Moral case for markets

A little over-stated, and too preachy for my taste, but fast paced. 

Auto Learning-by-Doing is Embodied in the Managers

While on my European excursion to multiple conferences (read junket), I was able to see Chad Syverson present his research coauthored with Steve Levitt and John List called, "Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant." It seems that as a production line is setup for a new car model, there are substantial increases in productivity (2-3 fold) up to a point, at whch point it plateaus. But when a new model trim or work shift (usually a swing shift) is added, the productivity does not jump back to that of the initial model/trim or shift. And when problems are detected for one trim or shift, they are mostly fixed for all. This suggests that the learning-by-doing is not "embodied" in the workers but instead resides in the management practices. It is the job of managers to make sure that knowledge gained in one place is applied wherever it is useful.

Patient Affordability and Care Act, explained

HT:  Carpe Diem

50 best blogs by business professors

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Should young people join the tea party?

Niall Ferguson, historian of the financial crisis, is surprised that young voters support policies that make matters worse for them, like maintaining defined benefit pensions for public employees

...the most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly 13 times the debt as stated by the US Treasury. Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.

These numbers are so staggering, that we have run out of adjectives and metaphors to describe them.

The Affordable Care Act just became unaffordable

Last week, the Supreme Court ruled that the federal government could not punish states that refused to expand Medicaid (to 133 percent of the federal poverty line) by yanking their existing Medicaid funding.

So what does this mean for states?

...beginning in 2014 they could pare their Medicaid program back to the federally-designated minimum (100 percent of poverty), saving the state a lot of money. Everybody between 100 percent and 133 percent would be eligible for insurance subsidies – with the federal government (read: taxpayer) picking up the entire tab.

For states, this is a clear winner – covering more individuals and saving budget dollars at the same time. But the taxpayers will have to pick up the full cost of the additional and generous insurance, probably about $500 billion over ten years.

Waiting on disater

... in Colorado, from a former student:

 if you really want to keep houses from burning, you would not provide insurance against forest fires (i.e. people will start cutting down the trees around their homes or choose to live somewhere else). 

The hail damage part of the article really is a story about adverse selection and moral hazard. About 20 years ago, we had a huge hail storm that pretty much got everyone new roofs. My experience since that time has been that people learned that if they wait it out on their roof updates, that they can eventually get their insurance policy to cover a new roof. Apparently, over the past few years, strong-enough hail storms finally hit and paid off to the homeowners (at least the irresponsible ones).

Why are so many scammers from Nigeria?

Its a screen to get the gullible to identify themselves.

Why, given the scam is relatively well known these days, would a scammer still purport from Nigeria or from another West African nation given the association of advance free fraud with the region?

In retrospect the answer to this question is obvious. According to Cormac Herley, principal researcher at Microsoft Research's Machine Learning Department, it's because scammers aren't necessarily interested in seeming believable: They are looking for the most gullible victims they can find, to maximise return on their effort.

The screen ensures that the scammers spend time only with those gullible enough to send money

Even through rose-colored glasses, Illinois pensions look terrible

Illinois is cooking the books:

A quick bit of pension accounting 101- -The “funding ratio” (currently 46% according to this article) is basically how much money the fund will have as a percentage of how much it should have (so, in the case of Illinois, even if the fund magically doubled they still wouldn’t be where they need to be).

-The “return target” is a number used to calculate the funding ratio (a higher return target makes predictions more rosy). Illinois Teachers’ return target of 8.5% is extremely high; if they lower it to 7.5%, where Tennessee is, the funding ratio will go way down (and make things look much worse).

Bottom line: things look terrible even using overly optimistic assumptions; it’s going to get nasty if and when they use more appropriate ones. They are already having to sell billions of assets every year to meet their payroll. ... I don’t know how this plays out, but I do know it’s going to hurt.

Latest from Nashville's own Merle Hazard

Behind this homage to 60's surf music are a couple of ideas from the book: "look ahead and reason back"; and "the alternatives to agreement determine the terms of agreement."

Simple models can be used to predict that two parties bargaining over what happens in the future would reach some kind of compromise today that reflects what happens after we hit the fiscal cliff: whomever is hurt more by the cliff should be more willing to reach agreement, and that should be reflected in any compromise.

However, for some, it may be that the cliff is preferred to compromise, perhaps because past compromises have dug us into such a deep hole.