Wednesday, November 30, 2011

US Flips From Voracious Fuel Importer To Fuel Exporter

From The Wall Street Journal, "U.S. Nears Milestone: Net Fuel Exporter" by Liam Pleven and Russell Gold:
U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.
According to data released by the U.S. Energy Information Administration on Tuesday, the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels.

Tuesday, November 29, 2011

Cleveland Fed Predicts 0.8 Percent Real GDP Growth Next Year

From Federal Reserve Bank Of Cleveland, "Yield Curve and Predicted GDP Growth" November 1, 2011, Covering September 23-October 28, 2011, by Joseph G. Haubrich and Margaret Jacobson:
Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 percent rate over the next year

More Mortgage Borrower Rights Delay But Do Not Decrease Foreclosures

Increasing mortgage borrowers' foreclosure protection rights neither increase renegotiations of the defaulting mortgages nor decrease the number of foreclosures. The extra consumer rights just delay the inevitable foreclosure. They are an unnecessary and useless added process and expense.

From Federal Reserve Bank Of Atlanta, Working Paper Series, "Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process" by Kristopher Gerardi, Lauren Lambie-Hanson, and Paul S. Willen, Working Paper 2011-16, November 2011:
In other words, in the long run, a given number of defaults is expected to yield the same number of foreclosures regardless of the laws. These borrower-protection laws do not prevent foreclosure, they merely delay it.

The third metric for the effectiveness of lengthening the foreclosure timeline involves looking at the likelihood of renegotiation between borrowers and lenders. One powerful argument for increased borrower protection is that it facilitates renegotiation, both directly by allowing borrowers more time to make the case to their lender and indirectly by increasing borrower bargaining power. We find no effect of longer foreclosure timelines on the likelihood that a borrower receives a mortgage modification or, in the case of the right-to-cure law, on the difference in modification rates across states.

Men Honestly Overate Their Job Performance More Than Women: Reason For More Male Bosses

From ScienceBlog, "Honest Overconfidence May Lead To Male Domination In The C-Suite:"
A study conducted by Columbia Business School’s Prof. Ernesto Reuben, Assistant Professor, Management, alongside Pedro Rey-Biel, Associate Professor, Autonomous University of Barcelona, Paola Sapienza, Associate Professor, Professor of Finance, Northwestern University, and Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance, the University of Chicago Booth School of Business, finds men’s honest overconfidence — not overt discrimination — may play an important role in male domination of the C-suite.
The researchers found that when they compared actual with recalled performance, most participants overestimated their performance — a tendency documented in different forms in different studies. The major difference was that men consistently rated their past performance about 30 percent higher than it really was. Women, on the other hand, consistently rated their past performance only about 15 percent higher than it actually was. [Emphasis Added]
The research study is "The Emergence of Male Leadership in
Competitive Environments
" by Ernesto Reubena, Pedro Rey‐Bielb, Paola Sapienzac, and Luigi Zingalesd.

IQ Can Rise Or Fall Over The Years

From The Wall Street Journal, "Ways to Inflate Your IQ: Your Intelligence Level Can Fluctuate, Studies Show; Battling the Post-Vacation Dip" by Sue Shellenbarger:
Many people think of IQ as a genetic trait, like brown eyes or short legs: You're born with it and you're stuck with it. Now, a growing body of research is showing that a person's IQ can rise—and even fall—over the years.
"There are many myths about IQ, such as the notion that IQ is a fixed number or that it is a crystal ball for future performance," says Eric Rossen, director of professional development and standards for the National Association of School Psychologists in Bethesda, Md.

Total US Debt Chart: Government Plus Private Debt

From "A terrifying U.S. debt chart you’ve never seen before" by James Pethokoukis:

Total American debt, from The Enterprise Blog (via Mary Meeker)

Monday, November 28, 2011

Historical Look At Job Growth Drivers: Video

From The Wall Street Journal Blog, Real Time Economics, "Where Are the Jobs? A Look Back at Growth Drivers" by Phil Izzo:
The past four decades have witnessed changes in the makeup of the economy, and the industries that dominate economic expansions have changed over the years. A look back at past expansions offers some clues.

Example Of Government Failing To Consider Monitoring Costs And Inaccuracies For Environmental Mandates

As 2009 Economics Nobel Prize winner Elinor Ostrom, and others in her field, have noted, when governance of the commons shifts from participants at the local level to a centralized government structure, information and observations are lost and monitoring of effects on the commons becomes costly and inaccurate.

For example, from Nature, "The problems with emissions trading: How does putting a price on carbon reduce greenhouse-gas emissions?" by Hannah Hoag:
Alberta’s Can$60 million (US$57 million) carbon-cutting programme is failing, according to the latest report from the Canadian province’s auditor-general, Merwan Saher. Like many such programmes around the world, it includes an emissions trading scheme, which allows polluters to meet their emissions reductions targets by buying carbon offsets from a selection of approved projects. The offsets are supposed to be real, measurable and provable. But the report claims that the province, despite earlier warnings, has not improved its regulatory structure — and calls the emissions estimates and the offsets themselves into question.

Tuesday, November 22, 2011

Limited Marginal Economic Impact Of Unemployment Insurance

My comment on Rortybomb blog, "Eight Things We Know About Extending Unemployment Insurance" by Mike Konczal:
Unemployment is not a means tested program. As such, some of unemployment payments substitute for spending from savings (including IRA’s 401k’s, etc.), asset sales (stocks, bonds, extra car, jewelry, vacation home, collectibles, etc.) of the unemployed person, his/her household members, relatives or friends.

The marginal impact on spending of an extra $44 million of unemployment payments due to the above substitution effect will be less than the full amount of benefits.

Additionally, there are other government programs for the needy unemployed, such as food stamps, Medicaid, and accelerated Social Security for those over 62 years of age, etc.

Extended unemployment payments can easily have close to a zero marginal impact on the economy if they mostly substitute for other available funds and other government benefits.

Monday, November 21, 2011

Market Uncertainties Impede Organ Market Development

My posted comment about organ sales on Cafe Hayek blog, "Free the Market. Save Lives." by Don Boudreaux:
Market prices, or as might be said in a Coasean framework, negotiated prices, include a bundle of legal rights and warranties related to the sale in addition to the item. Markets are most liquid and most accurately priced when all relevant information is available, such as when there is some standardization or fungibility of the product for sale. To me, market impediments and not illegality are stopping the sale of organs and development of an organ market.

In an organ sale, there is a lot of asymmetric information. The provider of the organ knows a lot more about his/her health, family's medical history and previous habits, such as alcohol use, drug use, smoking, high fat diets, exercise, etc.

The organ providers who are younger, healthy, ate healthy diets, exercised, refrained from drinking and smoking, and come from families with long life expectancy will want a market that allows them to capture a higher price for their better quality organs. The others with the less healthy organs will want a market that obscures or ignores the quality of their organs in order to obtain a price higher than under full disclosure.

Since standardization is impossible for organ sales (the organ quality will vary by individual), attaching product warranties to sales facilitates market transactions and alleviates many asymmetric information problems, but creates a new set of problems.

Should someone who gives up a kidney for cash, have to return the cash if the kidney is defective, disease-ridden, short-lived, fails in the recipient, etc?

Should organ sales be limited to only those providers who have healthier lifestyles, better genetics and who can provide a higher quality organ?

If sales of different quality organs occur, market prices will reflect quality (poor quality – lower price, higher quality – higher price) and have a range. Will society allow the sale of cheaper, poorer quality organs to poorer members of society who cannot afford to pay more for a better quality organ? Will society tolerate that some in poverty with unhealthy poverty related lifestyles will get less for their organs than those who are rich and can afford healthier lifestyles?

Who owns a child's organs? Can a parent ever sell a child's organ? Suppose, it is the only available means to raise funds for expensive medical treatments to save the child's life from another disease? Or child's organ, but parent's or sibling's life?

If the market will price younger organs at a higher price, are we creating a new risk for children?

As far as I know, there is not a significant black market selling and buying of organs in the US, despite severe shortages and the availability of wealth among some of the future recipients.

The lack of a sizable black market despite the apparent need for more organs indicates to me that market transaction impediments, and not morality or illegality, is the major obstacle to organ sales.

When the market can resolve the asymmetry information problems, sale transactions in organs will start to occur (probably underground and in a black market). When enforceable legal rights and warranties attach to the sales, a full-blown, visible and legal, organ market will develop.

Ted Forstmann, Early Leverage Buyout Financier, Dies: Originator Of Phrase "Barbarians at the Gate."

From The New York Times, "Theodore Forstmann, Private Equity Pioneer, Is Dead at 71" by Andrew Ross Sorkin:
Theodore J. Forstmann, a colorful financier and philanthropist who helped pioneer leveraged buyouts, died on Sunday at the age of 71.

The cause was brain cancer, his spokesman said. Mr. Forstmann, who lived in Manhattan had been diagnosed with a malignant glioma earlier this year.

Mr. Forstmann was among the very first executives to use debt to acquire companies, fix them and then sell them for millions – and sometimes billions – of dollars in profits.
Bloomberg obituary, "Ted Forstmann, LBO Pioneer Who Sounded Alarm on Junk Bonds, Dies at Age 71" by Laurence Arnold.

Friday, November 18, 2011

Estimated Losses From Auto Bailout Raised 65 Percent

From "Taxpayers Get Bigger Bill From GM, Chrysler Bailout" on
The Treasury Department issued a new estimate last week, indicating losses on the bailout will be $23.6 billion, more than 65% higher than the previous estimate of $14.3 billion. Including payments made to auto industry suppliers, the total cost of the General Motors/Chrysler bailout is roughly $85 billion.
GM's worth continues to fall. On Jan. 7, GM stock closed at $38.98 a share. By October, it had fallen below $20. It closed Friday below $22.

For taxpayers to break even on the GM portion of the bailout — about $50 billion of the $85 billion — General Motors stock [onwed by the US} needed to be sold at somewhere between $45 and $55 a share when the "new" GM went public in November 2010. But that price has never been reached. In fact, the stock has never found the $40 mark.

25 Percent Of Sampled Hedge Funds Misprice Their Equity Stock Holdings

From the research paper, "Caught in the Act: How Hedge Funds Manipulate Their Equity Positions" by Gjergji Cici, College of William and Mary - Mason School of Business, Alexander Kempf, University of Cologne - Department of Finance and Alexander Puetz, University of Cologne - Department of Finance:
Focusing on the position valuations of common stocks, presumably the most liquid securities, allows us to document direct evidence of manipulation while eliminating the possibility of unintentional mispricing due to stale prices or pricing discretion.
we document that about 150 thousand positions (roughly seven percent) out of about 2.3 million positions are mismarked. To get a sense for the economic magnitude of mismarking, we show that the reported valuations for these 150 thousand positions deviate from CRSP-based valuations by roughly 2.5 percent in absolute terms. Such a level of mismarking, although not extreme, is not trivial in an economic sense
Previous research suggests that the majority of hedge fund advisors rely on independent pricing committees or external parties to compute their NAVs, and among these advisors fewer pricing irregularities are to be found (see, Cassar and Gerakos (2011)). Our results from the cross-section of hedge fund advisors are consistent with this previous finding, as we show that the majority of hedge fund advisors show little or no mismarking. However, a non-trivial fraction of roughly 25 percent of our sample advisors shows mismarking of an economically significant magnitude.
Our findings from a battery of tests show that the documented mismarking is strongly related to hedge fund incentives, and therefore is not the byproduct of some unknown random process.

30 Years Of Satellite Measurements Of Earth's Lower Atmosphere Temperature Finds Human Induced Global Warming

To address criticism of the reliability of thermometer records of surface warming, Lawrence Livermore National Laboratory scientists analyzed satellite measurements of the temperature of the lower troposphere (the region of the atmosphere from the surface to roughly five miles above) and saw a clear signal of human-induced warming of the planet.

Satellite measurements of atmospheric temperature are made with microwave radiometers, and are completely independent of surface thermometer measurements. The satellite data indicate that the lower troposphere has warmed by roughly 0.9 degrees Fahrenheit since the beginning of satellite temperature records in 1979. This increase is entirely consistent with the warming of Earth’s surface estimated from thermometer records.
Read the entire post here.

Wednesday, November 16, 2011

Higher Credit Scores Correlate With Higher Employee Conscientiousness And Loyalty

From CBS Money Watch, "Does bad credit make you a bad employee?" by Kimberly Weisul:
What your credit score says about you

Here are the traits that did seem to be linked to credit scores:

Conscientiousness: Employers care about this one. And employees with higher credit scores tended to also score higher on conscientiousness on the personality test.

Loyalty: Workers with higher credit scores scored higher on a scale of "organizational citizenship," and were more likely to show loyalty to their employers.

Tuesday, November 15, 2011

Removing Air Pollution Increases Global Warming

From NPR, "Air Pollution: Bad For Health, But Good For Planet?" by Richard Harris:
Cleaning up the air, while good for our lungs, could make global warming worse. That conclusion is underscored by a new study, which looks at the pollutants that go up smokestacks along with carbon dioxide.
Read the transcript or listen to the audio version of this NPR program.

Majority Of Islamic Terrorists In US Are American Citizens

From ScienceBlog, "60% of people arrested for Islamic terrorist activities were American citizens:"
Sixty percent of people arrested for Islamic terrorist activities between January 2009 and April 2011 were American citizens, according to a new report from Rice University’s Baker Institute for Public Policy. The study of 104 people who were arrested included U.S. and non-U.S. citizens living in America or abroad.

The report, “Analyzing the Islamic Extremist Phenomenon in the United States: A Study of Recent Activity,” was authored by Joan Neuhaus Schaan, fellow in homeland security at the Baker Institute. Jessica Phillips, an intern with the Baker Institute’s homeland security and terrorism program, provided research support for the study [report weblink added].
The complete report is available from the Baker Institute.

Monday, November 14, 2011

2012 Presidential Election Market Predicts Democrats Will Get Majority Of Popular Vote

The Iowa Electronic Election Markets now predict that the Democrats will garner a majority of the popular vote in the 2012 presidential election.

For the last several months, the Iowa market was predicting that the Republicans will get the majority of the popular vote in the next presidential election.

2012 US Presidential Election Vote Share Market
2012 US Presidential Election Vote Share Market
Source: Iowa Election Markets

The Intrade Market is also predicting a win for the Democrats (Obama) in the next presidential election, after several months of predicting a Republican win. See last Friday's blog post, "Republican Odds Of Winning 2012 Presidential Election Declining: Democrat (Obama) Now Favored To Win 2012 Presidency."

Saturday, November 12, 2011

US Income Inequality And Pareto Distributions

My comment to The Wall Street Journal article, "Income Ladder's Sticky Steps" by Carl Bialiki:
Income and wealth follow mathematical rules known as power law distributions, as noticed by the economist Vilfredo Pareto over 100 years ago. More familiarly, people know these rules as the 80-20 rule. For example, twenty percent of customers produce 80 percent of sales, etc.

These types of income distributions have several characteristics. They are scale free -- meaning that sub-parts have the same characteristics. For example in the top 10 percent of wealth or income, the top 20 percent of that group will have 80 percent of the income or wealth. The same is true for the top 1 percent or the bottom 10 percent.

While the exact break down can vary and need not be exactly 80-20 (can be 80-30 or 70-10 for example), all economies, at all times, have unequal concentrations of wealth and income. For example, 20 percent of countries produce about 82 percent of GDP.

The US Income Pareto distribution changes over time. The inequality levels, as measured by a Pareto distribution were high around 1920 and are about the same level as now. Pareto inequality declined from 1920 until around the 1970's and started to increase again until the beginning of the recession. No one has a good answer as to why income level distributions have been cyclical over the last 100 years, or whether it will continue its trend towards more income and wealth concentration or reverse as it did in the 1970s.

Power law distributions are a fundamental rule of nature, just like the binomial distribution.

Networks and Internet sites also follow power law rules and 20 percent of sites get 80 percent of traffic. So do many other natural, sociological and economic phenomena.


As an example, think of all the aspiring singers and rock groups, or high school and college football and basketball players. Only a few will get professional contracts and of those, only a few will become stars with multi-million dollar salaries. Think of mom and pop stores. How many will become a Wal-Mart?

Should governments ban us from shopping at the large national chains because of their concentration of sales and forced us to shop at stores with higher prices, older merchandise, and tougher return policies? Should we have to buy music from groups we do not like because their song sales are low? Should we have to use doctors that are not the ones recommended by our friends and families because too many people use those doctors and ignore the others? Should we have to watch professional sports teams that use players that otherwise would not be selected?

Our daily consumption choices create much of the wealth and income concentration.

Should someone who can take a mom and pop store, turn it into a Wal-Mart and expand its sales a million or more fold get paid the same amount as someone whose local store never expands its locations, items it carries or goes out of business? Should a quarterback, who loses most of his games and throws lots of interceptions, get paid the same amount as a quarterback who can consistently win and take his team to the Superbowl?

Pareto distributions (power laws) have another characteristic. If the leaders are eliminated, other leaders form. If you eliminate the top income earners, top internet sites, top musical groups, top doctors, etc., other earners, sites, groups and doctors will become the top 20 percent garnering 80 percent.

It is our natural tendency to be social animals; herded like sheep, into the same music, clothes, movies, cars, etc. that creates wealth and income concentration. It is also the entrepreneurial spirit of the US to reward success, while inwardly we harbor jealousy and beliefs that under the right circumstances, we too could have achieved that level of success.

Penn State Bond Rating Downgrade Possible Due to Sex Abuse Scandal

From Bloomberg, "Penn State May Face Credit Downgrade" by John Hechinger and Heather Perlberg:
Moody’s put Penn State’s Aa1 rating of about $1 billion in bonds on review while it considers the reputational and financial risk arising from the [on campus sex abuse] situation.

Public Schools Switching To Online, At Home, Teaching

From The Wall Street Journal, "My Teacher Is an App: More kids than ever before are attending school from their living rooms, bedrooms and kitchens. The result: A radical rethinking of how education works." by Stephanie Banchero and Stephanie Simon:
In a radical rethinking of what it means to go to school, states and districts nationwide are launching online public schools that let students from kindergarten to 12th grade take some—or all—of their classes from their bedrooms, living rooms and kitchens. Other states and districts are bringing students into brick-and-mortar schools for instruction that is largely computer-based and self-directed.

In just the past few months, Virginia has authorized 13 new online schools. Florida began requiring all public-high-school students to take at least one class online, partly to prepare them for college cybercourses. Idaho soon will require two. In Georgia, a new app lets high-school students take full course loads on their iPhones and BlackBerrys. Thirty states now let students take all of their courses online.

Nationwide, an estimated 250,000 students are enrolled in full-time virtual schools, up 40% in the last three years, according to Evergreen Education Group, a consulting firm that works with online schools. More than two million pupils take at least one class online, according to the International Association for K-12 Online Learning, a trade group.

Friday, November 11, 2011

Republican Odds Of Winning 2012 Presidential Election Declining: Democrat (Obama) Now Favored To Win 2012 Presidency

Republican Party chances of winning the 2012 presidential election declined in the last few weeks and are now below 50 percent on Intrade election markets, while the Democratic Party chances are above 50 percent. A few weeks ago, the Intrade odds were in favor of a Republican win in the next presidential election.

The Intrade odds for a Republican president next term are currently 46.5 percent.

The Intrade odds for a Democratic president next term are currently 51.3 percent.

Republican President Intrade Prices (Odds)

Democratic President Intrade Prices (Odds)

Note right side price scales start at different points in the two charts above.

Thursday, November 10, 2011

Value Of Winning College Football Coaches: Paterno And Penn State Football Ticket Resale Prices

From Bloomberg, "Penn State Football Ticket Prices Fall 23%" by Erik Matuszewski and Eben Novy-Williams:
Ticket resale prices for Penn State’s football game against the University of Nebraska have dropped almost 23 percent since coach Joe Paterno was fired last night.

Defensive coordinator Tom Bradley, 55, was promoted on an interim basis to replace Paterno, who was dismissed along with university President Graham B. Spanier four days after former assistant football coach Jerry Sandusky was charged with sexually assaulting boys in the school’s athletic complex.
Penn State’s Beaver Stadium has been expanded to seat 106,572 fans, up from 46,284 when Paterno took over as coach in 1966. The school’s biggest crowd was 110,753 for a 2002 game against Nebraska.

Penn State is 8-1 and ranked 12th in the Bowl Championship Series rankings entering this weekend’s game against 19th-ranked Nebraska (7-2).
The resale ticket prices dropped $63 from $283 to $220 on the news of Paterno's firing. On the earlier announcement of Paterno's retirement at the end of this season, the resale ticket prices increased about $140.

His coaching ability and celebrity value is worth about $15 million dollars to the spectators (106,572 seats times $140). His on field presence during a game is worth about $6.7 million (106,572 times $63). The remaining $8 million is the value of of seeing a winning record team coached in preparation for a game by Paterno.

Wednesday, November 9, 2011

Home Prices Continue Their Nationwide Decline

From Bloomberg, "Home Prices Decline in NYC Area, Rise in Boston" by Kathleen M. Howley:
The median price of a single-family home decreased from a year earlier in 111 metropolitan areas out of the 150 measured, the National Association of Realtors said in a report today.

Wal-Mart To Offer Low Cost Medical Services

From The Wall Street Journal, "Wal-Mart Seeks Partners for Health-Care Expansion" by Miguel Bustillo:
Wal-Mart Stores Inc. says it is aiming to become "the largest provider of primary healthcare services in the nation" and is seeking other companies to help it provide medical care for the new program, which it will market through its giant fleet of more than 3,800 U.S. stores.

The world's largest retailer is seeking "strategic partners to rapidly create a comprehensive healthcare solution" as part of a plan to offer "the lowest cost primary healthcare services and products," according to a request for information the retailer recently sent out to other companies.
Wal-Mart said in its proposal document that it is interested in offering services including clinical care such as monitoring for asthma, sleep apnea and osteoporosis; diagnostic services such as allergy and blood testing; and preventative services such as vaccinations and physical exams, as well as health and wellness products.

Tuesday, November 8, 2011

Traffic Exhaust Causes Brain Damage

From The Wall Street Journal, "The Hidden Toll of Traffic Jams: Scientists Increasingly Link Vehicle Exhaust With Brain-Cell Damage, Higher Rates of Autism" by Robert Lee Hotz:
Children in areas affected by high levels of emissions, on average, scored more poorly on intelligence tests and were more prone to depression, anxiety and attention problems than children growing up in cleaner air, separate research teams in New York, Boston, Beijing, and Krakow, Poland, found. And older men and women long exposed to higher levels of traffic-related particles and ozone had memory and reasoning problems that effectively added five years to their mental age, other university researchers in Boston reported this year. The emissions may also heighten the risk of Alzheimer's disease and speed the effects of Parkinson's disease.
In New Jersey, premature births, a risk factor for cognitive delays, in areas around highway toll plazas dropped 10.8% after the introduction of E-ZPass, which eased traffic congestion and reduced exhaust fumes, according to reports published in scientific journals this year and in 2009. The researchers, Princeton University economist Janet Currie and her colleagues at Columbia University, analyzed health data for the decade ending 2003.

Teachers Are Overpaid For Their Skill Level: Teachers' Standardized Tests Scores Are In The Bottom Half Of College Graduates

From The Wall Street Journal, "Public School Teachers Aren't Underpaid: Our research suggests that on average—counting salaries, benefits and job security—teachers receive about 52% more than they could in private business." by Andrew G. Biggs And Jason Richwine:
Education is widely regarded by researchers and college students alike as one of the easiest fields of study, and one that features substantially higher average grades than most other college majors. On objective tests of cognitive ability such as the SAT, ACT, GRE (Graduate Record Examination) and Armed Forces Qualification Test, teachers score only around the 40th percentile of college graduates. If we compare teachers and non-teachers with similar AFQT scores, the teacher salary penalty disappears.

While salaries are about even, fringe benefits push teacher compensation well ahead of comparable employees in the private economy. The trouble is that many of these benefits are hidden, meaning that lawmakers, taxpayers and even teachers themselves are sometimes unaware of them.
Properly counted, a typical public school teacher with a salary of $51,000 would receive another $51,480 in present or future fringe benefits. A worker in private business with the same salary would receive around $22,185 in fringe benefits.

Smokin' Joe Frazier Dies

The Fight of the Century:

From Bloomberg, "Joe Frazier, Who Battled Ali in Public Eye, Dies" by Nancy Kercheval and Laurence Arnold:
Joe Frazier, who used a pounding left hook to fight his way to boxing’s heavyweight title, then battled Muhammad Ali in three epic matches and in the court of public opinion, has died. He was 67.

Sunday, November 6, 2011

Misuse Of Statistics In Economics And Other Social Sciences

From "Odds Are, It's Wrong: Science fails to face the shortcomings of statistics" in ScienceNews:
Another common error equates statistical significance to “significance” in the ordinary use of the word. Because of the way statistical formulas work, a study with a very large sample can detect “statistical significance” for a small effect that is meaningless in practical terms. A new drug may be statistically better than an old drug, but for every thousand people you treat you might get just one or two additional cures — not clinically significant. Similarly, when studies claim that a chemical causes a “significantly increased risk of cancer,” they often mean that it is just statistically significant, possibly posing only a tiny absolute increase in risk.

Statisticians perpetually caution against mistaking statistical significance for practical importance, but scientific papers commit that error often. Ziliak studied journals from various fields — psychology, medicine and economics among others — and reported frequent disregard for the distinction.

“I found that eight or nine of every 10 articles published in the leading journals make the fatal substitution” of equating statistical significance to importance, he said in an interview. Ziliak’s data are documented in the 2008 book The Cult of Statistical Significance, coauthored with Deirdre McCloskey of the University of Illinois at Chicago.
“Replication is vital,” says statistician Juliet Shaffer, a lecturer emeritus at the University of California, Berkeley. And in medicine, she says, the need for replication is widely recognized. “But in the social sciences and behavioral sciences, replication is not common,” she noted in San Diego in February at the annual meeting of the American Association for the Advancement of Science. “This is a sad situation.”

Saturday, November 5, 2011

US Physicians' Treatment Responses To Medicare Reimbursement Changes Varies By Geographic Region

From The New England Journal Of Medicine, "Geographic Variation in Physicians' Responses to a Reimbursement Change" by Mireille Jacobson, Ph.D., Craig C. Earle, M.D., and Joseph P. Newhouse, Ph.D.:
We studied the variation in geographic response to a major reform of Medicare's reimbursement system for physician-administered drugs (Part B), the vast majority of which are chemotherapy agents.

On January 1, 2005, Medicare instituted an average sales price (ASP) payment system for physician-administered drugs, setting reimbursement at the national average of manufacturers' sales prices from two earlier quarters plus a 6% margin.
the new ASP system reduced profit margins substantially for many chemotherapy-drug manufacturers. In one extreme case, that of paclitaxel, a drug commonly used to treat lung cancer, standardized monthly reimbursements decreased by a factor of 10 when the ASP system took effect. Physicians responded to this change by increasing the rate of chemotherapy treatment for patients with lung cancer, with the increase concentrated in treatment given by office-based oncologists.2 Rates of chemotherapy treatment increased by more than 10%, or about 2 percentage points, within 30 days after a diagnosis of lung cancer and by almost 4 percentage points within 180 days.
Oncologists' response to the payment change varied markedly across states (see graph), with some states increasing treatment rates by more than 4 percentage points within 30 days after diagnosis and a few actually reducing treatment rates. A small part of the variation is random, as shown by the upper limit of the 95% confidence interval in the graph, but the great bulk of it is real; we can reject the null hypothesis that the change in chemotherapy treatment was the same across states (P<.001).
First, to the long-standing question of why physicians practice medicine differently in different geographic areas, we can add the question of why their responses to a change in reimbursement are so geographically clustered. It may not be surprising that a physician with large, unpaid debts for, say, education loans might respond to a fee cut differently from a physician who is near retirement and has paid off any education loans, has paid for his children's college education, and has no mortgage on his residence — but physicians of both types are found in every state. Even more puzzling is why oncologists in Minnesota responded by increasing chemotherapy rates much more than those in California or why oncologists in New Hampshire and Connecticut responded by substantially increasing chemotherapy rates, while those in Rhode Island responded by increasing them only slightly and those in Massachusetts responded by decreasing them, albeit slightly.

Thursday, November 3, 2011

Innovation The Consumer And Politicians Do Not See

From Bloomberg', "Ikea’s Paper Pallet Challenges Wood’s Reign" by Ola Kinnander:
Ikea, which uses 10 million pallets to supply its stores with bookcases, pillows and candles, will ditch wood by January in favor of a lighter, thinner, paper-based alternative the Swedish company says will shave 10 percent from transport costs.

“We don’t know if the paper pallet will be the ultimate solution, but it’s better than wood,” said Jeanette Skjelmose, sustainability manager at Ikea’s supply-chain unit. Though made from folded corrugated-card, the design can support a load of 750 kilograms (1,650 pounds), the same as timber, she said.

Assembled from locally sourced card by Ikea’s 1,200 global suppliers, the pallets will be good for a single delivery before being pulped by the retailer. One-third the height of wooden trays at 5 centimeters (2 inches) and 90 percent lighter at 2.5 kilos, they’ll save thousands of truck trips and cut transport bills by 140 million euros ($193 million) a year at a cost of 90 million euros for paper purchases and new forklifts, Ikea says.
A great deal of innovation occurs out of view of consumers and politicians. To the public, innovation is the fancy gadget, such as the IPhone, Kindle, etc. To producers, innovation is anything that speeds up or lowers the cost of the production process, which includes transportation and fuel savings.

Lowering the weight and size of cargo, increases the the number of goods a truck can carry, decreases the number of trips and trucks needed to deliver the cargo and lowers fuel use per unit of goods. It is equivalent to an increase in miles per gallon per unit of goods transported.

Businesses have a profit incentive to increase fuel efficiency, lower cost, per unit of goods, as the IKEA example shows. It is an example of one of the reasons government regulation often does not work. IKEA's pallet example is an example of increasing MPG per unit of goods by lowering weight and number of trips. Yet, it is not seen or understood by the government and environmental regulators as a increase in truck fuel efficiency.