The State of the Housing Market

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Scott Sumner writes,

It looks like the supply side is being hit by a triple whammy of adverse supply shocks

These are problems with funding, land and labor supply.

I think that the problem boils down to land in a few cities, like San Francisco, Los Angeles, New York, and Boston. And we know that the land scarcity is artificial, due to regulation. Public policy is to subsidize demand and restrict supply. My guess is that as the problem of housing scarcity becomes more apparent (there was a rather uninformative article about it in the WaPo last week), the politicians will work on subsidizing demand.

Health Care Spending in the Gray Area

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Timothy Taylor finds a report from the OECD. Taylor writes,

The report divides the evidence into three main categories: wasteful clinical care (care that either provides very low value or can even be counterproductive to health); operational waste (like paying excessively high prices or overusing expensive inputs like brand-name drugs); and governance-related waste (like ineffective or unnecessary administrative expenses)

Ten years ago, in Crisis of Abundance, I concluded that the main issue was the first: medical procedures with high costs and low benefits. Taylor lists these examples from the OECD report:

Imaging for low back pain.
Imaging for headaches.
Antibiotics for upper respiratory tract infection.
Dual energy X-ray absorptiometry (used to measure bone mineral density).
Preoperative testing in low-risk patients (electrocardiography, stress electrocardiography, chest radiography).
Antipsychotics in older patients.
Artificial nutrition in patients with advanced dementia or advanced cancer.
Proton pump inhibitors in gastro-oesophageal reflux disease.
Urinary catheter placement.
Cardiac imaging in low-risk patients.
Induction of labour.
Cancer screening (cervical smear test, CA-125 antigen for ovarian cancer, prostate-specific antigen screening, mammography).
Caesarean section.

Note that cancer screening is on the list. Cancer screening is something of a sacred cow in the U.S. In fact, as I point out in my book, even something as widely advocated as colonoscopy to screen for colon cancer is likely to have a very high cost per life saved.

Taylor concludes:

In many cases, decisions about what medical care to receive and how to deliver that care fall into a gray area. It’s often not 100% clear whether a certain procedure was needed, or not needed; not 100% clear that an error was made, or whether a reasonable judgment call was made; or whether a certain administrative act is wasteful, or whether it is reasonable oversight that reduces the risk of poor care and holds down costs. But the report makes a persuasive case that a substantial share of health care spending, not just in the US but in all advanced economies, is not doing much to improve health.

This recalls what I wrote in Crisis of Abundance in chapter 3.

It is not true that health care is a black-and-white proposition in which services are either utterly necessary or else utterly unwarranted. . .Services that fall in the gray area are services that offer some benefits but which are not absolutely necessary.

To reduce the use of high-cost, low-benefit procedures, the parties paying for health care have to engage in rationing. If the patient is paying, then the patient will self-ration. If the government is paying, then the government will ration.

Sugar and the Kling Public Choice Theory

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Glenn Reynolds writes,

Government policies promoting sugar, in no small part, got us into this mess. Without the government’s recommendations to avoid dietary fat that led to increased sugar consumption, many Americans would probably be thinner, or at least less obese. And then there are the subsidies.

The Kling theory of public choice is that government acts to subsidize demand and restrict supply. In this case, it subsidizes demand with food stamps and restricts supply with measures against imports.

Tyler Cowen Reminds me of Charles Murray and Neal Stephenson

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I just opened my (Kindle) copy of The Complacent Class. He describes three complacent sub-groups. First is “the privileged class.”

the wealthiest and best educated 3 to 5 percent of the American population

This is Charles Murray’s Belmont (or Neal Stephenson’s Vickies). It is easy to see why they might feel complacent.

The third group is “those who get stuck.”

Their pasts, presents, and futures are pretty bad. . .A lot of these people never really had a fair chance.

This is Charles Murray’s Fishtown (or Neal Stephenson’s Thetes). I think it is a stretch to put them in the “complacent” class. Tyler himself says that “they are not happy about their situations.” They are just not capable or motivated to do what is required to change.

Anyway, I need to read more than a page or two before reviewing the book.

Paul Bloom Against Empathy

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The entire podcast with Russ Roberts is fantastic, but I especially like the last 10-12 minutes.

Bloom and Roberts are dismayed by what they see as a cultural change in which politicians focus on the individual case to tug at emotions. (Think of President Reagan starting the tradition of spotlighting someone at the State of the Union address.) It made me think of this WaPo op-ed, which offended me on several levels, and which I will discuss more later this week. Compare this culture with the way that America’s Founding Fathers were able to operate at a more abstract level.

Bloom hopes for a reversal of the cultural trend away from rational thinking about public policy. But my thought is that the battle is lost. Somewhere along the way, the most highly educated people, who you would ordinarily count on to get beyond emotion-driven policy views, have instead turned out to be very tribal and simplistic in their outlook.

Ev Psych and Motivated Reasoning

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From a piece by Elizabeth Kolbert in the New Yorker.

Living in small bands of hunter-gatherers, our ancestors were primarily concerned with their social standing, and with making sure that they weren’t the ones risking their lives on the hunt while others loafed around in the cave. There was little advantage in reasoning clearly, while much was to be gained from winning arguments.

I have a new, expanded edition of The Three Languages of Politics coming out soon, and, like the first edition, it discusses these sorts of cognitive biases in the context of political rhetoric.

Kolbert also discusses “the illusion of explanatory depth.”

“As a rule, strong feelings about issues do not emerge from deep understanding,” Sloman and Fernbach write. And here our dependence on other minds reinforces the problem. If your position on, say, the Affordable Care Act is baseless and I rely on it, then my opinion is also baseless. When I talk to Tom and he decides he agrees with me, his opinion is also baseless, but now that the three of us concur we feel that much more smug about our views. If we all now dismiss as unconvincing any information that contradicts our opinion, you get, well, the Trump Administration.

Here, Kolbert and her New Yorker readers are reassuring one another that they are right to be contemptuous of President Trump. To me, they are illustrating the sort of socially-motivated biased reasoning that her article is describing.

Suppose that I were to apply the illusion of explanatory depth to the response to the financial crisis, including the bank bailouts. The elites in this country believe that they understand the causes of this policy (too much deregulation) and the consequences of this policy (saved us from another Great Depression). They hold this baseless belief because their fellow elite-members hold this baseless belief. And one could argue that the Trump Administration is a consequence of the fact that the elite view is not convincing to the rest of the country. (Note, however, that I do not claim to understand last year’s election. I am just suggesting that elites can be just as shallow as Trump supporters. I would go further and suggest that flattering yourself because you hate Trump is itself a sign of intellectual shallowness.)

David Epstein Discovers Hansonian Medicine

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He writes,

In 2012, Brown had coauthored a paper that examined every randomized clinical trial that compared stent implantation with more conservative forms of treatment, and he found that stents for stable patients prevent zero heart attacks and extend the lives of patients a grand total of not at all. In general, Brown says, “nobody that’s not having a heart attack needs a stent.” (Brown added that stents may improve chest pain in some patients, albeit fleetingly.) Nonetheless, hundreds of thousands of stable patients receive stents annually, and one in 50 will suffer a serious complication or die as a result of the implantation procedure.

Almost twenty years ago, Robin Hanson set out to explain some puzzling facts about health care. Most notably, “users are losers” (my phrase). That is, if you take similar populations with different levels of health care spending, outcomes tend to be the same. Note that the term “similar” precludes the explanation that the people undergoing more procedures were sicker to begin with.

Robin reasoned as follows:

1. We know that some medical procedures are effective and improve outcomes.

2. However, on average, similar populations that undergo more procedures do not have better outcomes.

3. Therefore, there must be some fairly common medical procedures that worsen outcomes (at least on average), and these tend to balance out the helpful procedures.

For many years, I have been referring to these procedures with adverse outcomes on average as Hansonian Medicine. My own book on health care policy took this issue quite seriously. I preferred to talk about procedures with high costs and low benefits, and Hansonian Medicine as strictly defined means procedures with negative benefits.

Why do we have Hansonian medicine? Epstein cites doctors who are not as well informed as they should be, the threat of lawsuits, and the opportunity to make money doing procedures.

Hanson himself had an intriguing theory, which is that you undergo unnecessary procedures because your friends and family want you to “do something” when you are not well. They show that they care by encouraging you to visit a doctor and to undergo procedures. I think that this is right, particularly in end-stage procedures, where it is often the relatives rather than the patient who demand futile care.

All this raises the question of what to do about procedures with high costs and low (or negative) benefits. The centralized solution is to come up with a way to tell doctors not to undertake these procedures. One challenge with that is there may be specific instances where a doctor knows that a procedure will work, even though in many other cases it does not. Another challenge is that friends and family were not be persuaded by a centralized agency (aka “death panel”).

The approach that I advocated was to reduce third-party payments and let the patients sort things out for themselves as best they can.

Republican-free Zones

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Christopher Caldwell writes,

Washington, D.C., with its 93-to-4 partisan breakdown, is not that unusual. Hillary Clinton won Cambridge, Massachusetts, by 89 to 6 and San Francisco by 86 to 9. Here, where the future of the country is mapped out, the “rest” of the country has become invisible, indecipherable, foreign.

Pointer from Tyler Cowen.

These statistics, while not surprising, are staggering. Some thoughts:

1. It is easy to understand why the Washington Post is the way it is. It has to satisfy its market.

2. 60 percent is a landslide. 85 percent is a bubble.

3. In the past, the heavy DC vote for the Democrat would have been written off as a reflection of what was twenty years ago a heavily black population. That “excuse” no longer holds.

4. Perhaps much of the “resistance” to the Trump Presidency was inevitable, and it would have erupted with any Republican winner. If you and all of your friends are Democrats, it is hard to credit a Republican with legitimacy. And in the age of social media, it is easy to mobilize demonstrations.

Four Forces Watch

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Laurie DeRose and W. Bradford Wilcox write,

By showing that cohabiting families are more unstable, even among the highly educated in Europe and the United States, our research suggests family instability is not only about socioeconomic forces. As Pascal-Emmanuel Gobry observed in response to our findings on cohabitation, education, and family instability, “The point about educational status, in particular, is important: The vaguely pseudo-Marxist idea that our family and life outcomes are entirely driven by economics is not credible; values, norms, and institutions also matter.” And, at least today, the values and norms associated with the institution of marriage remain clearly and powerfully tied to family stability. That’s why, as marriage becomes less likely to anchor the adult life course across the globe, growing numbers of children may be thrown into increasingly turbulent family waters.

As the authors point out, one cannot necessarily interpret their findings as a simple causal model running from choice of cohabitation to instability. I would add that, at least in the U.S., the rate of marriage is much higher among the affluent.