Worst News I’ve Read in a Long Time

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Ezekiel Emanuel writes,

Crimmins found that between 1998 and 2006, the loss of functional mobility in the elderly increased. In 1998, about 28 percent of American men 80 and older had a functional limitation; by 2006, that figure was nearly 42 percent. And for women the result was even worse: more than half of women 80 and older had a functional limitation. Crimmins’s conclusion: There was an “increase in the life expectancy with disease and a decrease in the years without disease. The same is true for functioning loss, an increase in expected years unable to function.”

Read the whole thing. I mean it. This is an excellent and important article. Pointer from Tyler Cowen.

The more optimistic view of aging is represented by Gregg Easterbrook.

In your comments, please spare me the snark about Emanuel, Obamacare, and death panels. Speak to the point of what happens to quality of life after age 75. We know many examples of people for whom it was good. But on average is Emanuel correct, and is he correct that we have seen in recent decades, if anything, a deterioration in the quality of life among the very old?

Lifted From the Comments on the Craft of Education

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Michael Strong referred to his post from two years ago.

An alternative interpretation for the failure to replicate pedagogical genius might focus on the fact that there are no institutions in our society that support the replication of pedagogical success. Teaching is fundamentally a performance art – real time interactions in chaotic and complex human situations. There are no institutions in our society that provide for an environment in which master practitioners of this performance art systematically transfer their expertise.

Read the whole thing. The question I have is whether it is possible for master practitioners to “systematically transfer their expertise.” Elizabeth Green offers some examples–Deborah Ball and Doug Lemov–of master practitioners trying to transfer their expertise. That was not enough to convince me that this is a scalable process.

Peter Thiel’s Interview Question

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In his new book, Zero to One, he writes,

Whenever I interview someone for a job, I like to ask this question: “What important truth do very few people agree with you on?”

My answer would be that I believe that the Fed has very little influence on inflation and interest rates. I think it is fair to say that very few people agree with me on that.

His rationale for asking the question is that if you cannot be truly contrarian, then you cannot be an innovator.

You should read Thiel along with my own Under the Radar. We are similar in our characterization of the business environment, and yet we are polar opposites in terms of where we favor positioning oneself within it. Also, perhaps read Joel Kotkin on The New Class Conflict (which I have not read) and decide to what extent Thiel exemplifies what Joel Kotkin calls the Tech Oligarchy.

Sentences I Might Have Written

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A pro-innovation agenda begins instead by recognizing that markets are far more likely to resolve market failures than regulators, and to do so at a lower cost. This is not because markets are perfect, or appropriate subjects of uncritical reverence, but simply because markets react more quickly than do governments to the negative but usually short-term side effects of disruptive innovation. The next generation of technology is far more likely to remedy consumer harms than regulatory intervention can, and with considerably less economic friction.

They come from Larry Downes.

Mark Thoma on the State of Macro

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He writes,

The problem with macroeconomics is not that it has become overly mathematical – it is not the tools and techniques we use to answer questions. The problem is the sociology within the economics profession that prevents some questions from being asked.

But I see these as the same problem. The sociology of the profession essentially forced anyone who wanted to have an academic career to engage in mindless mathematical self-abuse. If the sociology of the profession had been better, very different sorts of articles would have been published in journals, very different sorts of economists would have earned tenure at major universities, and very different sorts of techniques would have prevailed. And don’t just blame Lucas. Fischer is every bit as much of a villain.

There is No Free-Lunch Mortgage

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Ed Pinto is pushing something he calls a “wealth builder home loan.” Here is his thought process:

1. With a 15-year mortgage, the borrower accumulates equity faster than with a 30-year mortgage. However, by the same token, the monthly payment is higher, which creates a hurdle for low-income home buyers.

2. With an up-front payment, you can buy down the interest rate on a 15-year mortgage, making the monthly payments more affordable.

3. Therefore, a 15-year mortgage with an interest-rate buydown is a way to help low-income borrowers afford mortgage payments and build up equity rapidly.

(1) and (2) are true. However (3) is false. The problem is that the interest-rate buydown undermines the borrower’s equity. Consider two cases.

Case 1: the borrower pays for the buydown. As this article describes it,

let customers of modest means use a down payment of up to 5 percent to “buy” a lower interest rate

So, if you buy a $200,000 house and you have $10,000, you use that $10,000 to buy down the rate. But you could have used that $10,000 as a down payment on the house! That would have given you 5 percent equity to start with, instead of starting with zero.

Case 2: the seller pays for the buydown. If the seller pays $10,000, then the transaction price will be $10,000 above what the house would sell for without a seller concession. So if the borrower makes no down payment, the borrower starts out with $10,000 in negative equity.

There is no free lunch in mortgage lending. People with low incomes and little money to put down on a home are home speculators. There is no reason to encourage them to become home speculators.

Help people save for the down payment. That is the only “affordable housing” approach that does not foster speculation.

The Case for Replacing the FDA, Continued

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Beth Simone Noveck writes,

A study completed by the Boston Consulting Group points to a significant rise in the number of drugs and complex devices approved in the EU long before the United States. As devices get more complex, the United States is likely to fall further behind. Although the FDA does not issue clear data on backlogs or processing times, research points to shortcomings in our current system when it comes to researching and approving complex devices. This has broad implications for the quality of health care that Americans receive. In 2010, for example, the medical device company Biosensors International shut down its operations in California due to the time and expense associated with getting FDA approval for a cardiac stent. That device is available globally, including in Mexico and Canada.

She discusses a solution in which the FDA expands its pool of experts. I don’t think that this gets at the problem.

Industrialization, Bureaucracy, and the Nation-State

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Robin Hanson quotes from a subscription-only New Scientist article by Deborah MacKenzie.

hierarchical control structures ballooned, with more layers of middle management. Such bureaucracy was what really brought people together in nation-sized units, argues Maleševic. But not by design: it emerged out of the behaviour of complex hierarchical systems. As people do more kinds of activities, says Bar-Yam, the control structure of their society inevitably becomes denser.

In a sense, I began thinking about this fifteen years ago.

Consider two evolutionary processes that could lead to a winner at a particular business.

a) natural selection. Many small firms enter the market and make decisions, and one of them has the skill and luck to make the fewest mistakes, becoming the dominant firm.

b) bureaucratic filtering. A single firm with a large bureaucracy faces many of the same choice points, and it uses its resource-intensive planning processes to sort out the decisions. These processes minimize mistakes, enabling the firm to reach the same point that would be reached in the natural selection process.

My guess is that process (a) will increase in importance in the future, and that process (b) will be less productive. The challenge with defending this guess is the fact that large companies with bureaucratic management are so successful at present.

That particular essay did not deal with the issue of nation-states. But it is consistent with the idea that industrialization and the nation-state would evolve at the same time, because bureaucracy was more important and effective in an industrial economy than in a pre-industrial or post-industrial economy.