On Monday and Tuesday I will be attending the All-UC Labor Economics Workshop at UCLA. I will be presenting a poster from my job market paper: “Operating on Commission: How physician financial incentives affect surgery rates.”
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Tags: Conferences, UCLA
In an attempt to stabilize the economy, the U.S. government has taken some significant actions. Let’s recount. The government has taken over Fannie Mae and Freddie Mac. Combined assets: $5 trillion. The government has “rescued” Bear Stearns by backstopping questionable assets valued at $29 billion. The government has given a loan to AIG for $85 billion. Further, Lehman Brothers–a firm with $600 billion of assets–is bankrupt. The SEC has banned short selling on 800 financial stocks.
Are these government actions warranted? Looking just at the stock market, we see that despite the doom and gloom, the S&P 500 is down less than 1% over the past month and the Dow is actually up 0.4%. [Although year to date, both are down around 15%]. Conservatives claim that the stock market’s resiliency is a sign that the government does not need to bail out these firms. Liberals believe that bailouts caused the market recovery. Was the bail-out needed?
The Economist writes that “Officials worried that the collapse of AIG, with its $1 trillion balance sheet and operations in 130 countries, could send the financial system into a tailspin.” On the other hand, Joseph Stiglitz claims that the bail-outs amount to corporate welfare: “It’s one thing for, to have some safety net for very poor people. It’s a different thing to have safety net for some of the biggest corporations in America.” Menzie Chinn notes that these bailouts certainly will do nothing to help the U.S. government pay off their debt.
Who is to blame for this mess? Maybe Alan Greenspan:
Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.
But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.
A more important question is what should be done now. If we wish to have a more deregulated financial sector, this will likely lead to higher average economic growth accompanied by a higher probability of financial crisis. If we wish to live in a less regulated world, investors must face the consequences of their asset allocation decisions. More regulation may slow economic growth over the long run, but–if the regulation is effective and wisely implemented–will reduce the probability of financial crisis. If the federal government is liable to bail out failing financial institutions, regulations must be tighter; otherwise financial institutions will suffer from moral hazard and invest in overly risky asset.
Now we are in the worst of both worlds. Government regulation was lax, but instead of letting investors eat their losses, the government is bailing them out.
What would happen if we did not bail out Fannie, Freddie, Bear Sterns and AIG? The truth is, no one knows. Financial markets could have stabilized; or financial markets could have gone into a tailspin. The one thing we do know: Joe Taxpayer has a large bill coming in the mail.
Tags: Bail-out, Finance, Housing Crisis
The Healthcare Economist was named one of the top 100 health care blogs by RN Central.
Tags: Awards
John Cochrane gives writing tips for Ph.D. students. One of the key insights it the following:
“Many economists falsely think of themselves as scientists who just “write up” research. We are not; we are primarily writers. Economics and finance papers are essays. Most good economists spend at least 50% of the time they put into any project on writing. For me, it’s more like 80%.”
Below are some other highlights from this paper.
- “Figure out the one central and novel contribution of your paper. Write this down in one paragraph.”
- “A good paper is not a travelogue of your search process.”
- “The main point of the literature review should be to set your paper off against the 2 or 3 closest current papers, and to give proper credit to people who deserve priority for things that might otherwise seem new in your paper.”
- In the body of the paper, your task is to get to the central result as fast as possible.
- “There should be nothing before the main result that a reader does not need to know in order to understand the main result.”
- “…the theory must be the minimum required for the reader to understand the empirical results.”
- “As you edit the paper ask yourself constantly, ‘can I make the same point in less space?’ and ‘Do I really have to say this?’”
- “Follow the rule ‘first describe what you do, then explain it, compare it to alternatives, and compare it to others’ procedures’ at the micro level as well as the macro level. For example, in describing a data transformation, just start with, say, ‘I adjust income by the square root of household size’. Then tell us why adjusting is important, and then talk about different adjustment functions. Most writers do all this in the reverse order.”
- “Simple is better.”
- “Don’t use footnotes for parenthetical comments.”
- “The caption of a regression table should have the regression equation and the name of the variables, especially the left hand variable.”
- “Good figures really make a paper come alive, and they communicate patterns in the data
much better than big tables of numbers.” - “Much bad writing comes down to trying to avoid responsibility for what you’re saying.”
- “Clothe the naked ‘this.’ ‘This shows that markets really are irrational…’ This what?”
What are the three most important things for empirical work? Identification, Identification, Identification. Cochrane also has a list of tips for explaining your empirical work.
- What economic mechanism causes dispersion in the right hand variables?
- What economic mechanism constitutes the error term?
- Explain why you think the error term is uncorrelated with the right hand variables in economic terms.
- Describe the source of variation in the data that drives your estimates, for every single number you present. For example, the underlying facts will be quite different as you add fixed effects. With firm fixed effects, the regression coefficient is driven by how the variation over time within each firm. Without firm fixed effects, the coefficient is (mostly) driven by variation across firms at a moment in time.
- Think of reverse causality stories.
- Consider carefully what controls should and should not be in the regression. Most papers have far too many right hand variables. You do not want to include all the “determinants” of y on the right hand side.
- High R2 is usually bad — it means you ran left shoes = α+β right shoes +γprice. Right shoes should not be a control!
- Don’t run a regression like wage = a + b education + c industry + error. Of course, adding industry helps raise the R2, and industry is an important other determinant of wage (it was in the error term if you did #2). But the whole point of getting an education is to help people move to better industries, not to move from assistant burger-flipper to chief burger-flipper.
Cochrane, John H. “Writing Tips for Ph.D. Students.”
Tags: Writing
Soldiers have their gun, musicians their instrument and economists their pen. Deft writing can elucidate the most esoteric economic ideas; poor writing is boring and impenetrable. Although few realize it, writing is the economist’s trade.
Deirdre McClosky’s Economical Writing is an entertaining, practical guide for any social scientist. Below is a list of some the book’s quotable insights.
- “The big secret in economics is that good writing pays well and bad writing pays poorly.”
- “Poincaré’s good French and Einstein’s good German early in the twentieth century were no small contributors to their influence on mathematics and physics.”
- “The reader like the consumer is sovereign.”
- “The teachable trick is getting a first draft. Don’t wait until the research is done to begin writing because writing, to repeat, is a way of thinking.”
- “If you change the typeface of your draft, you will see it in a new light.”
- Read your work out loud.
- “At the end of a session, or at any substantial break, always write down your thoughts, however vague, on what will come next.”
- “A writer must entertain if she is to be read.”
- “Use titles for diagrams that state their theme, such as ‘All conferences should happen in the Midwest’ instead of ‘A Model of Transport Costs.’”
- “Footnotes should guide a reader to sources. That’s all.”
- “English achieves coherence by repetition, not by signal. Repeat and your paragraphs will cohere.”
- “What is written without effort is generally read without pleasure” – Dr. Samuel Johnson
- “…the object is not to write so the reader can understand but so that she cannot possibly misunderstand.”
- “Weak writers these days use too many commas.”
- “In revision the trick is to delete most commas before ‘the’…”
- “The most important rule of rearrangement is that the end of the sentence is the place of emphasis.”
- “The imperative is a good substitute for the passive, especially for taking a reader through mathematical arguments: ‘then divide both sides by x’ instead of ‘both sides are then divided by x.’”
- “…Be concrete. A singular word is more concrete than a plural (compare ‘Singular words are more concrete than plurals.”
- “The rule is to query every ‘this’ or ‘these.’ Take most of these out.”
- “Be clear.”
I highly recommend this book to any social scientist.
- McCloskey, Deirdre N, 2nd ed. (2000) Economical Writing, Waveland Press Inc., Long Grove, IL, 98 pages.
Tags: Writing
The latest edition of the Health Wonk Review is up at the Disease Management Care Blog.
Tags: HWR
In the UK, a dental clinic has opened in a Sainsbury’s grocery store. The grocery store dental clinics aim to fill a patient need caused by the shortage of dentists in the UK. BBC News reports,
“Dentist Lance Knight said the practice aimed at “making dental healthcare more accessible and convenient to better meet patients’ needs.”
The private surgery will go head to head with the NHS, charging £16 for a check up, which is slightly less than NHS fees.”
- Hat tip: Carpe Diem
Tags: Dentists, Retail Clinics
The Running a Hospital blog notes that a physician peer review system is absent in most hospitals. Physicians are only critiqued when something goes wrong. However, this need not be the case.
“Our Chief of Neurology, Clif Saper, originated a thoughtful practice… The doctors in his department do randomly assigned reviews of the case notes of their colleagues, with an eye towards deciding if the process and diagnosis and treatment seem warranted by the facts of the case. Those reviews, blinded by reviewer, are then shared with the attending physician. The idea is a good one, to help all of the doctors do a better job by allowing an objective review of real cases. It is specifically designed not to be threatening, though, and the results are not made public, even within the department.”
Why aren’t there supervisory physicians evaluating the work of attending physicians? Paul Levy says “no place can afford to have dozens of senior physicians standing around judging the performance of dozens of attending physicians.”
Why not? The reason is that most hospitals are paid not on quality but on a DRG or procedural basis. Hospitals do not get extra compensation for doing a good job, so their incentive to improve quality is small. If the patient can easily observe hospital quality and the hospital can gain market share by providing higher quality, then it may be in the hospitals best interest to hire a supervisory physician. It is more likely, however, that patients view hospital quality as a function of the reputation of the doctor, whether or not the hospital uses the newest technology equipment, and how the building looks. These three items may or may not be directly related to hospital quality.
When quality of care is difficult for patients to observe, Paul Levy is correct in that it does not pay to hire supervisory physicians.
Tags: Hospitals
In the N.Y. Times, Sandeep Jauhar discuss the problems with P4P.
- Hat Tip: Cato-at-Liberty.
Tags: P4P
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