Sunday, November 24, 2013

Obamacare and the Future of Healthcare and Social Security

One of the most peculiar paradoxes of our economic system is that we have created a form of capitalism in which companies are almost compelled by law to maximize their profit. One of the obvious components of a profit-maximizing strategy is the need to minimize labor costs: hire as few workers as possible, and pay them as little as possible. At the same time we fell into a mode where companies were expected to provide workers with a pension plan and access to healthcare—rather expensive responsibilities.

Placing these responsibilities on businesses made no logical sense—and no economic sense either. While workers who have these benefits surely appreciate them, they also must recognize that their very existence is both a benefit and a constraint. People with good healthcare plans and/or a significant accumulation of pension benefits often find themselves trapped into staying with their current job even though moving to another might provide them a better long-term situation. This "job lock" would be eased if retirement and healthcare benefits were portable through national systems.

Employers are gradually finagling their way out of the pension responsibility; first by switching to defined contribution plans (401(k)s) from defined benefit plans to provide well-defined and limited costs to them; and subsequently by decreasing the employer contribution to near zero. What most workers are left with is a tax-exempt savings plan and the responsibility to do their own saving and financial planning. The result is an anticipated disaster as people head into retirement with little more than Social Security to live on.

Companies are getting out of the pension business with no path available to transition to a national system.

What is interesting about Obamacare is that it has built into it a path to a national system. The key component is the array of healthcare exchanges that are being set up to cover workers who aren’t captured by Medicaid or an employer plan. Once the system has demonstrated that it works, it should be viable to expand the number of people covered indefinitely. It might be even more economically efficient if the number of participants is allowed to grow.

Employers are demonstrating that, similar to pension plans, they want to limit their responsibility to provide healthcare benefits. An article in Bloomberg Businessweek by Peter Coy suggests employers like the idea of exchanges so much that they are beginning to offload their employees to private exchanges—the equivalent of moving from defined benefit pensions to defined contribution plans.

"Where companies don’t have the option of sending workers to government-operated exchanges, they’re directing them to private insurance exchanges. These, like the government-sponsored exchanges, are essentially websites where people can choose from a variety of private insurance policies. Employers cover part of the premiums. The private exchanges aren’t part of Obamacare, but "a lot of employers are going to use the air cover of the ACA to potentially pull back on the role that they play" in employees’ health insurance, says Todd Van Tol, a partner in the health and life-sciences practice at management consulting firm Oliver Wyman."

Coy also presents the example of Trader Joe’s which plans to send its part time employees to the federal exchanges because it is a better deal for the workers.

"Trader Joe’s, the supermarket chain, said in September it would end health benefits next year for part-time workers. Employees will get a $500 payment and be sent to the public exchanges. With the federal tax credits available there, most workers will get a better deal than the company could offer, it said."

Obamacare currently limits who is eligible for coverage through the exchanges. If the systems are successful, one could gradually change the requirements so that more workers become eligible.

And why not eventually make everyone eligible?

The costs of this process will probably require a defined contribution from employers in order to be economically feasible. Companies should be willing to make that contribution in order to eliminate the expense that is associated with administering their current programs. Also, innovation should be encouraged as business start-ups encounter a much simpler, and probably much cheaper, environment in which to work.

Employees should benefit from being freed from the uncertainty about healthcare coverage. They can leave an unsatisfactory work environment freed of the worry of losing medical benefits. A worker can become self-employed or start a new business without facing the complications of the current system.

The equivalent pathway to a national pension system could involve expansion of the Social Security System as it is now configured in order to provide greater benefits. Also, it could incorporate a separate benefit that would essentially be equivalent to a national 401(k) plan. A number of suggestions have been made as to how to proceed along such a path. Developing a national system seems quite feasible. A discussion of these approaches is provided in Moving to a National Retirement Plan.

The economic benefits of a national retirement system parallel those discussed with respect to healthcare.

It is time to get serious about these issues.

Thursday, November 21, 2013

1945: The Betrayal of the Cossacks and Other Sad Stories

Ian Buruma has produced a fascinating description of the year 1945 in his recent book Year Zero: A History of 1945. The title is appropriate in the sense that after World War II nothing would ever be the same, so, for better or for worse, for most it marked a new beginning. 

Buruma grew up in the Netherlands after the war. His father was gathered up by the Nazis and taken to Germany and forced to work as a laborer there. He managed to survive that experience and return home safely. Not everyone who was displaced by the war was so lucky. One of Buruma’s most affecting chapters describes, by example, what was involved in dealing with the millions of displaced people.

"My father was one of more than 8 million ‘displaced people’ stuck in Germany in May 1945, waiting to be transported home. There were roughly 3 million more in other parts of Europe, some who longed for home, some who wanted to go anywhere but back, and others who no longer had a home to return to: Poles in the Ukraine, Serbs and Croats in Austria, White Russians in Yugoslavia, Jewish refugees in Kazakhstan, and so on. The figures in Asia are just as staggering: 6.5 million Japanese were stranded in Asia and the Pacific, half of them civilians. More than a million Korean workers were still in Japan. And thousands of Australian, European, and American POWs were marooned in China, Japan, Taiwan, and Southeast Asia, as well as Indonesians and other Asians forced to work on Japanese military projects around the region. Up to 180,000 Asians had worked on the Thailand-Burma Railway; about half of them survived."

Underlying the main drama of the Allies contending with Nazi Germany were a host of regional conflicts; sometimes expressed as civil wars between contending armies, and sometimes ethnic aggressions unleashed by the breakdown in civil structures. The result was a complex situation to be dealt with after Germany surrendered.

Buruma utilizes the situation that developed in the Drau Valley of Carinthia, a beautiful part of Austria, to illustrate how complicated a situation the allied armies faced as the only source of authority at the end of the war.

"The Drau Valley was filled with camps and shantytowns, the makeshift quarters of tens of thousands of people, former soldiers, as well as women and children, together with their horses, oxcarts, and even camels. There were proud Cossacks in tall sheepskin hats; Slovenian peasants; Serbian Chetniks, some royalist, some fascist, some a bit of both; Croatian fascists from the dreaded Ustasa; Ukrainians; Russians; ex-POWs from various European countries; and even a few Nazi mass murderers hiding in mountain shacks…."

Buruma includes this quote from a British officer, Nigel Nicholson.

"There seemed to be no limit to the number of nationalities which appealed to us for our protection. The Germans wanted to be safeguarded against Tito, the Cossacks against the Bulgarians, the Chetniks against the Croats, the White Russians against the Red Russians, the Austrians against the Slovenes, the Hungarians against everyone else, and vice versa throughout the list….Not only was [Carinthia] the last refuge of Nazi war criminals, but of comparatively inoffensive peoples fleeing from the Russians and Tito, unwanted and all but persecuted wherever they went."

These peoples thought they would be safe once they landed in an area under the control of the British army. They didn’t know, and couldn’t be allowed to know, that the allies had agreed at the Yalta Conference that all citizens of the Soviet Union and Yugoslavia would be returned to those countries—forcibly if necessary. This would put the British in a tragically awkward situation.

The Germans took many Soviet army prisoners. Their plan was to dispose of them by starvation. This the Germans did until they became short of manpower and began to give prisoners the option of fighting on their side rather than dying. Many of them chose to live—at least temporarily. Many others on the eastern edges of the Soviet Union viewed the German invasion as an opportunity to revolt against Stalin and took up arms with the Germans. Many others were forcibly sent to labor in German-held territory. In Stalin’s view, Soviet citizens were patriots who fought to the death. Therefore anyone who survived being on the German side of the battle lines must be a traitor and should be treated accordingly.

The allies were aware of the consequences of delivering these people into Stalin’s hands: quick death by execution or slow death in the work camps. They were concerned about the morality of such actions, but the prevailing opinion was one attributed to Anthony Eden:

"We surely don’t want to be permanently saddled with a number of these men."

The incident known as the Betrayal of the Cossacks is used by Buruma to illustrate the difficulties the British had in carrying out this promise to Stalin.

The British had led the Cossacks on with hints that they might become part of the British military and serve the Empire somewhere. This was to keep them quiet until preparations for action were ready. One day they told the Cossack officers that they would be going to a meeting with British officials to discuss future plans. They were told they would be back by evening and that they would not need their guns because they would be given newer and better ones that day.

"In reality, they were never seen again. After being handed over to the Soviet army, those who were not executed immediately were sent to the gulag where very few survived."

Gathering up the remaining men along with the women and children was not going to be an easy task. Buruma describes one incident:

"….thousands of people were gathered together in a massive huddle by their priests in full orthodox regalia, praying and singing psalms. Inside the human mass, kneeling and locking arms, were the women and children; outside were the younger men….The idea was that soldiers would surely not assault people at prayer."

They were wrong. One by one the unfortunate soldiers chosen for this task had to try to peel off the outside ring of people and get them placed in a train car. If necessary, they would use their rifle butts to beat people senseless. Panic ensued with people trying to squeeze ever tighter to avoid the soldiers. Buruma provides this statement from a witness:

"Everything was mixed up: the singing, the prayers, the groans and screams, the cries of the wretched people the soldiers managed to grab, the weeping children and the foul language of the soldiers. Everyone was beaten, even the priests, who raised their crosses above their heads and continued to pray."

It was what one British officer described as "a damned bad show."

"In the end the job got done. Some drowned themselves with their children in the river. A few people hanged themselves from pine trees outside the camp. But most of the remaining Cossacks ended up in sealed cattle wagons with one small window and one bucket for all to use as a toilet."

Similar scenes played out in many locations—even in the United States—as people were rounded up and turned over to the Soviets in what would eventually be referred to as Project Keelhaul. This source provides information on an incident that took place at Fort Dix, New Jersey, in which three people committed suicide and seven were injured before being subdued using tear gas and forcibly taken to a Soviet ship. Thus were 154 people in the United States "repatriated."

Forced repatriation ended in 1947; by then the number who had been turned over was about 2 million.

Roosevelt and Churchill agreed to this return by force if necessary at Yalta, but the terms were concealed in a secret codicil. It would be fifty years before the details became public. Alexander Solzhenitsyn referred to it as "the last secret of World War II."

Those from Yugoslavia who were returned to Tito and his army fared little better, if at all. In the town of Bleiberg, on the Yugoslav border in southern Carinthia, the British were confronted with what was described as a fleeing mass of Croatians, including 200,000 soldiers and 500,000 civilians. The British convinced them that it would be impossible to harbor so many and convinced them that they should turn themselves over to Tito and they would be treated "properly as POWs." The starving Croatians had no other choice.

Little is known of what happened next because there were few survivors. Those who did live to speak of events told of mass executions, death marches, beatings, and other forms of torment.

However, there were occasions where the soldiers knew exactly what was happening.

"….there is no doubt that large numbers of people were murdered by Tito’s partisans, not just Croats on their death marches, but Serbs and Slovenes, too, who were machine gunned in the dense and beautiful forest of Kocevje, where the wild boar, lynx, and red deer still roam. They had arrived there, as prisoners of the communists, because the British had put them on trains to Yugoslavia, telling them they were bound for Italy."

Estimates of the number of people killed in World War II range from 60 million to 85 million, depending on how on one chooses to attribute a death to the war. Perhaps, after many years of carnage, leaders thought that a million or two more casualties in order to tie up loose ends was not too large a price to pay.

Buruma has produced a masterful recounting of the events that transpired in 1945. To describe it as a "history" might not do it justice. His interest is not in political machinations and grand strategies, but rather in describing how the various classes of people who were affected tried to cope with and survive the greatest cataclysm mankind has experienced. Check it out!

Tuesday, November 19, 2013

Educational Expectations and Educational Performance: Poland’s Experience

A recent newsletter from the Southern Poverty Law Center (SPLC) contained an article describing a complaint the SPLC had filed with the Civil Rights Division of the Department of Justice. The motion was to stop the implementation of an educational plan by the state of Florida that would discriminate against black and Hispanic students. Florida had intended to set lower academic goals for blacks and Hispanics than for whites and Asian-American students.

"The plan adopted by the Florida Department of Education sets a goal of 90 percent of Asian-American students and 88 percent of white students to be reading at their own grade level by 2018. Only 74 percent of black students and 81 percent of Hispanic students are expected to read at grade level."

"The state also sets lower expectations for math, with 92 percent of Asian-American students and 86 percent of white students expected to perform at grade level by 2018, but only 74 percent of black students and 80 percent of Hispanic students."

To encounter such a racial mindset in this century is truly alarming. It may be that those who constructed this policy viewed these goals as attaining improvements on the part of all races, but the guiding principle should be equality in expectations. Students are not likely to produce at a level higher than that expected of them. This is a perfect example of what President Bush once referred to as "the soft bigotry of low expectations."

The importance of setting high expectations for all students is a central theme in Amanda Ripley’s book The Smartest Kids in the World: and How They Got That Way. She applies the term "tracking" to the many ways in which different expectations can be imposed on different classes of students. She uses her examination of school systems in Finland, South Korea, and Poland as a means of evaluating US educational methods.

Tracking at the highest level refers to the practice of testing high school students at or near graduation to determine who is qualified for upper level education at a college or university, and who should be vectored towards a more "vocational" form of study or training. Such systems are quite common and most seem to be successful. The idea is to provide as similar as possible an educational experience for all students up to the "tracking" point. Equality of opportunity is a desired goal.

It is common in the US to utilize tracking in such a way is to maximize inequality of educational opportunity by applying it at an early age.

"Tracking in elementary school was a uniquely American policy. The sorting began at a very young age, and it came in the form of magnet schools, honors classes, Advanced Placement classes or International Baccalaureate programs. In fact, the United States was one of the few countries where schools not only divided younger children by ability, but actually taught different content to the more advanced track. In other countries, including Germany and Singapore, all kids were meant to learn the same challenging core content; the most advanced kids just went deeper into the material."

As soon as one places a child in a track where they are deemed less capable than other students, this labeling can become a self-fulfilling prophecy. Advanced students are given more challenging material and provided better teachers. Slower learners rarely catch up; nor are they expected to. The children in the lower levels realize that less is expected of them. This form of tracking can begin as early as the first grade.

"By the early twenty-first century, many countries were slowly, haltingly, delaying tracking. When they did so, all kids tended to do better."

Ripley discusses the experience Poland had in upgrading its educational system. In so doing, she provides an excellent example of the potential for harm in communicating diminished expectations.

In the late 1990s, Poland’s leaders feared that the lack of educational attainment would relegate their graduating students to low-wage-laborer status in the European Union. If they wanted a better outcome they would have to reform their educational system. In 1999, they began implementing a major series of reforms to inject more rigor into their system. One of the reforms would prove to be particularly relevant to our discussion.

"….the reforms would force all kids to stay together in the same academic environment for an extra full year….Instead of getting streamed into either vocational or academic programs around age fifteen….students would go to the same….schools together until age sixteen. The difference was only twelve months, but it would have surprising consequences."

PISA (Program for International Student Assessment) is a test administered to fifteen-year-old students around the world every three years. In 2000, the test was administered to about "a third of a million teenagers in forty-three countries." Poland, bravely, decided to participate even though their reformed system had just been initiated.

The timing allowed for an interesting comparison because the 2000 test would be taken by students educated in the old way, while those who would take the 2003 test would have experienced the reformed process. The lower-performing fifteen-year-olds in 2000 would have already been sent to the vocational track. All the students taking the test in 2003 would have remained on the same academic track.

"No one in Poland had expected to lead the world, but the results [2000] were disheartening all the same. Polish fifteen-year-olds ranked twenty-first in reading and twentieth in math, below the United States and below average for the developed world….If the vocational students were evaluated separately, the inequities were startling. Over two-thirds scored in the rock-bottom lowest literacy level."

The results in 2003 would be much better. What was surprising—and telling—was the change in the results for the students who would have been placed on the vocational track under the old system, but had escaped it thus far in the new.

"The results were shocking—again. Poland, the punch line for so many jokes around the world, ranked thirteenth in reading and eighteenth in math, just above the United States in both subjects. In the space of three years, Poland had caught up with the developed world."

Ripley includes an interesting discussion of all the changes in Poland’s approach. What we are interested in here is the effect of the extra year on the academic track for Poland’s lower-performing students.

"….much of Poland’s improvement had come from the students who would eventually end up in vocational schools. Their scores had jumped, lifting the entire country."

Could this result be due to the reformed educational process being more effective at instructing the students who might be less academically capable, or could it be that the increased expectations for the fifteen-year-olds who were still on the same academic track as the high performers played a role? An experiment Poland performed a few years later shed some light.

"Expectations could fall as quickly as they rose. In 2006 and 2009, Poland gave the PISA test to a sample of sixteen- and seventeen-year-olds, to see what happened once they went off to vocational schools. Incredibly, the gains disappeared: The achievement gap from the first PISA had returned, one year later….By age sixteen, vocational students were performing dramatically worse than academic students. The reforms had postponed the gap, not eliminated it."

"Something happened to kids once they got into the vocational schools with all the other vocational students and teachers. They seemed to lose their abilities, or maybe their drive, almost overnight."

The lesson from all this seems to be that once you let a student know that he/she is less capable than others and place them in a track where academic expectations are diminished, academic performance will also be diminished.

Friday, November 15, 2013

Statins: A Cholesterol Hoax?

Statins are marketed as a drug that can be taken to control the amounts of the various forms of cholesterol in our blood streams. It has been assumed that cholesterol levels are a marker for risk of cardiovascular disease. Statins are generally prescribed for patients who have cardiovascular disease or who have health indicators that suggest a high risk level. Recently, the recommended usage of statins has changed dramatically. This source states that under the new guidelines, up to a third of all adults would fall into the category of potential statin user.

"….under the new advice, one-third of U.S. adults — 44 percent of men and 22 percent of women — would meet the threshold to consider taking a statin. Under the current guidelines, statins are recommended for only about 15 percent of adults."

The number of potential statin users has been doubled and is approaching 100 million people in the US alone. What is going on? Skeptics might see this as another initiative by big pharma to enrich itself by further polluting our blood streams with their products. An article by John D. Abramson and Rita F. Redberg in the New York Times suggests that profit may be the motive.

"….the American Heart Association and the American College of Cardiology issued new cholesterol guidelines that essentially declared, in one fell swoop, that millions of healthy Americans should immediately start taking pills — namely statins — for undefined health "benefits."

"This announcement is not a result of a sudden epidemic of heart disease, nor is it based on new data showing the benefits of lower cholesterol. Instead, it is a consequence of simply expanding the definition of who should take the drugs — a decision that will benefit the pharmaceutical industry more than anyone else."

The authors then go on to suggest that those who formulated this recommendation might be paid lackeys of the pharmaceutical industry.

"The process by which these latest guidelines were developed gives rise to further skepticism. The group that wrote the recommendations was not sufficiently free of conflicts of interest; several of the experts on the panel have recent or current financial ties to drug makers. In addition, both the American Heart Association and the American College of Cardiology, while nonprofit entities, are heavily supported by drug companies."

This view fits well an "evil pharma" scenario. However, the guidelines on statin usage that have been issued also included a rather surprising recommendation. An article by Gina Kolata in the New York Times, New Cholesterol Advice Startles Even Some Doctors, provides some background.

"The new guidelines, released….by the American College of Cardiology and the American Heart Association, represent a remarkable and sudden departure from decades of advice on preventing cardiovascular disease."

"According to the new advice, doctors should not put most people on cholesterol-lowering medications like statins based on cholesterol levels alone. And, despite decades of being urged to do so, patients need not monitor their cholesterol once they start taking medication. The guidelines do not even set target levels for LDL, the so-called bad cholesterol."

What the guidelines seem to be saying is that you should take statins if you are at risk for cardiovascular disease, but risk should be based on overall health indicators such as obesity rather than on cholesterol levels. Meanwhile tens of millions of people are now taking statins solely based on cholesterol levels. This would indicate that the emphasis on cholesterol has been inappropriate.

"The chairman of the committee that developed the new guidelines, Dr. Neil J. Stone of Northwestern University, said the group was prompted to examine the idea of target LDL levels when two doctors — Dr. Krumholz and Dr. Rodney A. Hayward of the University of Michigan — asked what the evidence was for their efficacy."
"When the committee looked, Dr. Stone said, they found no evidence. It was generally accepted that lower was better, but no one had shown that an LDL of 90 milligrams per deciliter, for example, was better than 100. And the high doses and multiple drugs many patients were taking to get to target levels raised concerns."

"Dr. Lisa Schwartz, a professor of medicine at Dartmouth, said that medical systems constantly prodded doctors to report patients’ LDL levels and used the numbers to judge doctors’ performance. Referring cardiologists often insist that LDL levels be measured and then lowered."

"’Everyone adopted the targets,’ Dr. Schwartz said. ‘It drove a huge amount of testing and focusing around the LDL number. Many doctors thought it was crazy. We were prescribing higher doses of drugs for older patients, which was probably dangerous’."

Everyone seems to agree that statins are beneficial for those have or are at high risk for cardiovascular disease. Everyone—or nearly everyone— seems to have assumed that cholesterol was the culprit that needed to be controlled. However, statins provide benefits other than controlling cholesterol.

"Statins do more than just lower cholesterol, noted Dr. Valentin Fuster, director of the heart center at Mount Sinai Hospital in New York City. They also reduce inflammation and blood clotting, both of which are associated with heart attack and stroke risk. Drugs that only reduce LDL have not been shown to be effective in preventing heart attacks."

If the main interest of drug companies is selling statins to as many users as possible, and lowering cholesterol is the marketing angle for sales, how can the new guidelines be viewed as serving the wishes of the pharmaceutical industry? This source provides further insight.

"Roughly half the cholesterol panel members have financial ties to makers of heart drugs, but panel leaders said no one with industry connections could vote on the recommendations."

That is encouraging. One might even go so far as to claim that the panel responsible for the new recommendations took a courageous step in correcting a misconception related to cholesterol that has long been a part of medical tradition.

While the range of people that might be prescribed statins has grown, the focus on other indicators of cardiovascular risk rather than on cholesterol highlights the option that just living a healthier lifestyle is as good, if not better, than medication. It is not clear what this change will mean for statin sales in the long run.

We need to ask ourselves a serious question. There has never been any conclusive evidence that lowering cholesterol in an otherwise healthy person protects them from heart attacks and strokes. So how did it become "common knowledge" that cholesterol lowering medications, statins, should be prescribed? This source provides a clue:

"The US market for statins nearly tripled when the National Cholesterol Education Program revised its guidelines to recommend statins as primary prevention [2001]. Although the panel cited randomized trials to support statin therapy for primary prevention of occlusive cardiovascular disease, a report in Lancet notes, ‘not one of the studies provides such evidence.’ Journalists have questioned the interests of the doctors who made such recommendations, as eight of the nine doctors on the panel were discovered to have been paid by statin manufacturers."

Who has the resources—and the motivation—to purchase the allegiance of medical professionals, flood academic journals and the media with self-serving articles, and create a market where none needs exist?

"Evil pharma" lives—and we should not forget that it has lived for a very long time.

And we should remember that doctors don’t always know what they are talking about. Do your own research.

Monday, November 11, 2013

Public and Private National Debt—and Other Inconvenient Truths

The recent financial crisis and the Great Recession that followed have placed great stress on a number of cherished economic beliefs. Unfortunately—for the world—economists have repeatedly been found to have cherished faulty conclusions. Increased scrutiny has suggested that economists have encouraged a number of counterproductive policies that have caused great harm. 

One of the pillars of economic dogma that fell involved the effect of a rise in the minimum wage. Once thought to be unequivocally a bad idea for job growth, it has now been deemed too difficult to call based on historical data, but there is a growing consensus that modest growth in the minimum wage can actually be a good thing.

There was general agreement among most European policy makers that the effect of government spending cuts associated with austerity policies would be small when it came to economic growth. The various experiments forced on helpless countries generated the demonstration that the effects of such budget cuts were in fact rather large.

One of the economic studies that helped underpin the austerity policies was a study that concluded public debt greater than 90% of GDP was a threat to economic growth. It turned out that this conclusion was based on biased selection of data and numerical errors.

A recent article in The Economist picks up on this latter discovery and moves economic focus in a new direction.

"Throughout the euro crisis, tough austerity programmes have been aimed at tackling sovereign debt. That German-inspired focus is badly misplaced."

The latest theory has suggested that a nation’s private debt could be more injurious than its public debt.

"High private debt is more detrimental to growth than high public debt, according to recent research by the IMF. Indeed the IMF study finds that excessive sovereign debt reduces growth only when household and corporate sectors are heavily indebted too."

A criterion is cited to provide assistance in determining which countries are misbehaving.

"Figuring out the point at which debt becomes excessive is not an exact science. The European Commission, which now has the job of monitoring any emerging macroeconomic imbalances, uses a figure of 160% of GDP for private debt—what households and non-financial companies owe in the form of loans and debt securities such as corporate bonds. That looks conservative: it happens to be the prevailing level in both America and the euro area as a whole."

This interesting chart is provided to assist the curious.

The US and the Euro area as a whole seem to be in reasonably good shape according to this model. Curiously, Italy, often thought of as an economic basket-case, appears to be in almost as good shape as the austere Germans.

Stay tuned for the next rendering of economic prognostications.

An article in The Economist addressing the growth of household debt in Asia produced an interesting chart.

It would seem the US citizens have performed well in reducing their outstanding debts over recent years. Hopefully, that is, in fact, a good thing.

Sunday, November 10, 2013

Michelle Rhee Wants US Education to Be Like South Korea’s—Ouch!

Andrew Delbanco provides a good review of the factions contending for dominance in the debate over what is wrong in our education system in the New York Review of Books. His article is prompted by the publication of books by the two most vocal representatives of the contending sides. Diane Ravitch, who might be described as a "traditionalist," has produced Reign of Error: The Hoax of the Privatization Movement and the Danger to America's Public Schools. Michelle Rhee, who would definitely be described as a "reformer," has provided Radical: Fighting to Put Students First.

Ravitch would conclude that much of the current education system is working rather well and we should be focusing on the cultural and economic deficiencies that hinder many children in educational performance. Michelle Rhee would conclude that the system is ineffective because it does not hold accountable both teachers and students for deficiencies in performance. The solution would be dismissal of poorly performing educators and more private competition for public schools. Accountability would be obtained from standardized tests.

What is of interest here is not resolving the dispute between the respective proponents, but the indication that Michelle Rhee’s views include an endorsement of the testing and accountability measures inherent in the South Korean system of education.

"The child of Korean immigrants, she briefly attended public school in Toledo, Ohio, before her parents moved her to a private school. When she was nine, they dispatched her to live with relatives for a year in their native country, where she admired—at least retrospectively—a culture in which teachers rank their students and families prod their children to raise their ranking. ‘Rather than damaging the souls of the less accomplished,’ she writes with an intimated sneer at those who would coddle rather than challenge children, ‘the rankings focused every family on moving their children up the ladder’."

In fact, South Korea provides an excellent example of how good intentions can go terribly wrong and produce an educational environment that is universally disdained by those who must submit to it.

Amanda Ripley has produced, in her book The Smartest Kids in the World: And How They Got That Way, a fascinating description of the educational systems in Finland, South Korea, and Poland, and a comparison with our own system. Finland and South Korea were chosen because the students of these countries always score at the top in international tests. What intrigued Ripley was the fact that these two nations used entirely different approaches in making their way to the top. Poland was chosen because it provided an example of a nation that in a short time was able to reform its educational system and make dramatic improvements in student performance.

It is highly unlikely that any reader of Ripley’s book will conclude that South Korea provides an acceptable example. Most readers will look wistfully at Finland’s approach and dream an impossible dream.

We will briefly review Ripley’s description of what it is like to be a student—and a parent— in South Korea. First, some historical background is required.

Not too long ago, South Korea would have been considered an undeveloped country. It was poor and possessed little in the way of natural resources. It made a conscious decision to consider the talents of its people as its most valuable resource. If it was to prosper in the modern world it would need to nurture those talents and convert them into useful skills. It saw universal education as the path forward. Education was deemed the path to a wealthier future, both for the nation and for individuals. An educational meritocracy was envisioned in which students would be encouraged to compete for grades and the best performers would be rewarded with advanced education opportunities and, ultimately, better jobs and better pay.

A rigid meritocratic system exerts great pressure on students to perform. At about age 18 students take a one-day test that will determine the rest of their lives. South Korea has three universities that are considered elite. It also has an economy dominated by a few huge conglomerates, chaebols, that provide the best jobs and the highest pay. They can—and do—acquire the best students by selecting mainly graduates of the top universities. The problem for students is that only 2 percent of the students are eligible for those few top schools. In the view of the students and their families their entire future depends on doing not only well, but exceptionally well on that one-day test at age eighteen.

Ripley uses the experiences and observations of an exchange student named Eric from Minnesota to inform her picture of education in that country.

On Eric’s first day he was told that he would be going to class with students two years younger than him. It was explained that:

"The older kids….were too busy to talk to him. They had to study for the college entry test. This exam was so important, so all consuming, that going to school with them would be like going to school in solitary confinement."

Eric had to be curious about what he would find in such a competitive environment where excellent students were produced. His first observation was startling.

"A third of the class was asleep. Not nodding off, but flat-out, no-apology sleeping, with their heads down on the desks. One girl actually had her head on a special pillow that slipped over her forearm. This was pre-meditated napping."

The same thing happened in later classes. Teachers went about teaching as though sleeping students was something to be expected. Eric soon learned why the phenomenon was inevitable.

Eric’s day ended at ten minutes past two. As an exchange student he was exempt from the full force of a South Korean school day. For regular students a break from classes occurred at ten past four, at which point they were expected to participate in tasks such as mopping floors, emptying waste cans, and toilet cleaning.

"At four thirty, everyone settled back in their seats for test-prep classes, in anticipation of the college entrance exam. Then they ate dinner in the school cafeteria."

"After dinner came yaja, a two hour period of study loosely supervised by teachers. Most kids reviewed their notes from the day or watched online test-prep lectures."

The "official" school day ended around nine in the evening.

"But the school day wasn’t over. At that point, most kids went to private tutoring academies known as hagwons, They took more classes there until eleven, the city’s hagwon curfew. Then—finally—they went home to sleep for a few hours before reporting back to school at eight the next morning."

They went to school twelve hours a day, and the school year was about two months longer than that in the United States. This insane regimen was not being imposed on helpless students by and educational bureaucracy, it was a case of the parents demanding that it be provided for their children. Educators and politicians occasionally try to reform the system, but parents object too strenuously for much change to occur. And since every student has access to this twelve hour day, the only way to gain an advantage was to add private lessons on at the end.

South Korea actually spends relatively little on its school system. A fee is charged for the traditional public school, but parents must contribute a lot for these extra classes that are believed to be necessary. In fact, some have suggested that South Korea’s extremely low birth rate is caused by the expense in money and time of educating their children.

The hagwon system is a good example of a pure marketplace. Teachers earn whatever the market will bear. Teachers with good reputations—based on student performance and satisfaction—can become wealthy. Those at the bottom of the ladder earn very little. Ripley introduces the reader to Andrew Kim.

"Andrew Kim earned $4 million in 2010. He was known in Korea as a rock-star teacher, a combination of words I had never heard before. He’d been teaching for over twenty years, all of them in Korea’s afterschool tutoring hagwons. That meant he was paid according to the demand for his skills, unlike most teachers worldwide. And he was in high demand."

The inevitable outcome of meritocracies is the temptation to cheat. One of Ripley’s more interesting adventures in Korea involved a tour of duty with the "study police."

"When I arrived in Korea, the government’s latest maneuver was to enforce a curfew on hagwons, raiding the cram schools in the middle of the night and sending children home to bed. It was impossible to imagine government enforcers winning this round of Red Rover, but I wanted to see them come over."

This all-consuming test has become a national obsession.

"Korea Electric Power Corp. sent out crew members to check the power lines serving each of the one thousand test locations. The morning of the test, the stock market opened an hour late to keep the roads free for the more than six hundred thousand students headed to the test. Taxis gave students free rides."

At Eric’s school he observed police patrolling the perimeter in order to ensure that distracting noises were not made. During a portion of the test when students had to listen to English language audios, airplanes were grounded in order to not create a distraction.

Personal obsession was also quite common. Ripley includes the rather dramatic example of a boy named Ji and his mother.

"One Sunday morning….a teenager named Ji stabbed his mother in the neck in their home in Seoul. He did it to stop her from going to a parent-teacher conference. He was terrified that she’d find out that he’d lied about his latest test scores."

Ji put his mother’s body in a room and sealed it so that the smell of her decomposing body would not escape. It was eight months before her death was discovered and Ji was arrested for murder.

Ji was no slacker who responded viciously to the threat of being uncovered as a lazy student.

"According to his test scores, Ji ranked in the top 1 percent of all high school students in the country, but, in absolute terms, he still placed four thousandth nationwide. His mother had insisted he must be number one at all costs, Ji said. When his scores had disappointed her in the past, he said, she’d beaten him and withheld food."

Ji’s action received considerable public attention. More sympathy was accorded Ji than his mother.

"Ji’s crime was not, in the minds of many Koreans, an isolated tragedy; it was the reflection of a study-crazed culture that was driving children mad."

Ji was convicted of murder, but sentenced to only three and a half years in prison. The judge cited "mitigating circumstances." When it came to murder, the school system was a mitigating circumstance.

South Korea has fallen into an educational trap and it has not been able to find a way out. Ripley provides this assessment.

"The Iron Child culture was contagious; it was hard for kids and parents to resist the pressure to study more and more. But all the while, they complained that the fixation on rankings and test scores was crushing their spirit, depriving them not just of sleep but of sanity."

So, Michelle, perhaps you left South Korea long before you learned what would have been in store for you if you had stayed. Perhaps you might want cool it a bit in pushing for more tests and rankings.

Friday, November 8, 2013

Sam Harris on Free Will

On the cover of Sam Harris’s book, Free Will, is printed this phrase:

"….the facts tell us that free will is an illusion."

The interested reader should expect to be presented "facts" that will support this conclusion. The interested reader will be disappointed. That doesn’t mean Harris is incorrect, but it does mean he has not proven what may, in fact, be unprovable.

Harris provides this explanation of free will:

"The popular conception of free will seems to rest on two assumptions: (1) that each of us could have behaved differently than we did in the past, and (2) that we are the conscious source of most of our thoughts and actions in the present. As we are about to see, however, both of these assumptions are false."

Most people would recognize the first statement as an aspect of what they consider to be free will. However, the second statement raises the issue of conscious versus subconscious motivations and impulses. The fact that some, or even most, of our decisions and actions are driven by subconsciously formed suggestions does not prove that free will is an illusion. Harris spends most of his book arguing the fallacy of the second point and assumes the first must therefore be false also.

Harris provides little to support his claims. There are only a few references to experimental data in the main text. The most intriguing involve measurements of brain activity that indicate decisions were made by the brain before the individual was aware of the decision having been made.

"The physiologist Benjamin Libet famously used EEG to show that activity in the brain’s motor cortex can be detected some 300 milliseconds before a person feels that he has decided to move."

The implication is that the brain subconsciously made a decision and presented it to the individual who falsely assumed that he had consciously made the decision to move. Data of this sort supports the notion that many human decisions and actions are driven by subconscious impulses; however, that is not a position many would argue with. To prove his claim he must prove that all decisions are arrived at subconsciously—an exceedingly difficult task. Nevertheless, he concludes:

"One fact now seems indisputable: Some moments before you are aware of what you will do next—a time in which you subjectively appear to have complete freedom to behave however you please—your brain has already determined what you will do. You then become conscious of this ‘decision’ and believe that you are in the process of making it."

For some reason, Harris relegates other supporting evidence to the "Notes" section at the end of the book. One suspects that this decision was motivated by the weakness of the data available.

Harris is careful to distinguish between his beliefs and the assumption that the future is already determined. The lack of free will does not negate the importance of human choice.

"Decisions, intentions, efforts, goals, willpower, etc., are causal states of the brain, leading to specific behaviors, and behaviors lead to outcomes in the world. Human choice, therefore, is as important as fanciers of free will believe. But the next choice you make will come out of the darkness of prior causes that you, the conscious witness of your experience, did not bring into being."

What controls our actions is a combination of genetics, chemical state, and an experiential base. One could refer to all of emotional and intellectual maturation as the accumulation of patterns of response to experienced situations. In Harris’s view these stored responses form a subconscious basis for the decisions that are made.

Just because Harris’s arguments have been criticized, that does not mean they are wrong.

The most compelling support for his argument comes from what might be called self-introspection.

"If you pay attention to your inner life, you will see that the emergence of choices, efforts, and intentions is a fundamentally mysterious process."

Let’s take his advice and consider our experiences with the decision-making process. Often decisions are easy to make, but what happens when they are not?

How often, when confronted with trying to determine which of two choices to make, we decide that we have reached an impasse and we will "sleep on it." Lo and behold, the next morning we find the choice has become obvious. Is this not an example of our subconscious brain resolving the issue and making the decision for us?

How often have we been faced with a decision where we conclude that one choice seems to make the most sense, but we choose another because it "feels right?" Isn’t the notion of "feeling right" a recognition that there are subconscious boundary conditions that must be satisfied?

These simple examples support the notion that subconscious activity in our brains plays a significant and often determinative role in our actions.

One of the endorsements on Harris’s book cover comes from V.S. Ramachandran, Director of the Center for Brain and Cognition, UCSD.

"In this elegant and provocative book, Sam Harris demonstrates—with great intellectual ferocity and panache—that free will is an inherently flawed and incoherent concept, even in subjective terms. If he is right, the book will radically change the way we view ourselves as human beings."

Note that Ramachandran recommends the book, as do I, but he does not necessarily agree with all that Harris concludes. Ramachandran has written a book: The Tell-Tale Brain. His specialty is studying brain injuries as a means of understanding brain function. In his book he provides many examples of malfunction to illustrate how consciousness is controlled by subconscious brain function.

As an example, consider the phenomenon he refers to as anosognosia, the denial of disability. Often a stroke will lead to paralysis. In some cases the damage from the stroke leaves victims in a state where they are unable to recognize their inability to function. He provides this description of an encounter with one such patient.

"Nora, how are you today?" I asked
"Fine, Sir, except the hospital food. It’s terrible."
"Well, let’s take a look at you. Can you walk?"
"Yes." (Actually, she hadn’t taken a single step in the last week.)
"Nora, can you use your hands, can you move them?"
"Both hands?"
"Yes." (Nora had not used a fork in a week.)
"Can you move your left hand?"
"Yes, of course."
"Touch my nose with your left hand."
Nora’s hand remains motionless.
"Are you touching my nose?"
"Can you see your hand touching my nose?"
"Yes, it’s almost touching your nose."

I this case the normal checks and balances of a healthy brain were not functioning, and what was functioning was desperately trying to maintain its conception of the individual. Images that the patient should have been conscious of were being overridden by her subconscious. Her subconscious was deliberately lying to her.

It is not always wise to assume that "seeing is believing." Everything we perceive is processed before we are allowed to become conscious of it.

This was intended to be an example of how powerful our subconscious is and to suggest that it is dangerous to assume that we are in complete control of our conscious actions.

While I have expressed some disappointment with Harris’s book, I tend toward agreeing with him. What he says "feels right." However, while Harris expresses certainty, I would still refer to myself as having an open mind. People who believe in free will tend to under appreciate the complexity of the human brain. People who are certain that there is no free will might also be underestimating the complexity of the brain.

Monday, November 4, 2013

The Growing Value of Capital and the Decreasing Value of Labor

In the United States, the failure of wages to keep up with gains in productivity is a well-known phenomenon. The relative decline in wages began in the 1980s. Its cause has been attributed to growing automation and the outsourcing of work that accompanied globalization. A recent article in The Economist provides data that indicates that this is a quite general phenomenon that pertains to all developed countries and is relatively independent of social policies and labor regulations.

The article utilized OECD data from its member countries to indicate how labor’s share of the economy has fallen over the recent decades. Below are plotted labor costs as a percentage of GDP for a range of countries.

The four countries with a long history of economic development, the US, Britain, Germany, and Japan, all look quite similar from this perspective. South Korea and Mexico, more recent entries into the developed-nation category, have different starting points and different economic environments, but they also share in the decline of economic activity associated with labor. Labor’s share is falling even faster in those two nations.

The universality of this phenomenon suggests that something quite fundamental is at work; something that is inexorable and inevitable. Of the two suggested culprits, technology seems to be the dominant factor. Globalization certainly contributes, but the trends began before globalization became significant.

"The likeliest culprit is technology, which, the OECD estimates, accounts for roughly 80% of the drop in the labour share among its members."

Technology has made investments in capital more beneficial than investments in labor through ever improving ways to replace human labor with mechanical labor. The reach of labor-saving technology has moved into what were once well-paid, white-collar jobs. Computers and new methodologies have allowed for a large number of middle class jobs, as well as some professional work, to be automated or off-shored. The net effect is that economies preferentially create new jobs in lower-wage categories, and there is increasing income inequality within a country.

In the chart above, the mature economies tend to look nearly identical. However, each has provided a different response to this long-term situation by implementing social policies that supplement the incomes of the lower-wage workers by redistributing wealth. This is a noble and necessary response, but one senses that these can only be stopgap measures. It seems that a more fundamental response will be required.

We seem to be entering terrain that has been anticipated by science fiction writers for many decades. There is no real limit to the ability of capital to replace labor. It is difficult to conjure up physical manipulations that cannot be reproduced by a well-designed and well-programmed machine. There is no reason why a machine can’t perform complex surgeries more accurately and more efficiently than a skilled human. Is there logic that a human is capable of that cannot be reproduced by computer-based logic? It is not inconceivable that mankind could reach a stage where nearly all work is performed by a machine.

It seems there is a form of "the tragedy of the commons" at work here. If it is in each business’s best interests to replace labor with capital investment, then each business will benefit—but only up to a point. Economies depend on having consumers for the products produced. Technology is eliminating the jobs and incomes of potential consumers. This trend can’t go on forever. Society will have to decide how it will deal with this.

Currently, societies are organized around the notion that a person earns his keep by working at a job. This assumes that there exist enough jobs for all those able and willing to work, and that the others are in a sufficient minority that they can be cared for by the majority. What happens if this assumption no longer holds? How does an economy continue to function?

One extreme end point would have machines producing all the goods that humans need. This would require a means for distributing those goods to individuals. How complicated could that be?

Another extreme might have society stepping in and deciding to implement a full-employment policy that might severely limit the utilization of machines in supplanting labor.

At either extreme, and at all points between, the issue of population management arises. How many people does a society need? How many people can a society tolerate? At what point are there more people than can be supported?

It is never too early to start worrying about a new problem.

Friday, November 1, 2013

Politics, Cities, and the Rural Population Decline

A recent report from the United States Department of Agriculture (USDA) announced that data from the Census Bureau indicated that for the first time rural counties suffered a population drop over the 2010-2012 interval. This is a demographic development that could have important political ramifications. 

These charts were provided.

The US population, as a whole, and that of urban areas have experienced a rather steady growth rate over the years. The growth rate of rural areas has been greatly affected by migration in and out as economic conditions varied. Nevertheless, there has been a long-term decrease over time. The most recent time interval indicates a negative value.

The following chart indicates the importance of migration in rural areas.

Note that while migration provides the volatility, the natural growth rate, the number of births minus the number of deaths, has been steadily falling since the 1980s.

The final chart indicates that compared to the years 2004-2006, the growth rate of suburban, exurban, and rural areas have all diminished significantly in the 2010-2012 period. Meanwhile, urban areas showed an increase in growth rate.

The severity of the rural population decline may be masked somewhat by using nationwide numbers such as these. Another indicator is suggested in an article in the Wall Street Journal by Mark Peters.

"An analysis by the Carsey Institute at the University of New Hampshire found 1,135 U.S. counties had more deaths than births last year, a nearly 30% increase from 2009. The number was the highest on record, with deaths outpacing births in nearly half of all nonmetropolitan counties."

Half the rural counties have negative natural growth rates in addition to the contributions from migration.

When politically significant population trends are discussed, most of the focus is on racial/ethnic changes such as the growing fraction of the population that is Hispanic. Minorities tend to vote Democratic while whites tend to vote Republican. There is another politically significant demographic trend that receives less attention: the increasing urbanization of our population that is indicated by the USDA study.

Most urban areas have begun to lean heavily Democratic, while rural areas vote strongly for Republicans. Consider this chart of 2012 presidential election data produced by Mark Newmen of the University of Michigan. The color of the county varies between red and blue according to a scale in which a Republican vote of 70% or more is pure red, and a Democratic vote of 70% or more is pure blue.

The number of regions where the winner garnered around 70% of the vote is rather astonishing. Note how the Democratic votes are tightly contained in small areas. Except for a few cases where minority populations are dominant, most represent highly urbanized areas.

This tendency for people with similar political viewpoints to collect in the same geographic area has been evaluated by Bill Bishop in his book The Big Sort: Why the Clustering of Like-Minded America is Tearing us Apart. Bishop discusses the social and cultural values of city dwellers and divides cities into two categories: high-tech and low-tech. The term low-tech refers to cities that have been strong in traditional areas of the economy such as manufacturing. High-tech cities are characterized by innovation and the development of new economic thrusts in what might be referred to as the knowledge-based economy.

"Bob Cushing and I divided U.S. metro areas into five groups with descending levels of high-tech and patent production and then compared how these groups of cities voted in the six presidential elections from 1980 to 2000. In the early election all the city groups voted much the same….in 1980, the vote in all these areas approximated how the nation voted as a whole."

"As time passed, voting patterns in the city groups diverged. The high-tech groups tilted increasingly Democratic, so that by 2000, these twenty-one cities were voting Democratic at a rate 17 percent above the national average….The low-tech cities and rural America grew increasingly Republican."

What might it be about cities that makes their residents think like a Democrat? Or rather, what is it about Republicans that seems foreign to city dwellers?

As Bill Bishop pointed out, back in 1980 rural and city dwellers tended to vote in a similar though not identical manner. Back then the Republicans could still be considered economically and politically conservative. It was in the 1970s and 1980s that Nixon and Reagan sent out the message that racists were welcome in the Republican Party and invited the Southern Democratic fox into their hen house. Since then the party has gradually changed in nature. Let us be as kind as humanly possible to the current Republicans and assign them the attributes indicated by the media. Let us call them small-government libertarians.

Cities, particularly those Bishop refers to as high-tech, are multicultural almost by necessity. Immigrants now come in a highly-educated form. Many cities have significant gay communities within them. Segregation by race and ethnicity is finally breaking down. Globalization has increased the flux of visitors and new residents from all over the world. For a person, particularly a young person enmeshed in this stew of different cultures and attitudes the unabashed "whiteness" and intolerance of the Republican Party must be incomprehensible.

Living in a large city carries with it an important lesson. Cities cannot function without an effective and reliable government presence. Try living in a city where the trash doesn’t get picked up on time; where the public transit system is unreliable; where the police can’t be depended upon; where a single malfunctioning traffic light can be a disaster. How can a small government message connect with people who live in and appreciate a big government presence?

Cities also cannot function unless everyone, or nearly everyone, plays by the same rules. Cities breed a communitarian spirit, not a libertarian one.

One could go on into education and belief systems in discussing how urban and rural citizens might have different political views. The examples above should suffice to explain the observed tendencies.

Cities have changed in character since the 1980s, but the Republican Party has changed even more. The shrinking of the rural population and the increase of the urban population is a development the Republicans might find fatal.
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