need more paths to victory and expenditure on getting out the vote is less useful. So, we can’t infer Romentum from the fact that Romney is advertizing in MN and PA.
I think we can make stronger inferences by making a leap of faith and extrapolating this intuition to a state by state analysis. By comparing strategies with public polls, we can try to classify them into the three categories.
NC seems to fall into the first category for President Obama. Romney is ahead according to the polls but it gives the Obama campaign more ways to win and keeps the Romney resources stretched. Romney is roughly as far behind in MI, MN and PA as Obama is in NC. So, they play the same role for Romney as NC does for Obama. Bill Clinton and Joe Biden are campaigning in PA and MN so the Romney strategy has succeeded in diverting resources.
The most scarce resource is candidate time so we can infer a lot from the candidate recent travel and their travel plans. If the race is close in any states it would be crazy to try a diversion strategy as a candidate visit acts like a get out the vote strategy and hence has great benefits when the race is close. The President is campaigning in WI, FL, NV, VA and CO. In fact, both candidates are frequently in FL and VA. NC is a strong state for Romney because, as far as I can tell, he has no plans to visit there and nor does the President. Similarly, I don’t see any Romney pans to visit MI, MN or PA. Also, NV also seems to be out of Romney’s grasp as he has no plans to travel there. It is hard to make inferences about NH as Romney lives there so it is easy to campaign. OH has so many electoral votes that no candidate can afford not to campaign there – again no inferences can be made. Both candidates are in IA.
So, I think the state by state evidence is against Romentum. NC and NV do not seem to be in play. The rest of the battleground states are going to enjoy many candidate visits so they must be close. That’s about all I have!
Michael McDonald, a political science professor at George Mason University, constantly updates the numbers. In the early voting, NV, IA seem to be leaning Obama, CO is leaning Romney and FL is close. Hard to map OH counties into DEM and REP districts.
The bottom line is that Boston fears scared Republicans won’t vote and Chicago fears confident Democrats won’t vote. And so, in this final stretch, Boston wants Republicans confident and Chicago wants Democrats scared. Keep that in mind as you read the spin.
In an patent race, the firm that is just about to pass the point where it wins the race and gets a patent has an incentive to slack off a bit and coast to victory. The competitor who is almost toast has an incentive to slack off as he has little chance of winning. But if the race is close, all firms work hard.
Elections are similar except the campaigns have the information about whether the campaign is close or not and the voters exert the costly effort of voting. Campaigns have an incentive to lie to maximize turnout so the team that’s ahead pretends not to be far ahead and the team that’s behind pretends the race is very close. As Klein says, no-one can believe their spin and no information can be credibly transmitted.
If they really want to influence the election, the campaigns have to take a costly action to attain credibility. For example, they can release internal polling. This gives their statements credibility at the cost of giving their opponent their internal polling data.
Scott Adams writes on his blog:
[Obama] is putting an American citizen in jail for 10 years to life for operating medical marijuana dispensaries in California where it is legal under state law. And I assume the President – who has a well-documented history of extensive marijuana use in his youth – is clamping down on California dispensaries for political reasons, i.e. to get reelected. What other reason could there be?
One could argue that the President is just doing his job and enforcing existing Federal laws. That’s the opposite of what he said he would do before he was elected, but lying is obviously not a firing offense for politicians.
Personally, I’d prefer death to spending the final decades of my life in prison. So while President Obama didn’t technically kill a citizen, he is certainly ruining this fellow’s life, and his family’s lives, and the lives of countless other minor drug offenders. And he is doing it to advance his career. If that’s not a firing offense, what the hell is?
Lee Crawfurd emails me about events in Sudan. North and South Sudan have agreed to a price at which the North will supply oil to the South. On his blog, Roving Bandit, Lee writes:
So – whilst this seems like a good deal for North Sudan in the short run and a good deal for South Sudan in the long run, my main concern is the hold-up problem. What is stopping North Sudan ripping up the agreement in 3 years, demanding a higher cut, and just confiscating oil (again).
In his email he adds:
As it turns out, the South’s strategy is to resume piping oil through the North, but also to simultaneously build a pipeline through Kenya, giving them an extra option.
The fact that the North can hold up later makes it less likely that the North and South will invest and trade in their relationship now. This makes both the North and South worse off. For this difficulty to be resolved, the North has to be able to commit not to exploit the South in the future. But the Kenyan pipeline gives them this commitment power to some extent: If the North threatens to raise prices, the South can go the Kenya route. This means the North will not raise prices in the future and that is good for trade and the welfare of both parties. Paraphrasing the wrods of the great philosopher Sting, “If Someone Does Not Trust You, Set Them Free“.
One issue is that the South may overinvest in the pipeline to get more bargaining power. That could lead to inefficiency as the North then has bad incentives.
Another classic Williamsonian solution is to use hostages to support exchange. I don’t know enough about North and South Sudan to know what they might transfer that is of little value to the recipient and high value to the donor. This sort of solution has been attempted recently in the US in the debt reduction negotiations. Automatic cuts in defense (bad for Republicans) and entitlement expenditures (bad for Democrats) go into force in January if Republicans and Democrats do not agree in debt negotiations. This has not worked so far. First, this is because there are crazy types who are willing to send the country over the “fiscal cliff”. Second, this is because there is no commitment and the automatic cuts can be delayed by Congress and so they are not real hostages.
My memory is terrible but I vaguely recall papers relating to investment in changing outside options in hold up models. These would be the most relevant to the Sudan scenario.
The Romney campaign has been telegraphing that Mitt has been practicing zingers for the last two months. This brings to mind lessons from macro.
According to the Friedman/Lucas theory of monetary policy, money supply changes are only effective if they are unexpected. If they are expected, then nominal wages adjust to compensate for inflation so there is no change in the real wage and hence unemployment remains at the “natural rate” or the non-accelerating inflation rate of unemployment (NAIRU). But an unexpected increase in the money supply leads to surprise inflation, a decrease in the real wage and less unemployment. An unexpected decrease in the money supply leads to surprise deflation, an increase in the real wage and more unemployment. This is the expectations augmented Philips’ curve if I remember my macro correctly. And so it goes with zingers.
If Mitt’s zingers are unexpected, the audience responds with a better opinion of Mitt. If Mitt meets expectations, then there is no gain on net because there is no surprise. If he delivers fewer zingers than expected, then the audience is disappointed. (I believe Jeff, Emir Kamenica and Alex Frankel are working on a model of this sort of thing. Hopefully, the model can easily be extended to offer a theory of zingers.)
So, the campaign has deliberately set a high “natural rate” of zingers (NRZ) for Mitt. Then, Mitt definitely has to deliver zingers to meet the NRZ to avoid deflation and really he should deliver a huge amount so he exceeds NRZ. The Romney campaign should have downplayed zingers and Mitt’s NRZ, so their man is under less pressure. In fact, that is what the Obama team has been doing for their candidate.
There is the possibility that the Romney team was bluffing to scare the Obama team or to focus their attention on zinger defense rather than answers to real issues of jobs, foreign policy etc. But such a strategy is not costless because zingers are graded on an expectations augmented zinger curve.
For the casual fan such as myself, the final second of the Packers-Seahawks game had the thrill of the Roman circus – an arbitrary, conflicted decision was handed down by emperor referees. For the real fans and the teams, it must be torture. But is it painful for the owners? After all, they will influence the decision in the labor dispute with referees. Steve Young thinks not:
The NFL is “inelastic for demand,” Young said, meaning that nothing — including poor officiating — can deter a significant percentage of fans and corporate sponsors away from the most popular game in the country. It’s the primary reason the NFL has held steady in its labor impasse with regular officials: There is no sign that enough of the sporting public cares to make it a priority.
“There is nothing they can do to hurt the demand of the game,” Young said in the video. “So the bottom line is they don’t care. Player safety doesn’t matter in this case. Bring Division III officials? Doesn’t matter. Because in the end you’re still going to watch the game.”
But the NFL/referee dispute is partly about “pay for performance” – the NFL wants to bench referees who botch calls (the money issues are trifling as a fraction of NFL revenue). This suggests the NFL does actually care about good officiating. This makes them weak in the face of the current officiating. They should cave sooner rather than later.
What Brown can’t do for you – if you are a Democrat – is give you control of the Senate. From the last Public Policy Polling analysis of MA:
Things have been going Elizabeth Warren’s way in the Massachusetts Senate race over the last month. She’s gained 7 points and now leads Scott Brown 48-46
after trailing him by a 49-44 margin on our last poll. Warren’s gaining because Democratic voters are coming back into the fold. Last month
she led only 73-20 with Democrats. Now she’s up 81-13. That explains basically the entire difference between the two polls. There are plenty of Democrats who like Scott Brown- 29% approve of him- but fewer are now willing to vote for him. That’s probably because of another finding on our poll- 53% of voters want Democrats to have control of the Senate compared to only 36% who want Republicans in charge. More and more Democrats who may like Brown are shifting to Warren because they don’t like the prospect of a GOP controlled Senate.
Mitt Romney and Paul Ryan have proposed a plan to allow private firms to compete with Medicare to provide healthcare to retirees. Beginning in 2023, all retirees would get a payment from the federal government to choose either Medicare or a private plan. The contribution would be set at the second lowest bid made by any approved plan.
Competition has brought us cheap high definition TVs, personal computers and other electronic goods but it won’t give us cheap healthcare. The healthcare market is complex because some individuals are more likely to require healthcare than others. The first point is that as firms target their plans to the healthy, competition is more likely to increase costs than lower them. David Cutler and Peter Orzag have made this argument. But there is a second point: the same factors that lead to higher healthcare costs also work against competition between Medicare and private plans. Unlike producers of HDTVs, private plans will not cut prices to attract more consumers so competition will not reduce the price of Medicare. A simple example exposes the logic of these two arguments.
Suppose there are two couples, Harry and Louise and Larry and Harriet. Harry and Louise have a healthy lifestyle and won’t need much healthcare but Larry and Harriet are unhealthy and are likely to require costly treatments in the future. Let’s say the Medicare price is $25,000/head as this gives Medicare “zero profits”. Harry and Louise incur much lower costs than this and Larry and Harriet much higher. Therefore, at the federal contribution, private plans make a profit if they insure Harry and Louise and a loss if they insure Larry and Harriet. So, private providers will insure the former and reject the latter. Or their plans deliberately exclude medical treatments that Larry and Harriet might need to discourage them from joining. The overall effect will be to increase healthcare costs. This is because Harry and Louise get premium support of $50,00 total that is greater than the healthcare costs they incur now so they impose higher costs on the federal government than they do currently. Larry and Harriet will be excluded by the private plans and will get coverage from Medicare. This will cost more than $50,000 total so there will be no cost savings from them either. Total costs will be higher than $100,00 as surplus is being handed over to Harry and Louise and their insurance companies.
To deal with this cream-skimming, we might regulate the marketplace. It might seem to make sense to require open enrollment to all private plans and stipulate that all plans at a minimum have the same benefits as the traditional Medicare plan. Indeed, the Romney/Ryan plan includes these two regulations. But this just creates a new problem.
Suppose the Medicare plan and all the private plans are being sold at the same price. The private plans target marketing at healthy individuals like Harry and Louise and include benefits such as “free” gym membership that are more likely to appeal to them. Hence, they still cream-skim to some extent and achieve a better selection of participants than the traditional public option. (This is actually the kind of thing that happens in the current Medicare Advantage system. Sarah Kliff has an article about it and Mark Duggan et al have an academic working paper studying Medicare Advantage in some detail.) So total healthcare costs will again be higher than in the traditional Medicare system.
But there is an additional effect. Traditional competitive analysis would predict that one private plan or another will undercut the other plans to get more sales and make more profits. This is the process that gives us cheap HDTVs. The hope is that similar price competition should reduce the costs of healthcare. Unfortunately, competition will not work in this way in the healthcare market because of adverse selection.
Going back to our story, if one plan is cheaper than the others priced at say $20,000, it will attract huge interest, both from healthy Harry and Louise but also from unhealthy Larry and Harriet. After all, by law, it must offer the same minimum basket of benefits as all the other plans. So everyone will want to choose the cheaper plan because they get same minimum benefits anyway. Also by law, the plan must accept everyone who applies including Larry and Harriet. So, while the cheapest plan will get lots of demand, it will attract unhealthy individuals whom the insurer would prefer to exclude – this is adverse selection. Insurers get a better shot at excluding Larry and Harriet if they keep their price high and dump them on Medicare. This means profits of private plans might actually be higher if the price is kept high and equal to the other plans and the business strategy focused on ensuring good selection rather than low prices. An HDTV producer doesn’t face any strange incentives like this– for them a sale is a sale and there is no threat of future costs from bad selection.
So, adverse selection prevents the kind of competition that lowers prices. The invisible hand of the market cannot reduce costs of provision by replacing the visible hand of the government.
“In Egypt and Libya and Yemen, again demonstrations — the respect for America has gone down, there’s not a sense of American resolve and we can’t even protect sovereign American property.”
The implicit logic is that the protests are caused by weakness on the part of America. The protestors are taking advantage of us because they think we will not strike back. If we are strong, the protestors would be deterred by the threat of American reprisals. So, as President Romney would be strong, foreign policy would be easier as there would be no events like this.
But there is an equally (more?) compelling reverse logic. The protestors are weak. They are extremists who have little support in the population. But if America is aggressive even the moderates in the population will favor fighting fire with fire. Of course the extremists attacking the embassies would be happy if we withdrew. But their strategy would also succeed if we respond with aggression. So, the right move is not to over-react. Use proxies to fight this battle. Perhaps the moderates in the local populations themselves would be willing to work with us as they have a lot to lose if tensions escalate and conditions worsen.
The situation calls for smart lateral thinking not a one-size-fits-all bellicosity.
Netanyahu is aggressively trying to persuade President Obama to draw a “red line” on Iran – if Iran crosses the line, presumably drawn on the level of uranium enrichment, they would face a US attack. Such an attack would set back the Iranian nuclear program but it would likely unify the Iranian population behind the regime and make them redouble their efforts to go nuclear. So, we should also evaluate what might happen if Iran does go nuclear before we commit to a strategy of a preemptive strike. It turns out that Jim Fearon thought this through a while ago and did a little empirical work to flesh out the historical record. He finds:
China, France, India, Israel, Pakistan, and the UK all saw declines in their total militarized dispute involvement in the years after they got nuclear weapons. A number of these are big declines. USSR/Russia and South Africa have higher rates in their nuclear versus non-nuclear periods, though it should be kept in mind that for the USSR we only have four years in the sample with no nukes, just as the Cold War is starting.
The whole article is an interesting read.
Romney and Ryan’s weekend performances on TV generated much right wing angst. They looked shady trying to dodge questions asking them to spell out which tax loopholes they would close. There are similar issues with their healthcare plan: they would “repeal and replace” Obamacare, but replace it with what exactly?
There is an obvious advantage to policy ambiguity: if you are clear, the other side knows what to attack but if you are opaque, it is harder. The disadvantage is that you opponent can then make something up as being our policy and hang you with that. Your counter-argument is to claim that your policy is not what your opponent says it is etc etc.
The balance is weighed towards disadvantage when there is an obvious policy to use to fill in the blanks. This is the issue Romney faced as soon as he picked Ryan. Ryan has lots of plans for the budget, Medicare, privatizing Social Security etc. These are obvious and credible policy options for a Romney-Ryan White House. The fact that the VP candidate has embraced these policies undercuts your counter-argument to your opponent’s argument. Policy ambiguity loses its strategic advantage. If Romney had picked Pawlenty, it might have worked. But with Ryan on board, Romney has to spell out his policies in greater detail and Ryan has to own them. He has done this already with abortion and he has to start doing the same with his economic policies.
The difficulty is that Romney has not embraced ambiguity enough to make it easy to embrace clarity. He has promised various tax cuts (e.g. estate tax), and these tie him down. Can he identify loopholes to raise revenue that covers the tax cuts he has promised without raising taxes on the middle class? If he can’t, he’s stuck using an outsider’s strategy but with an insider as his partner.
Mitt said that Israeli and Palestinian and Mexican and US economic outcomes differ because of cultural differences. This immediately brought to mind the recent book by Daron and Jim, “Why Nations Fail” because they begin by comparing Nogales Arizona and Nogales Mexico. These have quite similar geography, quite similar culture and yet very different GDPs. Daron and Jim argue this is because of vastly different political and economic institutions. Now Daron and Jim have addressed the issue themselves on their blog. They offer a couple of more examples:
But as we show in Why Nations Fail, cultural differences cannot explain differing levels of prosperity. Deng Xaioping didn´t change Chinese culture after 1978 to make the economy grow, but he did change economic institutions a lot. Indeed, many cultural differences we see are the outcomes of different institutional choices. This is surely the case between North and South Korea, for example. After all, does Mitt and David think that there were huge cultural differences between the north and the south of the 38th parallel before the separation of Korea into two?
I guess we need a convincing example of a situation where two countries have the same geography, the same institutions, but different cultures and vastly different economic outcomes.
Crown should get a copy of Acemoglu and Robinson’s “Why Nations Fail” over to the Romney campaign a.s.a.p. Speaking about the difference in income between Israelis and Palestinians, Romney suggested:
that cultural differences between the Israelis and the Palestinians were the reason the Israelis were so much more economically successful than the Palestinians. He also vastly understated the income disparities between the two groups.
Hin inspiration for the theory? Two books:
In his speech, Mr. Romney mentioned two books that had influenced his thinking about nations — “Guns, Germs and Steel,” by Jared Diamond, and “The Wealth and Poverty of Nations,” by David S. Landes. Mr. Diamond’s book, Mr. Romney said, argues that the physical characteristics of the land account for the success of the people living there, while Mr. Landes’s book, he continued, argues that culture is the defining factor.
“Culture makes all the difference,” Mr. Romney said. “And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things.”
After this caused some backlash:
[H]is campaign said that the Associated Press had “grossly mischaracterized” the remarks by not providing the full context. For instance, the campaign said, after mentioning the per capita G.D.P. of Israel and Palestine, Mr. Romney also said: “And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.”
The Acemoglu and Robinson book begins with Nogales AZ (USA) vs Nogales Mexico and puts institutions at the center of an explanation of income disparities not culture or geography.
Things are not going smoothly for Romney’s London trip. First, he criticizes secuirty and attendance at the London Olympics only to draw a rebuke from Prime Mister David Cameron. The Telegraph reports:
Mitt Romney is perhaps the only politician who could start a trip that was supposed to be a charm offensive by being utterly devoid of charm and mildly offensive.
And now it seems tickets are not selling for his fundraiser so he has been forced to cut prices. According to the Guardian:
The Mitt Romney Summer 2012 World Tour to Three Countries is apparently having trouble moving tickets.
The London blogger Guido Fawkes reports that organizers of a Romney fundraising reception in the city this evening have slashed the original $2,500 ticket price to $1,000 for “a few last minute guests,” in an effort to drum up participation.
Your manager is a pain in the neck. He takes credit for your ideas, orders you around, second guesses himself and is horribly indecisive. His subordinates can’t stand him. But you are all too scared to complain to the Big Boss – who knows what the repercussions will be? But the Big Boss does get some sense that things are not going well. Some projects don’t work out because they are badly conceived and poorly executed. At one point, she just takes away some of the responsibilities of your manager. At the same time she heaps him with effusive praise. Why?
She and he know that her praise is insincere and that the manager has been demoted. What effect could her insincere praise have?
Even though you know the Big Boss’s statements are empty, does everyone else? You don’t know. Maybe some of them think she means every word she said. They will treat your former manager with respect. You could enlighten them. But that would ruin the workplace atmosphere and make you seem churlish. So you keep your mouth shut. So does everyone else. So you all act as if the Big Bos’s words were true. As you all live the big lie, so can your former manager. He does his work diligently and the Big Boss is happy.
CNN got the call wrong on the Supreme Court and the individual mandate. They then tweeted it, put it up on their website, put in as a banner onscreen etc etc. Then news began filtering in that the mandate had been upheld as a tax. What should they do now? There is an interesting blow by blow account of what happened by Tom Goldstein on SCOTUSblog. He adds:
Ironically, CNN reacted too slowly in part to avoid a second error. The network did not want to be in the position of reporting that the mandate had been struck down, then reporting that it was upheld, then reverting to its initial report. (That had happened to the media in the 2000 presidential election, and it had been a debacle.) CNN gravitated to an intermediate position of uncertainty on the air, which of course was not decisive enough to correct viewers’ initial impressions.
CNN had also converted itself into an integrated circuit in which its electronic media teams were tied directly into the broadcast operation. But not anticipating the possibility of an error or confusion, its first web, electronic, and Twitter reports did not hedge. And the network did not have a clear plan to reverse the circuit on the electronic-media side and tell readers that its initial reports may have been wrong.
Once CNN made one mistake, it was hard to admit it because they were operating in an open environment with other players judging their actions. If CNN were operating in isolation – like an individual deciding whether to invest in a healthcare company – they would have reacted rapidly to correct their action given their latest information. But in an environment where others are watching them, they have to make future decisions which are consistent with their earlier error.
