Wednesday, April 20, 2016

How is Nashville like SF?

Both have restrictive zoning that drives up prices which leads to calls for more affordable housing, which results in further restrictions on supply, or vouchers that increase demand, both of which further drive up prices.

A surprisingly clear report from California noted much the same:
“Many housing programs — vouchers, rent control and inclusionary housing — attempt to make housing more affordable without increasing the overall supply,” the report said. “This approach does very little to address the underlying cause of California’s high housing costs: a housing shortage.”

So, why does this happen?  Reason blames self interested home owners, renters in rent-controlled apartments, and the politicians who kowtow to them at the expense of largely poor people who cannot get subsidies and would-be homeowners:
Homeowners have a strong economic incentive to restrict supply because it supports price appreciation of their own homes. It’s understandable. Many of them have put the bulk of their net worth into their homes and they don’t want to lose that. So they engage in NIMBYism under the name of preservationism or environmentalism, even though denying in-fill development here creates pressures for sprawl elsewhere. They do this through hundreds of politically powerful neighborhood groups throughout San Francisco like the Telegraph Hill Dwellers. 
Then the rent-controlled tenants care far more about eviction protections than increasing supply. That’s because their most vulnerable constituents are paying rents that are so far below market-rate, that only an ungodly amount of construction could possibly help them. Plus, that construction wouldn’t happen fast enough — especially for elderly tenants.

Why are Chinese bond yields rising?


From Bloomberg:
Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, and Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003.
Remember that an increasing yield means a declining price, which represents a decrease in demand, as inestors (lenders) demand higher return to compensate them for the higher risk. 
HT:  MarginalRevolution.com

Monday, April 18, 2016

Is Iran free riding on OPEC?

If OPEC and seven other oil-producing nations agree to cut back output to raise price, this will benefit Iran, the big oil-producing nation who refuses to cut back output.  Such ``free riding'' can be modeled as a pricing dilemma.  In fact, Iran's free riding seems to have caused the entire agreement to collapse:

Mr. Novak explained that the 11 OPEC states and seven outsiders present during the meeting had spent two months drafting an agreement that would cap oil production at January levels in an effort to stabilize oil prices, and it was all undone by the fact that Saudi Arabia, Qatar, UAE, and "predominantly other Gulf States" insisted that Iran be included in the deal (Iran did not attend the talks).

Sunday, April 10, 2016

US public pensions face "grave difficulties."

I have been warning about under-funded US state and city pensions since the first edition of our textbook.  The latest warning tells us to look for bankruptcies in 5-10 years:
The Stanford study found that the states of Illinois, Arizona, Ohio and Nevada, and the cities of Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues. 
In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services.

Hank Kim, executive director at the National Conference on Public Employee Retirement Systems, a trade association for public pension plans in the US, called Mr Rauh’s study a “manipulation of arithmetic” and “The [public pension] plans are in good shape and are headed to being in even better shape,” he said.

I  hope that the economists who study this problem won't quit writing about it.  But I suspect they are feeling a little like Cassandra who was given the gift of prophecy by Apollo, but because she rebuffed his advances, she was also cursed so that no one would believe her.
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Friday, April 1, 2016

Why have re-admission rates fallen? (answers)

Based on comments to our earlier post about re-admission rates falling, I think I know know the answer:

1.  re-defining "admission" as "observation": Many Medicare patients are placed under “observation status’’ when they arrive at a hospital. That means they are considered outpatients and are not formally admitted, even if they are given a bed.  As a result, “the ratio of observation use to inpatient stays per 1,000 beneficiaries increased by 94 percent.” (link here)


2.  Hospitals are offering (better?) alternatives to hospital re-admission, e.g.,
"...we created a triage clinic--essentially a "walk-in" clinic for our patient population to be seen with any urgent issue after discharge. This has cut down on both ED visits and re-admissions."

Why has the European political left fallen on such hard times?

[article from the Economist]: There is old joke that a righty is just a lefty who has been mugged by reality.  In France, President Hollande has been mugged by the markets:
Elected in 2012 on the slogan “time for change”, he promised to curb austerity and reboot the economy. But a 75% tax rate on the rich was dropped after bringing in paltry receipts. The rest of the euro zone insisted that deficit limits which had previously been ignored now had to be taken seriously. With markets breathing down his neck, unable to devalue and spooked by the prospect of France being lumped in with the EU’s struggling south, Mr Hollande cut business taxes and made savings in the budget.

Bottom line:  markets punish politicians much more quickly and effectively than voters ever will.

Why have re-admission rates fallen?

The Affordable Care Act ("Obama care") began imposing penalties, and it seems as if hospitals have responded.  Mother Jones is skeptical about the results, as this would represent an almost perfect response to the ACA penalties:
the chart is almost too perfect. For four years the readmission rate is dead stable. Then, in a single month between December 2010 and January 2011 it suddenly drops by a full percentage point, and continues dropping for two years. This decline started about eight months after the passage of Obamacare, and it's hard to believe that hospitals could react that quickly. 
Then, the very instant that penalties begin for high readmission rates, everything stabilizes again. Apparently America's hospitals unanimously decided that once they'd hit a certain level, that was good enough and they wouldn't bother trying to improve even more.
I can think of several explanations, e.g., it may be that:
  • Hospitals are refusing admission to particularly sick patients, likely to get re-admitted; 
  • Patients are getting re-admitted to other hospitals; 
  • Hospitals are giving patients prophylactic antibiotics,  which reduces re-admits, but also creates new antibiotic-resistant superbugs.  
  • Hospitals are steering them to clinics and outpatient services, (the "good" outcome).
I would love to hear from former students (pls post in comment section) as to what they think is causing the change.  

Thursday, March 31, 2016

Are the Golden State Warriors committing the "best practices" fallacy?

The New York Times Magazine has a good article on how a venture capital firm took over the Golden State Warriors and turned a $450Million investment into $2B enterprise.

While reading the article I couldn't shake the feeling that the article, and the GS organization, were falling victim to the “best practices” fallacy:  that you adopt a practice that leads to an outcome, and you mistakenly infer causality.  It could be, but I am enough of a skeptic to remain unconvinced.

Monday, March 21, 2016

Does the Proposed Paint Merger Create Value?

Sherwin-Williams announced that it intends to acquire rival Valspar in a $9.3 dollar deal. What do the markets think of the deal? The stock market price of the target, Valspar, increased by 19.44 points (23.19%) on the news.
The stock market price of the acquirer, Sherwin-Williams, however, fell 14.59 points (5.37%) at the same time.

But because Sherwin-Williams has more shares outstanding, comparisons made from these amounts are not quite right. Multiplying price changes by the number of shares yields an increase in value of $1.538 billion for Valspar and a decrease of $1.345 billion for Sherwin-Williams. On net, shareholder value rose. The markets think assets would be moved to higher valued uses.