State of the Union, It isn't all competition with China

Quick thought on the State of the Union. I don't like setting up the US as in competition with China or India. In some cases this is true, we compete for jobs when a factory choses between China and Cleveland. But, one of Obama's goals is to raise our exports, one of the ways this is most likely to happen is if China and India continue to grow. As the Chinese and Indians grow richer they purchase more goods from the US.

Perhaps this is best demonstrated by the recent announcement that GM sells more cars in China than the US.

It is also worth reading this post from (Kids Prefer Cheese) reminding us that 20 years ago, it was the Japanese who were going to overtake the US.

Regression to the Mean and Tackling Health Care Cost

Atul Gawande has a great piece in a recent New Yorker [the abstract is here]. It talks about programs aimed at reducing costs for the patients that have the highest medical expenses. Megan McArdle has a great discussion of the piece on her blog.

The thing that struck me the most is the big reduction in cost some programs that offered support services to patients whose medical expenses reached millions of dollar a year were able to achieve. I wasn't the reading the article with my economics thinking hat on, so I hadn't thought about a control group. As Atul pointed out and my econ thinking cap came on even without a program we would likely expect that some expensive patients would have better years the next year (not get hit by a car or fall down) that is they would move back toward the mean medical expenses for an average person. So even without a program their expenses might fall. It highlights the importance of having a non-treated comparison group.

Related an economist friend said the best way to show regression to the mean is to took look at batting averages for baseball players up until the All Star Break and then their final average.

Silver Spring Econ: Whole Foods No Self Checkout and Cheaper Coffee

A couple of thoughts on the Whole Foods located just blocks from my house in downtown Silver Spring. In my area along with Whole Foods we also have a Safeway and Giant grocery store, which unlike Whole Foods have self check outs. I love this since I'm Safeway about 3 times a week. The Safeway self checkout seems to work better (although I don't go to Giant much), because there is 1 line for the 4 self check out kiosks, while at Giant there is one line for each kiosks, except for one line that is for the two under 10 item kiosk. Whole Foods, does not have a self checkout though in Silver Spring, but it does in other places.

So I why might Whole foods not have self check out, first Whole Foods shoppers buy a lot more non bar-coded items so ringing up your own groceries is harder. Second, Whole foods items on average cost more, so miss scanning items cost more.


Another thing surprised me about my trip to Whole Foods this weekend. They have one of the cheaper cups of coffee around town (I think $1.30) for a similar small at Starbucks it's $1.50 and $1.55 at Panera. I think Borders is even more. You could argue quality, but I don't think there is much difference. So perhaps cheap coffee (is a loss leader) or coffee gets you to buy more (I'm on to you Trader Joes with your small cup of coffee).

I'm now off to Carribou Coffe, which has $1 medium coffees on Mondays (which makes it more cheaper than the small), could it be they are trying to get me hooked, normally deals are found when demand is lower (lunch specials, matinées), but I'm guessing Monday is not the low point for coffee demand.

I wish I was going to Highland Origin, but they temporarily closed my favorite coffee shop so they could add an Ethopian restaurant to it, words you don't hear many places in the country.

How to Help the Orioles and Nationals

Henrik Kleven, Camille Landais and Emmanuel Saez looked at movements and performance of top soccer players in 14 countries over decades, tracking successive tax regimes and salary. Tax rates, they found, matter to players, motivating them to shift locales and affecting the record of their teams.

(Bloomberg) discussing this recent paper

According to Business Week my two local baseball teams the Baltimore Orioles and Washington Nationals have the 11 and 15th highest income taxes for major league cities with only NYC and SF being higher for MLB cities.

In short to give the same income to a player as Seattle, Texas or Houston the Nationals and O's must offer almost 9% more to offset income taxes.

So if Spain can give David Beckman a 50% tax break, I figure as a baseball fan why not give the O's and Nationals one too for free agent signings.

As an economist though, I'm skeptical it's a good idea.

h/t to Pete for passing on the article

Microcredit crisis? Part II

"Microcredit had this magical glow to it," Roodman said. "It's gone away, and that's healthy. But you wouldn’t say that just because of the mortgage crisis, we shouldn’t have mortgages."
David Roodman while being interviewed by Planet Money

The above quote is in response to a recent piece by Mohhamed Yunus in the NY Times about how microcredit was running into problems because private organizations had begun to lend money with the idea of making a profit. I have blogged recently about the microcredit crisis, where default rates on microcredit have sky rocketed in India.

Both Roodman and Yunus know far more than I do about microcredit, but I tend to side with Roodman that what works for Yunus in Bangladesh might not work in other places. As Roodman points out in this excellent longer post on his blog without international capital looking for some profit many wouldn't receive microcredit. Particularly in Latin America and Africa where population density is lower, so reaching borrowers is more costly and interest rates need to increase.

I would also suggest for further interest in the topic this piece in the New Yorker and this Planet Money broadcast

Economist in Love (me!) Welcome Spousonomics Readers

If you regularly read the blog of diminishing returns head over to Spousonomics for my Q&A about a very special economist in love. Spousonomics is a new blog to promote a book about the economics of being in a couple.

I had a blast answering the questions, and I scored bonus points with my wife Marie so I call it a win-win.

I'm looking forward to purchasing a copy of the book when it comes out on February 8th (can you guess what Marie is getting for Valentines day?). Also I'll blog a review shortly after.


If you are a Spousonomics Reader, welcome to my blog. Check out a few posts and let me know if you have questions or topics you would like to hear about.

Food Stamps at Restaurants?

San Diego just joined the LA area in allowing some recipients of food stamps to use their funds at restaurants.

The eligible recipients are the homeless, elderly, and disabled who may lack adequate kitchen facilities or the ability to prepare foods. Not surprisingly the list of restaurants taking food stamps includes famous fast food places like Pizza Hut, Subway, and KFC. The good news is it also includes El Pollo Loco, which I thought was pretty tasty the one time I was in LA.

However, it is unclear if the new program is a good use of resources. From the San Diego article one supporter of the proposal says

"This would be no different than going to the supermarket, which has healthy and not so healthy choices," he said. "I hope people understand that and hope they make healthy choices.

I tend to agree with this statement, my guess is that the nutrition from purchases at supermarket probably isn't that different from the restaurants. In welfare programs like food stamps we limit recipients choices (for example they can't buy alcohol with the funds).

Intermediate micro theory assumes a rational person and shows in short with cash recipients could purchase the same food or something they like better, so cash is the better option. It may be worth realizing though we aren't maximizing the happiness of the recipient, but a combination of the recipient and the tax payer who might have different preferences.