Where were the economists last fall?

Out to lunch, opines Paul Krugman, in this well written intellectual history ranging from Adam Smith to Ben Bernanke.

Until the crisis, efficient-market advocates like Eugene Fama dismissed the evidence produced on behalf of behavioral finance as a collection of “curiosity items” of no real importance. That’s a much harder position to maintain now that the collapse of a vast bubble — a bubble correctly diagnosed by behavioral economists like Robert Shiller of Yale, who related it to past episodes of “irrational exuberance” — has brought the world economy to its knees.

According to Krugman, our focus on "beauty" caused us to miss the "truth" of the credit, real estate, and asset bubbles.  His conclusion reminds me of one of Ronald Reagan's favorite sayings: "an economist is someone who sees something in practice and then wonders if it can exist in theory."

Solving Adverse Selection Mafia Style

Under Japan's revised Anti-Organized Crime Law, higher-ranking gang members can be sued for lower-level members' activities. Potential "new hires" (who will come in as low-level members) know whether they are familiar with the dictates of the law while the "employers" (high-level members) don't know who is more or less likely to get them into trouble. I suspect some high-ranking members of the Yamaguchi-gumi purchased a copy of everyone's favorite managerial economics textbook because they are now using a screen to identify the "good" type neophyte gangsters.

Japan's largest and most notorious organized crime group, the Yamaguchi-gumi, is forcing members to take a "gangster exam" in order to reduce costly damages suits, police have discovered.

Questions included "What kind of activities are banned?" with "dumping industrial waste; bootlegging fuel; theft of construction vehicles and other expensive items; phone fraud scams" etc. listed as the correct answers.

The model answer to the final question, "What are you required to do in all your activities?" was: "report and consult with my bosses."

Unintended Consequences - Cash for Clunkers Edition

What industry was most adversely effected by "Cash for Clunkers?" Probably demolition derbies. See the story in Time.

Hat tip: Alex Ward

Why are there so few strikes?

The alternatives to agreement determine the terms of agreement:

Cutting out the middle man

Pharmaceutical Benefit Managers design and administer pharmaceutical services on behalf of employers and insurance companies.  They negotiate with upstream drug companies and with downstream retail pharmacies (some also use mail) to deliver drugs as efficiently as possible.  Now Caterpillar is managing its own pharmacy benefits program:

Caterpillar will negotiate pricing directly with Wal-Mart and Walgreen instead of paying a PBM to handle that part of the business. Savings will come through lower prescription drug costs for Caterpillar. ...

As part of its arrangement with Caterpillar, Walgreen will offer Caterpillar employees discounts on nonpharmacy goods. Walgreen and Caterpillar are also talking about expanding the program to provide health clinics at or near certain Caterpillar offices, Mr. Bisping said.

Do financial consumers need protection?

Former colleague Todd Zwyicki says that consumers are substituting credit card debt for other kinds of debt, like revolving credit from, e.g., from an appliance or furniture store. (9 minute video)

Adverse Selection Among Health Care Workers

Potential employers have access to a federal list of physicians disciplined by state licensing boards. The federal government created a similar list of nurses, nurse aides, pharmacists and pharmacy aides, but even after 22 years, employers do not have access to this list. Why not? From NPR's "Morning Edition" we have:

By law, it was supposed to be open to hospitals and nursing homes when they hire staff and want to run a background check. But the Department of Health and Human Services never completed the regulation implementing the law. Turns out, slow-moving bureaucracy is the main culprit.

Some comments:

• Does the comparison of HHS to the DMV do injustice to the DMV?
• Employers will typically have access to their state's list. But which health care workers are more likely to move across state lines?
• Is NPR trying to undermine health care reform?

Performance Contracts in Health Care

This story by NPR's "Morning Edition" is about a novel contracting form between a health insurance company and a health care provider. Traditional "fee for service," encourages more services, many of which may be unnecessary, and an under-provision of preventative care and counseling, because it is difficult to contract over something you cannot effectively measure. Instead, this experiment pays for performance measures, such as actual health outcomes and decreased need for future procedures. The firms have innovated on the contract form in order to create value to the insurance company, the provider, and ultimately the patient.

I do not know if NPR included this near the end as a dig at health care reformers.

It's kind of interesting that Washington is reforming health care, when they're not the ones in the room with the patient, and that's really what this project is about: letting the people in the room with the patient reform health care.

and

Under this new model, we're accountable ...

Taxes create opportunities

Taxes deter wealth creating transactions.  But they also create opportunities for those know how to evade them"

A [Massachusetts]  lawmaker who voted to hike the state sales and alcohol taxes was spotted brazenly piling booze in his car - adorned with his State House license plate - in the parking lot of a tax-free New Hampshire liquor store

eBay Sells Skype

Internet auction site, eBay, announced yesterday that it is selling off a majority interest in Skype, which provides voice and video connections over the Internet. Apparently there were fewer "synergies" between eBay and Skype than originally claimed, although it looks like the acquisition and subsequent sell-off won't end up costing eBay that much in dollar terms.

eBay (EBAY) will sell a controlling share of the Internet-calling service to a group of investors led by private equity firm Silver Lake for $1.9 billion in cash and $125 million in short-term debt. The sale values Skype at $2.75 billion, not far below the price eBay paid for the business in 2005, and higher than the value recently placed on Skype by some Wall Street analysts.