Killer health care policy, thanks to David Cutler

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Ankur Gupta and others write,

These findings support the possibility that the Hospital Readmissions Reduction Program has had the unintended consequence of increased mortality in patients hospitalized with heart failure.

I found the article after seeing a reference in a WSJ editorial.

One of the conceits of David Cutler and health care economists who share his outlook is that technocrats can improve health care quality and lower cost by setting national standards and creating incentives for health care providers to meet those standards. But when you manage remotely, you do not necessarily manage well.

You think that high readmission rates are an indicator of inefficiency, so you tell hospitals to lower their readmission rates. They do so, and you get the “unintended consequence of increased mortality.” In your technocratic wisdom, you kill people.

Many years ago, when I heard Cutler speak on pay for performance (P4P) in health care, I was appalled.

During the Q&A at the event, I compared government trying to implement P4P in health care to trying to implement government P4P for middle management. After all, middle management in America’s big corporations and other organizations is also “hit or miss.” Yet nobody thinks that a big project to have government pay bonuses to good middle managers at Intel or General Motors would solve the problem. Even government itself does not attempt to determine the pay of individual managers in such a centralized fashion. We don’t think that people in Washington know more about your performance than the people who work most closely with you. My guess is that, using a program designed and implemented in Washington, we have about the same ability to affect the correlation between compensation and quality in medicine as we would in middle management.

The Paradox of Profits, parts 2 and 3

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Part 2 talks about the necessity of the profit system.

In a modern, large-scale economy, coordination takes place through a combination of bosses and profits. Bosses order people to undertake particular tasks. Profits and losses provide incentives to engage in certain economic activities and to curtail others.

Part 3 talks about the risks of trying to “fix” outcomes of the profit system.

1. The profit system is partially self-correcting.
2. Attempts to impose corrections are not as successful as one might hope.
3. Rather than attempt to identify and correct market failures, it would be better to advocate policies that enhance the self-correcting mechanisms of the profit system. In particular, government interventions should be focused on enabling competition to overcome entrenched economic power.

The essays are now attracting readers. But my guess is that I am almost entirely preaching to the converted.

Handle’s theory of consolidation

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Referring to Hayek’s claim that local knowledge favors decentralized decision processes, Handle comments,

IT and increasingly capable and sophisticated management information systems, which themselves benefit from massive economies of scale, and the management techniques they enable, has invalidated this argument. If anything, big companies now seem to have a clear advatange with regards to acquiring and leveraging ‘local knowledge’, and combined with the other advantages of brand recognition, size and sophistication and capacity for, e.g., rent-seeking and bearing the burden of compliance overhead, that leaves “the little, genuinely-independent guy” with zero chance in the long run

1. I wonder if this applies to government. If the U.S. federal government took advantage of Big Data, could we be as well-run as Singapore or Norway? I tend to doubt it. Perhaps someone wants to argue that we could be that well-run if we had an epistocracy.

2. Once again, I am reminded of a Diamond Age world. Technology can allow giant enterprises to meet everyone’s needs cheaply. By the same token, luxury consists of goods and services provided by small artisan craftspeople.

3. This is another instance in which the Internet vision of the 1990s, the days of the “hippie Internet,” is turning out to be wrong.

4. Will there be sufficient dynamism in this big-firm economy? Where will competition come from? From small firms that can suddenly get big and unseat big incumbents? From big incumbents trying to encroach on one another’s turf?

Disaggregating the economy: clusters ten years later

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A dozen years after coming out with The Clustering of America, Michael Weiss published The Clustered World, in 2000. This incorporated census data from 1990, which moved the analysis 10 years forward, but still leaves it well out of date as of 2017.

There was a movement to outlying locales that Weiss described as “repopulating rural America,” which struck me as a questionable description. I wonder if instead it represented metro areas spreading out into “edge cities.”

There was a rise in the Hispanic population, and Weiss claimed that this population was showing signs of wanting to stick together, rather than to assimilate into the rest of the country. He also saw an increase in isolation of the African-American population, which is the opposite of what one would have extrapolated based on prior trends toward integration.

Weiss used a survey of journalists to find that they lived predominantly in a few clusters toward the upper end of the income and status scale. It was already clear to him that they would have difficulty relating to people in middle-class and poor clusters.

Writing in 2000 and looking ahead, Weiss foresaw a continued increase in growth in far suburbs. Also, he made the straightforward projection that the Baby Boom generation would be headed toward a lifestyle characterized by retirement. With aging in general, he expected to see new clusters emerging with the age 55-75 bloc, as well as a cluster of people over 85 and ensconced in assisted living facilities.

He thought that there would be a distinctive Asian cluster, but my impression is that this has not developed. If I am correct about that, then the explanation is pretty simple. The “Asian” category is too broad, encompassing mainland Chinese, Taiwanese, Japanese, Koreans, Vietnamese, Indians, Pakistanis, and so on. These disparate nationalities do not all naturally congregate with one another. Instead, one is likely to find them dissolved into the rest of the U.S. population.

I would be curious to see what clusters would show up today. I assume that Charles Murray’s Coming Apart story means that we would see clusters that differ dramatically by marital status. We would see households with two married adults in relatively large numbers in affluent zip codes, and we would see single parents prevalent in poor zip codes.

I speculate that we would see a decline in the share of employment in the for-profit sector and an increase in employment in non-profits. This is based in part on the growth of the New Commanding Heights of education and health care. Also, I am guessing that the super-rich are inclined to fund non-profits, so that the size of that sector goes up as more wealth accrues to the super-rich. I do not know how significant a trend this is, or how well it can be measured.

I speculate that we would see an increase in the urban-rural divide. That is, compare average incomes in zip codes where most households are within, say, 25 miles of a major city (one of the top 20, say) with zip codes where most households are more than 50 miles from a major city.

I speculate that differences in average levels of education across zip codes now are even more predictive of income differences than they were twenty years ago.

I speculate that we would see little progress in integration of African-Americans and Hispanics. They would continue to appear in their own distinctive clusters more often than mixed in with clusters of non-Hispanic whites.

Disaggregating the economy: levels of digital skills

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Mark Muro writes,

the wage premium for digital skills (highlighted above) has nearly doubled since 2002. That means that the mean pay of workers in higher-level digital occupations (about $73,000) now more than doubles the $30,000 wage of low-digital workers.

…women—despite having slightly higher mean digital scores—remain heavily under-represented in highly digital computer and engineering occupations (but over-represented in office admin, education, and health occupations). Likewise, blacks are overrepresented in medium-digital occupations like office support and health care support, while Hispanics are greatly underrepresented in highly digital tech positions and overrepresented in low-digital domains such as farming, construction, and building and grounds maintenance.

… the digital rich among metro areas appear to be getting even richer, and now—as a consequence—are pulling away from the rest of metros on basic measures of prosperity.

Turning to the full report by Muro and co-authors, I find

In 2002, 56 percent of the jobs studied required low amounts of digital skills. Nearly 40 percent of jobs required medium digital skills and just 5 percent required high digital skills.

A lot has changed. By 2016, the share of jobs requiring high digital skills had jumped to 23 percent. The share requiring medium digital skills rose to 48 percent. And in a huge shift, the share of jobs requiring low digital skills fell from 56 to 30 percent.

Revive this research

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I just finished re-reading The Clustering of America, by Michael J. Weiss. It is a narrative description of forty different socioeconomic clusters, derived primarily from census data, mixed with some market information. It was published in 1988.

1. Somebody should keep this project going. Weiss published an updated version in 2000, which I will read next. But there would be much to be gained by providing a narrative that describes socioeconomic clusters based on the most recent data available (2010 if you take the most recent census, but my guess is that you could get reasonable estimates for 2015). It would be valuable to look at the cluster evolution over time.

2. The company with the data, Claritas, still exists. Elsewhere, of course, there is much more data, at companies like Google and Amazon. I suppose it is easier for those firms to merge census data in with their own proprietary data than it is for someone outside of those firms to start with the Claritas data and attempt to acquire and integrate the information from the web giants.

3. Weiss offered a brief section, called “clusters of the future.” One of them, which he called Gentrification Chic, seems spot on. Other predictions are not as easy to defend.

Stanford University reports that twenty occupations will account for 35 percent of the new jobs in the ’80s, but only two of them, elementary-school teaching and accounting, require college degrees. The AFL-CIO predicts that by 1990 the nation will be home to 500,000 “surplus college graduates” with outmoded skills. The end of the decade may bring about a cluster for the postindustrial age: New-Collar Condos. In city condo and townhouse developments, singles and couples will work in service-industry professions, as paralegals, computer programmers and medical assistants.

Before you snort at the prediction of “surplus college graduates,” consider why that prediction appears to be wrong. Yes, if you compare incomes of people with college degrees with those lacking a college degree, the gap is wide and has gotten wider. However, (a) it may nonetheless be true that a lot of college graduates are doing jobs that use skills not acquired in college; (b) some of the “college premium” represents returns to signaling or licensing requirements; (c) the ordinary BA has not done so well in the market. Graduate degrees and STEM undergraduate degrees account for much of the college premium.

Weiss does not appear to have obtained an advanced degree. However, The Clustering of America is a classic work of social science.

Crowded and Unsanitary

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Glenn Reynolds writes,

It wasn’t until you crowded thousands, or tens of thousands of them, along with their animals, into small dense areas with poor sanitation that disease outbreaks took off. Instead of meeting dozens of new people per year, an urban dweller probably encountered hundreds per day. Diseases that would have affected only a few people at a time as they spread slowly across a continent (or just burned out for lack of new carriers) would now leap from person to person in a flash.

He is talking about the effect of urbanization on disease. But the point is to use this as a metaphor for social media’s effect on our mental life. He says that perhaps diseases of the mind are now spreading quickly. As with urbanization, the trick with social media will be to obtain the benefits and to contain the risks.

Possibly related: in the Peterson/Haidt discussion I referred to the other day, they talk about how the sense of disgust may have evolve to protect people from disease. We tend to feel an instinctive disgust toward groups with customs and manners that differ from our own. If you can overcome this instinct to feel disgust when you are around foreigners, then you can benefit from their ideas and culture. But you increase somewhat your risk of contracting disease. Peterson describes Adolf Hitler as operating on the theory that having Jews or Gypsies in a population was like having rats in a factory. He was so concerned about the disease that might be spread by such creatures that he wanted them eradicated.

Tim Harford and Russ Roberts

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An econtalk podcast, of course. At one point, Harford says,

one thing I learned is not to undervalue innovations that are important simply because they have become very, very cheap, so they’ve become ubiquitous. The other thing I learned was not to forget the way that inventions reshape organizations, reshape the way we live, reshape societies. Often in order to use an invention, take advantage of an invention, you need an awful lot of adjustment. The classic example, which will be well known, I think, to some EconTalk listeners, is Paul David’s essay on “The Dynamo of the Computer”, reflecting on how long it took electric motors to be adopted in manufacturing in the late 19th-early 20th century, because people had to completely readjust, reconfigure the factories, retrain the workers. I mean, just everything had to change in order to take advantage of this new technology. And initially when it was used, they tried to direct replacement to the steam engine–just rip out a big steam engine, replace it with a big electric motor, and that should be fine. And of course that doesn’t realize the gains. Because to really take advantage of these technology, we often have to change, and adjust the way we do things–the way we work, the way we live. Otherwise we don’t enjoy the benefits. And sometimes those changes can be–well, they are very hard to predict, but they are occasionally quite hard, quite wrenching.

Jordan Peterson and Jonathan Haidt

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A long, wide-ranging conversation. At the end, Haidt predicts that there will be a split in the academic world. There will be a “University of Chicago model,” which underlines a commitment to truth and spurns indoctrination, and a “Brown University model” that does the opposite. He predicts that the market will reward Chicago and punish Brown.

I am not nearly so optimistic that the Chicago model will win out decisively.

1. I think that many high school students will prefer the Brown model.

2. I think that parents, who are the real consumers here, do not feel strongly about which model is used. What they care about is the school’s prestige and their ability to tell their friends that their child got into a top school. I do not think that Brown’s brand will decline much, if at all, in that regard.

I guess what I am saying is that I do not think that high school students or parents care all that much about the issue of truth-seeking vs. social-justice-seeking institutions of higher education. But suppose that they do care. Then some possible outcomes:

a. Brown attracts students oriented its way, and Chicago attracts students oriented its way. Over time, Chicago becomes predominantly conservative, and Brown becomes even more leftist.

b. Earlier in the dialogue, Peterson tosses out the data point that illiberal leftist students score relatively low on verbal intelligence. So perhaps the quality of the student body rises at Chicago and falls at Brown.

Reading in my youth

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Tyler Cowen writes,

Way back when, I considered the ten books that influenced me most, a list I still stand by. In response, someone asked me to name the books that influenced me, but whose influence I probably was not aware of. Let’s ignore the semi-contradiction in that request and plow straight ahead! Here goes, noting that if memory serves I read most of these between the ages of 10 to 12

Let me play the same game, focusing on what I read around that age. Should I include Baseball Digest and Mad Magazine? I am sure that they had influence. The former led me to Strat-O-Matic baseball, which incented me to work out the probabilities of two dice. Mad was big into exposing hypocrisy–Dave Berg even had a regular feature “When they say ___ what they really mean is _____.”

My chess reading was limited to Fine’s Ideas Behind the Chess Openings. It did not turn me into a chess player. I did not know enough about the midgame to appreciate the opening theory. For the purpose of learning chess, my guess is that it would have been better to start reading about the endgame and work backwards.

Neither did Common Sense at Poker turn me into a poker player. But it was a great book, very well written, with memorable characters: Mouse, the guy who was afraid to bet big. Brill, the sharpster. Guffy, the bluffer who bid up pots. Years later, when I had my Internet business, I thought of VC-backed competitors as Guffy types. They made the pots a lot bigger, and it was expensive to stay in, but our hand was as good as theirs, so it was worth it to call their bluff.

Of the books that Tyler mentions, I read Instant Replay and Guadalcanal Diary. The former was extremely well written, and about ten years ago I ordered a used copy to re-read. The latter I have forgotten, apart from the title. Speaking of sports books, I read Jim Brosnan’s The Long Season, among many others. Percentage Baseball, by Earnshaw Cook, was sabermetrics before Bill James, although Cook could not write anywhere near as well as Bill James. I doubt that I was able to follow Cook’s math, although perhaps the attempt was good for me.

When I was ten, my father was asked to be on a panel judging the best political science books of the year, so we were sent a lot of books by publishers. Two that I remember are The Agony of the GOP, 1964 and a book whose title eludes me that chronicled the run-up to the first world war. We were sub-letting a professor’s house in Princeton, and the professor had really fancy rare edition of The Three Musketeers, which my parents read to me/with me, probably because they were afraid that if I read it myself I would destroy it. I did wreck a lot of other things in the house. Boys do that, you know. They also read with me The Wind in the Willows, which I did not appreciate as much at the time as I have come to appreciate later.

Somewhere around that time I read Churchill’s six-volume history of the Second World War. I probably absorbed the fact that Churchill felt much more relaxed being in charge than trying vainly to convince others in charge of what to do about Hitler before the war started. I also noted his obsession with capital equipment (as I would put it now), such as the rate at which merchant ship tonnage was being sunk by U-boats compared to the rate at which new ships were being built.

I was very loyal to Alexandre Dumas, primarily because I had seen on television the 1939 movie version of The Count of Monte Cristo and been enthralled by the tale of hard-earned revenge. The book, it turns out, ends on a more ambivalent note than the movie, so at that age I did not enjoy the book as much. I wrote a book report on The Scarlet Pimpernel, saying that although I did not like it very much I intended to read other works by Dumas. My English teacher wrote on my book report something to the effect of, “You don’t have to do that, you know.” And so I didn’t. I think that might have been a revelation, that not every book by a given author is equally worth reading.