Are You More Honest Than a Fifth Grader?

Cheating on tests in China has become so bad that the Liangzhou Discipline Inspection Commission and Organization Department got 5th graders to monitor exams for police and judges.

Of all of the exam takers vying for 66 district-level judge, prosecutor and investigator positions, students identified 25 alleged cheaters, whose test results were disqualified, the report said.

...

Cheating on tests is common in China, where pressure to pass competitive exams for entrance to university, civil-service jobs and other coveted positions is intense.

This is one reason admissions decisions for Chinese students to US universities are so difficult

Computer trading makes markets better

The hype against high frequency trading is misplaced:

...some algorithms basically infer the price increase from trades, getting rid of the profits otherwise available. But these are all short term scenarios, and basically make a market efficient. That is, say Apple announces good news, suggesting a sharpe bounce in the stock. An investor tries to buy, and would like to trade 1MM shares, but clearly that's too much, so he puts in an order for 1000, then next minute, another 1000, and another. A machine might sense the pattern and basically jump on for the ride with him, diluting his profits. Is that bad news? Only for the short-term trader. For the longer run investor oblivious to this, who was on the other side, they got to sell at a higher price (the price rose faster than otherwise). The short-term speculator basically makes less because the algorithm reverse engineers his insight. This is the essence of an informationally efficient market, where news gets into the price asap. That those at the bleeding edge are making a profit is not a bug, it's a feature.

Can better information lead to worse policy?

Congress thinks so:

WASHINGTON (Reuters) - A panel of U.S. lawmakers voted on Thursday to prohibit the federal government from "denying or rationing" medical care based on studies comparing medical drugs and devices.

The U.S. House of Representatives Energy and Commerce Committee passed the Republican-sponsored amendment, despite objections from Democrats. It is a potential win for drug and medical device makers, which argue that such comparison studies could favor cheaper treatments.

Income elasticity of demand for hotel rooms

Apparently, it is about +4:

... thought leaders envisions lodging demand recovering at 4 times the rate of the general economy -- as part of a "snap back" to make up for the unprecedented 4 to 1 decline we have just experienced. Such a snap back would create some very interesting and positive results for hotel profits and hotel values!

Happy Birthday Milton

Watch the great economist eviscerate Phil Donohue, with a light touch, in only three minutes:

Computer Care Crisis?

One piece of evidence for the existence of a health care crisis is that the spending on health care has grown very fast. Implicit in the claim is that increasing cost, and not increasing demand, is the main cause for the rise in expenditures. Such an upward shift in supply might be a concern. Yet there is considerable evidence that new treatments, drugs and levels of care have increased the quality of care. Just how much would you be willing to pay for one more QALY? This upward shift in demand is simply the reward to providers for doing a better job.

To make the case more forcefully, one can compare healthcare expenditures with computer expenditures. The Bureau of Economic Analysis (BEA) website with the Industry Economic Accounts (IEA) contains data on the dollar value of output by industry over time. I aggregated the industries that I consider to be "Health" and "ICT," basically computers, software and telecom. (Since I am not familiar with the health data, I could be missing some industires.) Normalizing 1998 = 100 you get:
















I doubt policy makers would claim that computer costs are "out of control" requiring an overhaul of the "computer care system" with more direct government intervention in the "computer services delivery." I suspect that nearly all of the growth in computer output is due to greater demand from ever better products and services from amazing innovations. In fact, there would be a fear that more government intervention might stifle the flow of yet-to-be-developed innovations. Might the same apply to healthcare?

What's so funny about rationing care?

George Bush blew his chance to reform social security by proposing changes that did nothing to address the out-of-control costs of the program. His proposal for private accounts went down to defeat. Similarly President Obama’s (or Congress’) health care proposals do nothing to address the out-of-control entitlement programs (Medicare and Medicaid).

Either a European style system, where care is rationed by queuing or by treatment, or a market-style system with big deductibles or co-payments, where care is rationed by price, would control costs. The point is that we have neither. There is no mechanism in either the status quo or the various Congressional proposals to control costs, and this is the legacy of the Greatest (and now Obama's) generation: we lack the political courage to ration care.

Bundled pricing in German brothels

In an effort to boost business in these tough economic times, German brothels have introduced flat-rate sex promotions. Similar to an "all-you-can-eat" pricing at a restaurant, the promotions allow patrons to consume as much as they want. The promotion is not illegal, but it has led to objections from some law makers.

“This is an outrageous violation of human dignity,” Heribert Rech, the Baden-Württemberg interior minister, told The Times.

“So-called flat-rate sex is an immoral development which cannot be tolerated in our society.”

If flat-rate pricing is immoral; is per-unit pricing moral?

California Budget Stalemate

Not just this year, but year after year, the California state budget fight appears to be more intractable that anywhere else. One claim is that the the budget is balanced on the backs of very few taxpayers. So poked around for the data and found them online at the California State Franchise Tax Board Website. These data are very interesting to numbers geeks like me. For 2006 it is true that the 5,896 tax filers with incomes of $5million or more were liable for 21% of all tax receipts. But, their average state income tax rate was "only" 10%. Perhaps more interesting is that FTB provides a table with filings, total income and tax liabilities by income category. From this table it is relatively easy to construct a Lorenz curve comparing what fraction of income is earned by what fraction of earners (or filers in this case).



















The more "curved" it is the more uneven the income distribution. About one-third of all income is earned by the top 5% of tax filers. I had expected this to be even more "curved." When you do the same thing for tax liabilities, you get:




















The same top 5% of high earners are responsible for about two-thirds of total tax liabilities. With this visual representation, it becomes a bit more clear why high earners are trying so hard to hold the line on tax increases.

"Bailout" from Nashville's own Merle Hazzard