Thursday, May 5, 2016

Correlation v. Causation: Bulletin Board Material

Now and then I'll post a cartoon or quotation which is the sort of thing I'd tack up on the bulletin board outside my office, or mix into the slides for a lecture. Last week I posted some thoughts about correlation and causation in the context of incarceration rates and crime, and supportive reader R.S. sent along this cartoon from the webcomic xkcd.

Wednesday, May 4, 2016

Falling Job Tenure

"Job tenure" is the term economists use to refer to how long someone has been at their current job. For example, people in their 40s typically have been at their current job for longer than people in their 20s--and so will have longer job tenure. But in the US economy, job tenure is falling. Julie L. Hotchkiss and Christopher J. Macpherson of the Federal Reserve Bank of Atlanta provide a useful figure illustrating the pattern.

The figure is just a little tricky to interpret. The horizontal axis shows birth year, and more specifically, it refers to those born in 1933, 1943, 1953, and so on up to 1993. The vertical axis show median job tenure with current employer. And the lines show a breakdown by age group. Thus, the top orange line shows that workers who were born in 1933 had a median tenure at their current job of 13 years in their 50s (which would have happened in the 1980s), but workers born in 1963 had a median job tenure of less than 9 years when they reached their 50s (which would have happened just a couple of years ago).  The bottom yellow line shows that workers who were born in 1953 had a median tenure at their job of four years when they were in their 20s (that is, during the 1970s), but those born in 1983 had a median job tenure of only two years (in the 2000s).

Thus, the lines from top to bottom show that older workers consistently had more job tenure than younger workers, as one would expect. The downward slope of the lines means that those born more recently have less job tenure--if you look at the same age group.

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The figure is really just one more way of confirming what most people already know: a connection between a worker and an employer doesn't last as long as it used to. Indeed, I've recently offered some evidence that in the last decade or so "All the Job Growth is in `Alternative' Jobs" (April 11, 2016),  which are jobs that are temporary or on-call or "gig economy" jobs that aren't premised on an ongoing relationship between employer and employee.

For the workers, this pattern means that you need to plan your work life with a little less attachment to your current employer, and one eye looking ahead to the next job. This means continual networking about jobs. It also means that employers are less likely to offer training, because they aren't expecting to be connected with employees for the long haul, so you need to be sure that you are always updating your own training and human capital.

For public policy, falling job tenure and the rise of alternative jobs point to the importance of having benefits like retirement accounts and health care be easily portable across jobs. It also suggests that as more people are switching jobs more often, the US should consider less emphasis on "passive" labor market policies like paying unemployment benefits and putting more emphasis on "active" labor market policies for job search, retraining, subsidized employment programs, and even in some cases direct job creation to bridge the period between other jobs.

Tuesday, May 3, 2016

US Health Care in International Context

Health Care at a Glance 2015 is an OECD databook: that is, a bit of text, but mainly charts and figures. It serves up the standard comparisons of US health care spending in the context of the rest of the world,  along with a number of detailed comparisons of health status, the health care workforce, access to health care, quality of care, and others.

Let me start with the comparisons of US health care spending to the rest of the world, which are both familiar to me and also never fail to astonish my eye. US per capita health care spending is more than one-third bigger than any other country; moreover, it's two-and-a-half times as large as the average of OECD countries.


The US doesn't just spend more because it's a higher-income economy. As a share of GDP, the US spends more than five percentage point of GDP more than the second-place country; in addition, it spends nearly twice as much on health car as a share of GDP than the OECD average.

There's also an ongoing argument about whether the passage of the Patient Protection and Affordable Care Act of 2010 slowed down US health care spending. As I've argued, the decline in the growth rate of US health care spending started well before the 2010 legislation, and moreover it was part of a global slowdown in the rise of health care spending. Here's a figure looking at the rise in health care costs across countries from 2005 to 2009, and also from 2009 to 2013. US health care costs rose more slowly than the international average in the earlier period, but have have risen faster than the international average since then.

It's also well-known that despite the relatively high levels of US health care spending, US public health statistics aren't  especially good. Although the US doesn't measure up very well to other countries on access to health care, given that about 27 million Americans still lack health insurance, the causes of poor health go a lot deeper than the health care system. As the report notes:
"Life expectancy in the United States is lower than in most other OECD countries because of higher mortality rates from various health-related behaviors (including higher calorie consumption and obesity rates, higher consumption of legal and illegal drugs, higher deaths from road traffic accidents and homicides), adverse socio-economic conditions affecting a large segment of the US population, and poor access and co-ordination of care for certain population groups."
So what is the US getting for its health care spending? Here are some tips and clues from the report. I'll let you look up the specific tables yourself, if you wish, and just cut to some of the comparisons that caught my eye.

Countries with a high number of doctors, like Germany, Sweden, and Austria, have 4-5 doctors per 1,000 people. The average for OECD countries is 3.3 doctors per 1,000 people. In the US, it's 2.6 doctors per 1,000 people.

When it comes to hospital beds, Japan by far leads the way with 13.3 per 1,000 population. For comparison, Germany has 8.3 hospital bed per 1,000 population, France has 6.3 hospital beds per 1,000 population, the OECD average is 4.8 beds per hospital population, and the US has 2.9 hospital bed per 1,000 population.

Some measures are a way of capturing how well the health care system deals with chronic diseases like diabetes or asthma. The working assumption is that if complications from these conditions are leading to hospitalization fairly often, then they aren't being especially well-managed. The US doesn't do especially well on these measures. Rates of hospital admissions for asthma and chronic obstructive pulmonary disease (COPD) were about 240 per 100,000 population for the average OECD country, but about 320 per 100,000 in the US. Hospital admissions for diabetes are about 150 per 100,000 in the average OECD country, but about 200 per 100,000 in the US.

However, when it comes to measures of the efficacy of high-tech medical interventions, the US health care system performs well. For example, one such measure is the share of people over-45 admitted to a hospital with acute myocardial infarction (AMI) who die with 30 days. The OECD average is about 8 per 100 cases, while in the US it's 6 per 100 cases. Similarly, if you look at the thirty-day mortality rate after admission to hospital for ischemic stroke, the OECD average is about 8 per 100 admissions, while in the US it's about 4 per 100 admissions.

When it comes to MRI scanners, Japan leads the way by far with 46.9 per million population, but the US isn't far behind at 35.3 per million population. The OECD average is 14.1 MRI scanners per million population. CT scanners are a similar story. Japan again leads by far with 101.3 per million population, but the US is in the top three with 43.5 per million population.

A few years back, I tackled the broader question of "Why does the US Spend More on Health Care than Other Countries?" (May 14, 2012).  Here, I'll just note that the US ends up with a health care system that excels at high tech, high cost care, but does an average to below-average job at other aspects of health care. The OECD report notes that the US manages to have one of the highest five-year survival rates for those with breast cancer, but a substantially below-average five-year survival rate for cases of cervical cancer.

Here's a final figure, which divides up total health care spending into inpatient care, outpatient care, long-term care, medical goods, and collective services. Strikingly, the US is at the bottom in term of share of spending on inpatient care, but at top in share spent on outpatient care and near the top in the share spent on "medical goods."

Many discussions of the US health care system take most of how it operates for granted, and then argue over "single payer" or "health care exchanges" or expanding Medicare. My sense is that  specific comparisons across countries can be a useful way to shake up thinking. For another recent post with this element, see "A Cross-National View of Health Care Systems: Thoughts on Canada, the UK, and Germany" (March 10, 2016).

Monday, May 2, 2016

Khrushchev: Economics Does Not Respect One's Wishes

Many collections of quotations (for example, here, here, here, and here) include this gem attributed to Nikita Khrushchev, who was premier of the Soviet Union from 1958 to 1964: "Economics is a subject that does not greatly respect one's wishes." It's a great put-down. But in what context would Khrushchev have said such a thing?

I had not been able to find a reference for the supposed comment. But an article about Khrushchev visiting Mao in 1958 that appeared in the Smithsonian in May 2012  cited an essay by James Kenneth Galbraith as a source of the quotation. The essay, called "The Day Nikita Khrushchev visited the Establishment," was published in Harper's in February 1971, and reprinted in the compilation of Galbraith's essays called A Contemporary Guide to Economics Peace and Laughter that was also published in 1971.

The context is a visit from Khrushchev to the United States in 1959, and more specifically, the part of the visit where he visited the Manhattan house of Averill Harriman, a Democratic politician and power-broker who among other roles was US Ambassador to the Soviet Union from 1943-1946, US Secretary of Commerce in the Truman administration, Governor of New York, and held several positions in the State Department during the Kennedy and Johnson administrations.

Galbraith is discussing a period toward the end of the evening, which is supposed to be devoted to asking questions, but in which various members of the US establishment are instead making little mini-speeches to impress each other--followed by dry comebacks relayed through Khrushchev's translator. As Galbraith writes of the questions that were asked:
"Almost all began with a disavowal of Communist sympathies and a strong affirmation of faith in the American free enterprise system. In light of the asset position of the speakers, neither disavowal nor avowel seemed absolutely essential. All of the questions were phrased to convey information, not to elicit it. A Ring Lardner parent once responded to his offspring, "`Shut up,' he explained." On that afternoon there was a slight variation. "`I would like to tell you something,' they asked." However, the questions did not convey much information and not because they were brief. As he spoke, each interrogator covertly eyed the others present to see whether he was making a decent impression."    
Finally it came time for Galbraith's own question/mini-speech, which he described in a delightfully self-deprecating tone.
"Harriman nodded at me and I came through with a question urging Khrushchev to accept the thesis of American Keynesians, such as myself, that the capitalist crisis was now under control. I developed the question with care and at considerable length for I had concluded that the other  men present could do with a lecture on modern economics. Many were still very suspicious of Keynesian fiscal policy: they, as well as Mr. Khrushchev, needed to understand the true foundations of American well-being. As my question continued I watched my audience out of the corner of my eye. I could see that they were following me closely. Presently I finished. Mr. Khrushchev replied that I was entitled to my views, that he was sure I took them seriously and that he was glad I had confidence in the system. He added that economics is a subject that does not greatly respect one's wishes."
So the good news is that the quotation is authentic in the sense that it has an actual source! The bad news is that the quotation is Khrushchev as filtered through his translator, and then remembered and paraphrased by the witty and sardonic Galbraith a dozen years later. And the unexpected twist is that while the quotation is often deployed today as a way for conventional market-oriented economists to put down those who substitute wishful thinking for the clear-eyed analysis of tradeoffs, it was originally deployed as a communist put-down of those who believed in Keynesian economics and free markets. (For an earlier blog post on Galbraith as a master of writing and rhetoric, see here.)






Saturday, April 30, 2016

US Suicide Rates Rising

Overall US life expectancy is rising, but US suicide rates are also rising. The Centers for Disease Control and Prevention have recently published some short "Data Briefs" showing the patterns. In terms of age groups, suicide rates are up for all age groups except for those over 75 years of age. By ethnicity, the increases in suicide rates are largely explained by a rise in suicides in the white population. In terms of methods of suicide, the share of suicides by firearms is falling, while the share by suffocation is rising.

I won't offer any instant-insight analysis here about deeper meanings and policy implications. My heart just goes out to those who have committed suicide, and to everyone who has lost a dear one to suicide. But here are some figures to illustrate the patterns. Sally C. Curtin, Margaret Warner, and Holly Hedegaard wrote "Increase in Suicide in the United States, 1999–2014 ," as National Center for Health Statistics Data Brief #241 (April 2016). The overall trend of suicides (adjusted for shifts in the age of the population) looks like this;



The breakdown by age group shows that suicide rates have risen among all under-75 age groups, but the highest suicide rates are in the 45-64 age bracket, and that's also where the biggest increases in the suicide rates have occurred. The first figure shows the rates for females; the second for males.






The same three authors also wrote "Suicide Rates for Females and Males by Race and Ethnicity: United States, 1999 and 2014." The abbreviation API refers to Asian or Pacific Islanders, and the abbreviation AIAN refers to American Indian or Alaska Native. Of course, a much larger share of the US population is white than in the American Indian/Alaska Native category, so the rise in the suicide rate among whites is the primary driver of the rise in the overall suicide rate. The first figure shows suicide rates for females, and the second for males.






Finally, the share of suicides in which a firearm was used remains large, but has declined over time, while the share of suicides involving suffocation has risen. 


Friday, April 29, 2016

Crime and Incarceration: Correlation, Causation, and Policy

Social scientists go to sleep every night muttering "correlation is not causation." The correlation between rates of crime and rates of incarceration offers a useful example. The Council of Economic Advisers lays out many of the relevant issues in its April 2016 report, "Economic Perspectives on Incarceration and the Criminal Justice System."  The report discusses in some detail how levels of police and rates of arrest haven't changed all that much, but the likelihood of arrest leading to a conviction and the length of prison sentence given a conviction are on the rise. There's also some discussion of how the rest of a community is affected by high incarceration rates. Here, I'll focus on what the report has to say about reducing crime.

There's clearly a correlation in the US between a falling rate of crime and a rising rate of incarceration during the last few decades. Using figures from the CEA report, here are the basic patterns.

But of course, if you take any two patterns that show a long-term trend, they will be either positively or negatively correlated with each other. The question of whether one factor caused the other is more difficult to answer. As a starting point, it's easy enough to note that incarceration rates are not the only longer-term patterns that affect levels of crime. As the report notes:
Demographic changes also likely play a part; the youth proportion of the U.S. population (ages 15-30) declined by 12 percent between 1980 and 2013, reducing the general propensity for criminal behavior which is more prevalent among young people. Improvements in police tactics and technology used in policing may have also played a role. Other potential explanations include declines in alcohol consumption, decreases in “crack” cocaine use, and a reduction in exposure to lead ...
In addition, the effects of incarceration on crime are governed--like so many other things--by a law of diminishing returns. When the incarceration rate starts rising, you will be (on average) locking up more of those who committed the most severe crimes and who look the most like career criminals. As the incarceration rate gets ever-higher, you will be (on average) locking up a greater share of those who committed relatively less severe crimes and who are relatively less likely to be career criminals. The CEA report puts in this way (citations and footnotes omitted):
"Researchers who study crime and incarceration believe that the true impact of incarceration on crime reduction is small, with a 10 percent increase in incarceration decreasing crime by just 2 percent or less ...  Additional incarceration may be particularly ineffective in reducing crime when incarceration rates are already high. When incarceration rates are high, further incarceration entails incapacitating offenders who are on average lower risk, which means that their incarceration will yield fewer public safety benefits. Thus, given the size of the U.S. incarcerated population, the aggregate crime-reducing impact of increasing incarceration rates is likely to be minimal."
Economists tend to look at crime, like so many other issues, as a matter of balancing costs and benefits. For example, most jurisdictions in the US have decided that a rigid enforcement of speed limits wouldn't provide benefits that would be worth the costs to the criminal justice system. The United States may well have reached that point at which costs exceed benefits with incarceration. Here's an example from the CEA report:
"Cost-benefit analyses of incarceration weigh the direct costs of incarcerating an individual against the social value of crimes that may have been averted due to incarceration. Lofstrom and Raphael (2013) examine a 2011 policy change in California that resulted in the realignment of 27,000 State prisoners to county jails or parole. They find that realignment had no impact on violent crime, but that an additional year of incarceration is associated with a decrease of 1 to 2 property crimes, with effects strongest for motor vehicle theft. Applying estimates of the societal cost of crime, the authors calculate that while the cost of a year of incarceration is $51,889 per prisoner in California, the societal value of the corresponding reduction in motor vehicle thefts is only $11,783, yielding a loss of $40,106 per prisoner. Notably, this net loss per prisoner would be larger if the study considered the additional costs of collateral consequences, such as lost earnings or potential increases in re-offending due to incarceration. These estimates highlight the fact that there are more cost-effective ways of reducing crime than incarceration, such as investing in law enforcement, education, and policies that expand economic opportunity."
When the report refers to alternative law enforcement efforts, one approach is more police. Here's the CEA:
"In contrast to studies of incarceration and sentencing, research shows that investments in police have high returns. In a study of the impact of a mass layoff of highway troopers in Oregon, DeAngelo and Hansen (2014) found that traffic fatalities and non-fatal injuries significantly increased, due to a greater prevalence of dangerous driving and drunk driving. The estimates in this paper suggest that the state trooper salary cost required to save a life is $309,000, which is very low compared to estimates of the statistical value of life, which range from $1 million to $10 million ..."
Indeed, the report offers a striking figure showing some international comparisons on police, judges, corrections officials, and prisoners across countries. Relative to the size of its population, the US compared to the rest of the world is light on police, but heavy corrections officers and prisoners.

Putting these various factors together:
"CEA conducted “back-of-the-envelope” cost-benefit tests ...
  • We find that a $10 billion dollar increase in incarceration spending would reduce crime by 1 to 4 percent (or 55,000 to 340,000 crimes) and have a net societal benefit of -$8 billion to $1 billion dollars.
  • At the same time, a $10 billion dollar investment in police hiring would decrease crime by 5 to 16 percent (440,000 to 1.5 million crimes) have a net societal benefit of $4 to $38 billion dollars."
A final step to reduce crime is to find ways to improve high school graduation rates. The CEA report puts it this way:
"Lochner and Moretti (2004) conduct a cost-benefit analysis of the effect of increasing the high school graduation rate on crime and arrest rates. Comparing costs and benefits in 1990, they estimate that while the yearly per pupil cost of secondary school is $6,000, the societal benefit from reducing crime is $1,170-$2,100 per additional male graduate, including reductions in victim costs, property damages, and incarceration costs. When these benefits are considered alongside an $8,040 increase in annual income from a high school degree, the benefits of an additional high school graduate are tremendous ... In aggregate, the authors calculate that a 1 percent increase in the total high school graduation rate generates a $1.4 billion benefit due to reductions in crime rates."
Crime is falling for lots of reasons over the last three decades. Rising incarceration may well have been a moderate contributor to the fall in crime back in the 1980s, when the incarceration rate was relatively low. But by the 2000s, when the incarceration rate had more than doubled, it had become a costly and not-very-powerful way of reducing crime. From that perspective, it's not a coincidence that California and other states have been scaling back on their incarceration rate in the last few years. As various states are recognizing, there are more cost-effective alternatives to keep the crime rate on a downward trend.

Thursday, April 28, 2016

Hyperinflation and the Venezuela Example

Everyone needs a few scary stories for telling around the campfire, and for economists, stories about hyperinflation are an obvious choice. Four years ago, "Hyperinflation and the Zimbabwe Example" (March 5, 2012) was a vivid story. But Venezuela is now providing a more current example. 

For up-to-date figures, a useful place to turn is the Troubled Currencies Project run by Steven Hanke.
The official exchange rate is 10 Venezuelan bolivars for $1 US. As inflation has hit and the value of the bolivar has plummeted, the black market exchange rate looks like this:

One can then infer an annual rate of inflation from these changes, which is shown by the blue line, with Venezuela's official inflation rate appearing in red: :

The facts emerging from Venezuela's hyperinflation are unsurprisingly grim. Annual inflation has run above 700% during some periods. According to summaries of the available data (like here and here), the IMF estimates that Venezuela's economy shrunk by 10% in 2015, and per capita GDP will be the same size in 2018 as it was back in 2000. Poverty rates, which fell from 60% to 30% with the rise of oil prices in the early 2000s, are now above 70% and rising. One estimate is that the cost of buying a basic basket of food for a month is eight times what would be earned at the minimum wage--always assuming a worker can find that minimum wage job in the first place.

On some dimensions, the bad news shades into black comedy, like the unavailability of basic consumer goods like aspirin or diapers or toilet paper. Venezuela, like many countries, does not print its own currency, but instead relies on outside firms like De La Rue. Of course, hyperinflation means a dramatically increased need for currency if the economy is to function at all. However, Andrew Rosatti at Bloomberg is reporting that the outside firms are worried about being paid for providing currency. He writes: "Venezuela, in other words, is now so broke that it may not have enough money to pay for its money." If memory serves, the hyperinflation in Bolivia back in the 1980s led to a similar problem, in which it was reported that for Bolivia, the cost of importing its own currency became for a time the country's third-largest import.

But the short-term problems of inflation are only part of its effect; indeed, one might argue that the curse of high inflation rates is that they encourage an extreme short-term focus throughout the economy. One of the most succinct explanations of inflation and short-termism that I know appeared in an essay written back in 1992 by V.S. Naipaul, called "Argentina and the Ghost of Eva Peron," in which Naipaul quoted "Jorge" on the situation of hyperinflation in Argentina. Here, I'm quoting from the essay as reprinted in the 2003 collection of Naipaul's travel writing, The Writer and the World.
"Another aspect of inflation is that you cease to worry about productivity and even technology. Now, that is the secret of all progress: productivity. But you really can get no more than 3 or 4 percent per annum improvement in productivity anywhere in the world. With inflation like ours you can get 10 per cent in one day, if you know when and where to invest. ... It is much more important to protect your working capital than to think about long-term things like technology and productivity--although you try to do both.  So capital investment in Argentina is not even covering wear and tear. In short, when the current plant reaches the end of its working life there won't be a provision built up to purchase new capital equipment. This is the inevitable result of inflation, which is the monetary disease. Your money is disintegrating. It's like cancer. You live day to day. That's all you can do when you have inflation of more than 1 per cent per day. You cease to plan, You're just happy to make it to the weekend."