Unforeseen Contingencies

America's march to totalitarianism progresses, the Republican fiasco worsens, the world economy teeters on the brink (with war to follow), madness springs on all sides... but there are much more important matters at hand.

On 6th of January I ventured with Johanna Schoen, Jeff Ross, Mats Roing, and canine advance team Chaos and Luna on a climb of Baldy Peak (8914ft/2701m.) just north of Bozeman MT in the Bridger Mountains, via the Sypes Canyon route. Baldy is two summits south of Saddle Peak, on which I reported previously. To make a long story short, we had a great day of trekking. The trail was extremely icy. Everyone but me and the dogs wore Kahtoola Microspikes, (provided by Mats, who is a Kahtoola field tester). I wore a full set of 12 point crampons, and wasn't sorry at all. Without this gear the trail would have been nearly impassable. Between pads and toenails the dogs seemed to fend well enough au naturel.

Quick summary: it took us roughly 2 hours to get to the junction with the Foothills Trail, roughly 3 miles in. The climb became considerably colder and steeper beyond this point, and Johanna and Jeff turned back. Mats and I continued on, but it turns out that sitting through 6 sessions on health care and 12 hours of econometrics lectures at the AEA/ASSA Annual Meetings is not conducive to better climbing performance. I turned back around 3:30, since I was starting to flag. Mats forged on, summited, and raced down -- we finished together in the dark and drove back to our secret compound for beer, steak, and broccoli -- a post-ordeal fare of choice.

Great times, with great friends. OK, enough blather...on to the photos. Click on each for a better view.

Lower stretches: Mats and I are caught by mountain paparazzi:


Me, just below the junction. Johanna and Jeff are visible below.


Never mind me, look at the tree. Beautiful.


Mats


Baldy


Baldy summit


Tracks

I'm back in Montana after a successful conference.

Mitt Romney is under attack by Newt Gingrich, Jon Huntsman, and Rick Perry because as an investment banker and entrepreneur, he downsized and closed firms. His republican opponents are now demonizing him for "destroying jobs." Romney responds "President Obama wants to put free enterprise on trial. In the last few days, we have seen some desperate Republicans join forces with him. This is such a mistake for our party and for our nation."

Ron Paul is an exception among the opponents, and observed that closing unproductive firms ultimately creates wealth and jobs on net. Apparently Rick Santorum (my least favorite among the GOP candidates) has also refused to attack Romney on this. Romney and Paul (and even Santorum!)are right. The only rationale for a business enterprise to exist is that it creates value, it systematically allocates resources in such a way as to maximize their value to the ultimate consumers. Otherwise it should be shut down.

This is not a principle of capitalism or of the free market, it is fundamental to all human societies -- don't do anything that isn't worth doing. The difference between free market capitalism and, say, Soviet socialism, is that capitalism has mechanisms for evaluating value -- prices, profit, and loss -- and for closing down or changing failing enterprises. Joseph Schumpeter called it "creative destruction," and without it no economic system can work well at all. The USSR did not have this -- there was no such thing as a Soviet firm closing because it was unproductive and destroying net value. That's why their system collapsed. One of the worst things about TARP and similar bailouts is that they shielded TBTF banks, such as Goldman Sachs, from the consequences of their bad decisions and instead "socialized the losses" while keeping profits private. Blocking creative destruction is a guaranteed way to ruin an economy.

That Gingrich, Huntsman, and Perry are endorsing socialist principles in their desperate attempts to take down Romney shows how utterly unprincipled, despicable, and unfit for office they are.

Update: There are quite a number of op-eds on this issue now, most of them seem to be defending Gingrich et al. and mocking the idea this position is at all "socialist." This drivel from E.J. Dionne is typical ("the critique can't be socialist because, after all, Rick Perry is a 'conservative.' QED") But here's an excellent one that actually gets the economics right, a WaPo op-ed from Kathleen Parker. Right on target! If the government is going to get involved in deciding who may and may not be fired, when a business may and may not be closed, etc. it is central planning -- which is what socialism really is. So yes, E.J., Gingrich, Perry, and Huntsman are endorsing socialist principles.

Greetings from Chicago.

I continue to follow panels on health care economics. The most interesting presentation I've heard today was, oddly enough, given at two consecutive panels. I've never heard of one paper being given twice, and I suppose it is mostly a very bad idea, but this one was worth hearing twice. Amitabh Chandra of Harvard outlined Chandra and Staiger's "Expertise, Underuse, and Overuse in Healthcare." The gist: It's been known for quite some time that there are often important regional differences in the rates of use of particular medical treatments, controlling for severity of problems under consideration. This study examines differential rates of uses of procedures across hospitals and considers 3 explanations: overuse, underuse, and expertise. In essence, some hospitals might be under-or-overusing a procedure for some reason, or maybe some hospitals have unusual competence at the procedure and hence justly use it more. Really interesting and disturbing results: there's good evidence of both overuse and expertise explanations. Among other things, this implies that standardizing treatments could be quite dangerous.

This is an area I find extremely interesting for several reasons. First, because of my family's extensive background in medicine and my own experience, I've come to appreciate the idiosyncratic nature of "what works." I’m quite convinced of the importance of evidence-based medicine, but skeptical of one-size-fits-all prescriptions, particularly from the standpoint of the provider. It's clear that two different patients with the same complaint might respond differently to a particular treatment. But even with a single patient, it is not at all clear that two different providers should use the same treatment. If Dr. A is unusually good at providing treatment X and Dr. B at treatment Y, both of which will address the problem, it's unclear that there’s a single "best" protocol that a central authority can prescribe. This ought to be obvious from basic economics (ever see an isoquant?); Chandra and Staiger put empirical teeth in this observation.

BTW, Chandra is the economist whose banana comment I critiqued in yesterday's post. To be clear, his discussion comments yesterday were particularly perceptive (he argued rather convincingly that ACA subsidies can't reasonably substitute for an individual mandate).

Meanwhile, once again Occupy the AEA made its presence felt. At least 15 of them marched along Wacker chanting "Ho, ho, hey, hey! Occupy the AEA!" and waving some poorly made signs. The only sign that wasn't hand scrawled on scratch paper had a picture of Alan Greenspan with the caption "I was wrong." I’m doubtful that anyone at the conference finds this much of a challenge to their beliefs. The Occupy AEA flyer (pictured above) denounces such a strange caricature of economics that seems rather far removed from what most economists believe and discuss at these meetings. But then, what would occupying the AEA mean anyway? AEA isn’t a space one can occupy. Maybe they intend to enroll as members?

Economists walking the other direction outnumbered them about 3 to 1, and again seemed largely unaware that this was a protest directed at them.

Simon Johnson just posted a very thoughtful & fair analysis of Ron Paul's views on money and banking. It's worth your time.

Greetings from the 2012 AEA/ASSA. This year’s meetings are being held in Chicago, one of my least favorite places to visit. I don't find Chicago very interesting or scenic...although I admit I did get a kick out of these crazy loons. I estimate there were 15 to 20 "occupiers," although a friend claims she saw as many as 30. (I'm told there are 25,000 economists in attendance here. That seems rather high to me, but it will give you an idea of the scale of things. I was particularly amused that the "occupiers" were berating a crowd of economists walking by who were mostly East Asians of apparently limited English skills, and clearly oblivious to the show. But there’s no point in complaining about facilities, locale, and locals; let’s get down to business.

I sat in on an interesting panel this morning that discussed evidence on demand-side effects of the 2006 Massachusetts insurance reform, "Romneycare." Since the MA approach is similar in some respects to the 2010 Affordable Care Act (ACA, "Obamacare"), it seems likely that the United States is going to have some variant of this, regardless of the outcome of the 2012 elections. So what did I learn?

There’s evidence that coverage of children marginally increased, there was probably a small reduction in ER visits, there seems to have been little effect on premiums for group health insurance, while non-group premiums were reduced... nothing very surprising. One conclusion is that there's no particular reason to think the Massachusetts reform, or ACA for that matter, will have any effect of reducing health care spending, or increases thereof.

To me, the most interesting results were evidence that suggest the individual mandate is crucial for preventing adverse selection – there’s very strong evidence that the mandate brought healthier people into the insurance pool. There’s also evidence that subsidizing insurance cannot compensate for absence of the mandate, and certainly not at the levels provided in ACA. Implication: if SCOTUS rules that the individual mandate in ACA is unconstitutional and separable, expect adverse selection to plague the program. No one was prepared to guesstimate the severity of adverse selection, but there was discussion of how to go about it.

One thing I noticed throughout this and a second session on demand-side effects of insurance reform is that the researchers are quite technically competent and careful, yet also seem almost entirely unaware of issues beyond insurance design. The attitude seemed to be that when SCOTUS rules on ACA, the only question should be whether the insurance is designed properly. In fact, that's not an issue for the Supreme Court. Despite explicit criticism from one discussant, the issue really is "if the government can make us buy insurance today, it can make us eat bananas tomorrow.” (His last slide showed a banana with a caption "First, let's kill all the economists.") Economics shows that without the mandate the insurance reform won’t work, fair enough. But economics also shows that governments are not maximizers of social welfare who step in to correct market failure. Governments do need to be carefully constrained, because any power given to government can and probably will be misused. Identifying some good that might be attained by granting a power is not sufficient to justify granting that power. What are the negative consequences of granting the power? How might it be abused? Where is the barrier to mandatory bananas, after all?

To bring this home, consider that the federal government just passed, and Obama signed into law, the Defense Authorization Act of 2011. Provisions in this bill effectively allows the president to have anyone in the world arrested and detained, permanently, without judicial oversight. Sure, it’s just for terrorists, so who could disagree? [Answer: anyone who understands that the intentions of lawmakers are not the same as the results a law achieves, and that self-interested governments will use powers to their own ends, not just to "maximize social welfare." You’d guess that economists would understand that, wouldn't you?]

More from the meetings tomorrow.

P.S. I don't have a link handy, but Ezra Klein of the Washington Post had a dandy short history of the proposal for an individual mandate. It was largely a Republican position, and the list of GOP lawmakers who at one time proposed or endorsed it was really something to see. These are the same government officials who are supposed to be maximizing social welfare. This is clear evidence that their interests lie almost entirely elsewhere.

Update: This isn't the history I mention above, but it's a nice list of Republicans for individual mandate nevertheless.

Here are some analyses of the primaries that strike me as particularly perceptive, and worth reading. I provide a bit of commentary on each, but my basic reaction -- what a tragic thing to happen to America. (Special thanks to Keith C. for pointing out the Salon and Taibbi pieces to me.)

CLS of the Classically Liberal blog takes a very careful and thoughtful look at entrance poll data from the Republican caucuses in Iowa. I think he's exactly on target regarding Rick Santorum, and his interpretation of the Ron Paul results seems right to me. There's a real tragedy going on, IMO. The strong Ron Paul showing really indicates that there's a serious libertarian constituency: anti-war, pro-civil liberties, economic freedom, smaller government, opposed to bigotry and discrimination. Ron Paul is really the only candidate in the fight who could possibly appeal to it, but he's not a good standard bearer at all, because he's really a social conservative with libertarian leanings, and unfortunate ties to the Lew Rockwell cult, which he refuses to abandon.

Historians Andrew Burstein and Nancy Isenberg expose the hypocrisy and ultimate irrelevance of Iowa's religious "values voters" in this Salon piece. They have a particularly insightful characterization of Santorum supporters: "You choose a president not because he is best equipped or qualified for the job, but because his 'family-oriented' positions make him the most qualified. As the nation’s chief executive, Santorum would keep Jesus in Christmas, and everything else good will flow from there." I think most of their essay is on target, although I disagree that "our values are disappearing..." or that the "Citizens' United" decision threatens liberty and democracy. A far, far greater threat is the just-signed National Defense Authorization Act, which, as Anthony Romero of the ACLU puts it, "It contains a sweeping worldwide indefinite detention provision. And it has no time or geographic limits. It can be used by this and future presidents to militarily detain people captured far from any battlefield." He correctly calls it "outrageous" and "unconstitutional and illegal." I think most Americans are disgusted with much of the mercantilism, increases and abuses of government power, losses of civil liberties, fiscal irresponsibility, and perpetual war that both parties are bringing us. But where are the "values voters" on these issues? Missing in action.

Salon's Glenn Greenwald takes progressives to task for their hypocrisy on many of these issues. He correctly identifies what is right and hopeful about the Ron Paul campaign, while sensibly recognizing its flaws. The Democrats have largely avoided looking bad of late, merely because while Republicans have been busy making making asses of themselves, the Dems have remained silent, except to criticize. Greenwald exposes the deep dishonesty behind their silence and posturing.

Finally, Matt Taibbi in Rolling Stone makes a strong case case that this whole primary sideshow is a meaningless charade. As he puts it, "This caucus, let’s face it, marks the beginning of a long, rigidly-controlled, carefully choreographed process that is really designed to do two things: weed out dangerous minority opinions, and award power to the candidate who least offends the public while he goes about his primary job of energetically representing establishment interests." And "this presidential race now feels like a banal bureaucratic sideshow to the real event – the real event being a looming confrontation between huge masses of disaffected citizens on both sides of the aisle, and a corrupt and increasingly ideologically bankrupt political establishment, represented in large part by the two parties dominating this race." I think he's largely right. And the "huge masses of disaffected citizens on both sides of the aisle" suggest our values are not disappearing. Unfortunately, the Iowa religious voters do inject a measure of dangerous theocracy into the debates by promoting the likes of Pat Robertson, Mike Huckabee, and now Rick Santorum -- theocrats who would happily alter the Constitution to impose fundamentalist Christianity as the law of the land. "Values voters" have nothing to do with actual values; they are America's Taliban.

Of course, Der Spiegel had beat all of these to the punch by identifying the field asA Club of Liars, Demagogues and Ignoramuses. Largely correct, although I strongly disgree with the charge that Herman Cain and Mitt Romney were "job-killers." Preserving failing businesses and business models, creating negative value added (i.e. earning losses rather than profits), and the like are guaranteed ways to destroy wealth and jobs, not preserve them. How odd that Der Spiegel would actually anticipate and endorse Newt Gingrich's crazy and hypocritical economics.

But the bottom line is...the primaries: ugh.

Photo: The Republican hopefuls during a break in a recent debate?

Again I will be blogging from the AEA Annual Meetings, this year in beautiful balmy Chicago. But my first adventure report of the year comes from the Bridger Mountains, just north of Bozeman MT, where today I attempted a climb of Saddle Peak (9162 ft/2793 m). I was accompanied by two enthusiastic friends, Chaos and Luna (see photos). There was more snow than I expected, and foolishly I had left my snowshoes behind. We moved up the trail (where we could find it) for three hours, and ended up at the little shelf before the last climb up to the Bostwicks. (Anyone who has run the Jim Bridger/Old Gabe 50K knows exactly where I mean, but for most readers...assuming I have readers...this is all gibberish.)

For the last hour I was breaking trail in snow up to my hips. The dogs even gave up trying to lead and simply walked in my footsteps. Eventually we began to wear down, and as the snow was increasing in depth, "we" decided to beat a slow retreat, stopping frequently to enjoy the scenery and pester a squirrel or two. I did use my crampons on the way down because of the icy trails lower in the canyon. I was a little out of shape anyway, owing to a nasty viral infection and fever over Christmas. This was a good start to the year, though.

There's now some talk that several of us will return next week, this time with snowshoes. If further adventure indeed ensues, it will be documented here.

Happy New Year!

Bridger Ridge


Chaos and Luna


Yerz troolie, Charles N. Steele

Dogs in my tracks

Squirrel!

Dog print in the snow

C-D Couloir

Here's a great news story I stumbled across in the Jordanian news service Al Bawaba. The gist is that a young woman in the Emirates found herself divorced with seven children and no decent means of support. Rather than marry any old suitor (she had a number of them) she instead struggled to hold her family together and pushed her children, especially her daughters, to become educated and independent; as she puts it "a degree is more important than the man; the degree will last them forever, but the man might not." Her daughters are now passing these lessons on to their own children.

This is how humans progress -- we acquire capital, especially human capital, and then pass it on to the next generation. This is how wealth is created, living standards improve, and civilization advances. It's neither automatic nor painless; it requires hard work and sacrifice of immediate gratifications, but it's the ultimate source of our progress.

I imagine this sort of of story disturbs the Taliban, modern evangelicals, and the like. To them, Mrs. Al Falahi "should" have subjected herself to traditional values and simply married another man...and taught her children to likewise remain ignorant and powerless. This story represents the triumph of Enlightenment values of reason and knowledge over blind subservience to pre-modern tradition and authority. But while it is really only a tiny "human interest" news item, barely even registering anywhere, it is non-events like these that really drive the advance of civilization. The world is a more hopeful place than our news stories are able to recognize.

Unforeseen Contingencies salutes Badriya Al Falahi and her family, and everyone who seeks to better themselves and the world through acquiring knowledge. Kudos to the editors of Al Bawaba for making this their "Editor's Choice."

From our new compound hidden away in the wilds of Montana, Happy New Year from Unforeseen Contingencies!


Photo: Johanna Schoen and UC Blogger-in-Chief Charles N. Steele, 24 December 2011.