Why does women's pay fall behind after they have children?

Note the last sentence by the reporter: after she identifies a likely reason for the pay differential, she asks "is this an appropriate reflection of their lower productivity?," implying that someone else (perhaps the government) would be able to choose a better compensating differential than the market.

The Best Entry Barrier is a Government Entry Barrier

The whole quadrupling of the price of EpiPens episode inspired Scott Alexander at Slate Star Codex to write a wonderful little allegory.

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

(You’re going to say this is an unfair comparison because drugs are potentially dangerous and chairs aren’t – but 50 people die each year from falling off chairs in Britain alone and as far as I know nobody has ever died from an EpiPen malfunction.)

Imagine that this whole system is going on at the same time that IKEA donates millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you have really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

There is more detail about instances of each of the implied claims of thwarting competition in EpiPen-like products, but this part is just beautiful.

Liberals worry about the short-run; conservatives about the long-run

Tyler Cowen reviews a book written by Clinton's chief economist who wants government to take a much larger hand in paid sick leave, parental leave, and care for the elderly, among other issues.

Professor Cowen correctly points out that, at best, the policies can have only a short-run effect.  As anyone who has read chapter 9 realizes, in the long run, attractive mandated benefits means that a firms do not have to pay as much to workers to attract them:

So let’s say America’s future means better sick leave and pregnancy leave for employed women, but a narrower choice of jobs, including lower pay, for those same women. Is that better? And do we trust the legal machinery of government to be making that decision anew over decades of social and economic change? Keep in mind that there is an alternative mechanism, which for all its imperfections is far more flexible: Let companies and workers make such decisions through employment bargains.

And this cannot be good:

Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.”

The idea that her policies would have only a small long-run effect probably reflect a deeper philosophical belief:

Charles L. Schultze, chief economist for former President Jimmy Carter, once proposed a simple test for telling a conservative economist from a liberal one. Ask each to fill in the blanks in this sentence with the words “long” and “short”: “Take care of the ____ run and the ____ run will take care of itself.”

Liberals, Mr. Schultze suggested, tend to worry most about short run, while conservatives are more concerned with the long run.

What could possibly go wrong?

In Los Angeles, why do equivalent land parcels sell for 35% difference?

New paper compares sales of individual parcels of land to sales of plots that are immediately assembled into bigger aggregate parcels used for building higher density buildings, like high-rise apartments. Controlling for amenities like distance to a highway and access to commuter rail, the authors find that soon-to-be-assembled parcels sell for 35-40% more than similarly situated individual parcels in the same neighborhood.

Why?

The 40% price differential means that it is not possible to turn individual parcels into soon-to-be-assembled parcels for one of two reasons:

1.  Zoning, like that in Sweden where residents can veto new development plans, makes it difficult, if not impossible, to assemble bigger individual parcels into plots of land (on which higher density apartments can be built).

2.  The hold out problem, where owners of individual parcels of land hold out in expectation of a better offer.  This is a type of "free riding," that can be analyzed as a prisoners' dilemma.

Either or both of these problems could account for the premium on land that can be assembled into larger parcels.

HT:  Marginal Revolution

Legal Markets in Kidneys

Q: What bastion of free market liberalism has virtually eliminated the waiting list for kidneys and dramatically reduced deaths due to kidney failure?

A: Iran

Will bundled payments change health?

CMS is changing the way that Medicare and Medicaid pay providers:

The CMS announced a proposal last week to put three new episodes of care under mandatory experiments with bundled payments, potentially compelling hundreds of additional hospitals into becoming financially accountable for what happens to Medicare patients long after they leave the hospital. 

In theory this is supposed to align hospital incentives more closely to the health goals of a patient.

“All those involved in healthcare have always wanted the best for their patients. Providers now have a greater amount of skin in the game and risk in the outcome.”

What could go wrong?

Why do we spend so much on health care?

Its the incentives, stupid!  The Atlantic has a nice summary of the problem.

Ten days after my father’s death, the hospital sent my mother a copy of the bill for his five-week stay: $636,687.75. ... but why should my mother care? Her share of the bill was only $992; the balance, undoubtedly at some huge discount, was paid by Medicare.

And what about President Obama's Affordable Care Act?

Like its predecessors, the Obama administration treats additional government funding as a solution to unaffordable health care, rather than its cause. The current reform will likely expand our government’s already massive role in health-care decision-making—all just to continue the illusion that someone else is paying for our care.

A better solution would limit the government's role to catastrophic insurance:

...a threshold of $50,000 or more ... (Chronic conditions with expected annual costs above some lower threshold would also be covered.) ... But the real key would be to restrict the coverage to true catastrophes—if this approach is to work, only a minority of us should ever be beneficiaries.

But what about poor people who cannot afford catastrophic insurance?

...the government should fill the gap—in some cases, providing all the funding. ... If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year. That’s a $12,000 annual HSA plus catastrophic coverage for a low-income family of four. Do we really believe most of them wouldn’t be better off?

Are we too risk averse?

Yes.  At least according to a clever natural experiment run by Freakanomics author, Steven Leavitt.

He made a website and asked listeners of his podcast, readers of the Financial Times and Forbes, and Reddit users to help him out by visiting it. They were invited to give details of a big decision they were struggling with, then witness a coin toss to help them make up their mind. Mr Levitt then followed up with them twice, after two months and after six months, to ask whether they had made the change, and how happy they were.

Those who made the change, away from the status quo, were happier.

For policymakers, the lesson is that the status quo is a powerful thing. And for those tired of hearing their friend obsess over whether to dump a disastrous boyfriend, they have a new weapon in their armoury—in their wallet.

Pension train wreck accelerating due to low yields

We will keep blogging, until the republic falls, about our under-funded pensions.  Falling investment returns are accelerating the train wreck:

Société Générale’s Andrew Lapthorne illustrates the problem a different way. If someone today invested $100,000 in a balanced portfolio of stocks and bonds, they could expect a return of $21,800 over the next two decades after costs. Ten years ago, that same investor might have expected to make $60,000, and three decades ago $150,000.

Kudos to the Financial Times for picking up on this story.  Unfortunately, if past is prologue, few will read it and nothing will change.  

There are ways to avert a true social crisis. Mass poverty in old age can be avoided. But the options are unpalatable. “We will have to save more, work longer and simply lower our expectations,” says Joachim Fels, a global economic adviser at Pimco, the bond fund manager. “That’s the sad truth.”

Can you beat the market?

Our Friends at MR University have the answer: