Chertoff on Continuing Information Sharing Problems

This morning, on CNN, Michael Chertoff (the second director of the US Department of Homeland Security) gave two reasons why the US was unable to identify the Undie Bomber: (1) The European Union (EU) blocked US access to their Visa database and (2) The airlines have been reluctant to upload all their passenger information to the federal government.

If the US, EU and Canadians built a publish/subscribe index system, there would be no need to either access or share databases. Here's how it would work. The Europeans would publish only the identifying information for individuals who, for example, were denied a Visa. They would publish the event when the denial occurred.

This is very different from what Mr. Chertoff wants when he says "We have to have access to these databases." To me this means someone in the National Counterterrorism Center in the US would be logging in to the European Visa database. This is a bad idea, which the EU rightly rejected, for a number of reasons: (1) It's too slow and is based on human intervention which becomes two points of potential failure. (2) It presents a security risk to the EU in that someone has to manage the accounts and the identification methods of those in the US that are allowed access. Legitimate, dormant accounts provide one method hackers can use to access a system.

The idea of asking the airlines to upload their entire passenger database to the federal government is also a bad idea: (1) It's too slow. If it happens over night or even two hours before flight departure, the current data is always a few hours out of date e.g., someone today purchasing a ticket with cash won't be part of the last data load. (2) It's unnecessary. What is the federal government going to do with all the mundane administrative information contained in a reservation system?

The NY Times today published a description of how slow, manual and subject to human failure the current system is and was in the case of the Undie bomber. This is the mentality in the US federal government: give us all the data and we'll have someone sit at a computer and look through it. Information sharing involves humans sending information back and forth to the authorities. Any approach that is not electronically based; that does not focus on indexing in real time objects and events of importance for US security; that does not allow all the participants to publish and subscribe; and that doesn't decentralize decision making, will create more security problems than it solves.

Information Sharing and Counterterrorism

The recent attempt by a Nigerian man, evidently working for the Yemeni branch of Al Qaeda, to set off an underwear bomb (he is being called the Undiebomber) in a flight from Amsterdam to Detroit, has created new concerns about US security. The typical fire-drills after a terrorist threat (increased TSA shakedowns on domestic flights, new restrictions on luggage, removal of shoes, etc.) are similar to the ones that resulted from an attempt by Richard Reid on December 22, 2001 to set off a shoe bomb on an America Airlines flight. Hopefully, future travelers will not have to take off their underwear to get through airport security.

The interesting issue for me involves the continuing failure of information sharing. In response to 9/11, the US federal government has "squandered tens of millions of dollars on faulty technology, like high-tech 'puffer' machines that repeatedly broke down and flunked the most basic tests ... [but also] ... the government has yet to fully deploy a sophisticated method for matching passenger names with terrorist watch lists." The alleged Nigerian terrorist was flying from Lagos, Nigeria through Amsterdam to Detroit without luggage, possibly on a one-way ticket paid for in cash! This information alone should have raised many, many RED FLAGS, but it didn't. The dots still are not being connected.

To address the continuing failure of information sharing, I have a straight-forward solution. It's the same solution I presented to the US Department of Homeland Security (DHS) in 2004 [here, here and here] and is displayed in the graphic above. Create an XML-based indexing system that maintains pointers to sources that have information about objects of interest (e.g., people on terrorism watch lists). It is essentially a publish/subscribe system: agencies can electronically query the system, match objects indexed to objects about which they have information, and return new index records pointing to their holdings. Events would trigger new publish/subscribe transactions electronically. TSA screeners, for example, would scan passenger tickets and the system would be queried electronically. Criteria for secondary screening of passengers would be flexible and could be linked to the national threat level and changed instantly. Security for the underlying information would remain with the agency.

In 2004, DHS didn't seem very interested in my idea. They wanted all potential terrorist information stored in a very flexible XML format fusion center that would support any kind of direct querying. If that's what DHS is still insisting on, it won't happen within the bureaucracy of the US Federal government. Agencies guard their data too carefully and the central repository could not really guarantee the security of the mega-database (the 9/11 Commission Report section 13.3 UNITY OF EFFORT IN INFORMATION SHARING is interesting). In any event, it's not clear to me how the existing systems (TSA's Secure Flight and the National Counterterrorism Center's TIDE, which were based on the Northwest Airlines CAPS program) work together or are linked to, for example, the State Department's VISA database. From the descriptions, they seem too centralized rather than distributed--push the decisions as close as possible to the front lines--and too reliant on human querying.

My system isn't perfect. Agencies have to be willing or at least be compelled to query and publish to the database. The provision that they retain their own information should help with cooperation. Privacy advocates have questioned whether the index itself amounted to a fusion center or whether adequate safeguards were in place to accurately identify people. Since the system would not contain original data, only pointers, it is not a fusion center. Accurate personal identification remains a problem. A REAL ID system with stronger privacy protections than currently proposed could help reduce the identification problem (the current government ID requirement for air travel is weak). Certainly, the passport ID system could be strengthened.

This is not to say that there is a simple technical solution to the information sharing problem. There are plenty of other factors related to the growth of the US economy, the growth of the US airline industry and the growth of the US federal government. I'll talk about these issues in other posts.

Cap-and-Trade Market Failure

The NY Times recently editorialized on the collapse in the price of carbon on the European Climate Exchange (the ECX system of emissions trading) after the Copenhagen Conference. Although the price of carbon emissions has collapsed to $18.20 per ton, the Times is optimistic: "Fortunately, there is good reason to believe the price of European emission permits will rise over time. Their price tends to fall when the price of oil or the economy slows---dynamics that reduce energy usage and naturally cut emissions of carbon. As the world fell even deeper into recession last year, the price of permits tumbled from a peak of around $45 per ton in July 2008."

The graphic above shows the three relvant time series and a forecast for each. The upper panel shows total volume on the ECX and the second panel shows the price of futures contracts for carbon emissions in December 2010 (data from the ECX). My business-as-usual (BAU) forecast is for a continued price decline and a rebound next year. The bottom panel shows World Oil Prices (data from the US EIA). In the model as in the Times analysis, futures prices of carbon emissions and world oil prices are intimately related. And, my BAU forecast is for increasing oil prices (this shouldn't be a surprise).

The other part of the Times analysis, however, is equally important. Everything depends on what happens in the world economy.

If Europe manages to disconnect from the world economy (no carbon leakage) and fix CO2 emissions, the forecast above would suggest the ECX would be on the path to developing an effective cap-and-trade system.

However, if Europe continues to be linked to the world system (more likely?), there will be continued instability in emissions with no evident cap. If that happens, the cap-and-trade system would probably collapse.

In 2008, the GAO did an analysis of the ECX and concluded it wasn't working as anticipated and made a number of other interesting points I'll discuss in a future posting. Through all this hand-wringing, however, it's important to remember that the best proven way to limit carbon emissions is to control the growth of the world system (best in that controversial cap-and-trade markets are not need, proven in that we've just seen slowing growth of the world system reduce emissions and least likely given the political reality of growth mania).

A Future for Nuclear Power?

The New York Times is reporting that a US DOE loan program combined with cap-and-trade legislation may give new life to the moribund US nuclear power industry. However, the future of nuclear power is not very bright given the problems, to include: "high relative costs; perceived adverse safety; environmental and health effects; potential security risks stemming from proliferation; and unresolved challenges in long-term management of nuclear wastes." A study in the Bulletin of the Atomic Scientists is equally pessimistic given problems with the existing fleet of nuclear power plants.

My own forecasts (using a three-factor index model of the US economy) are more optimistic. Net generating capacity (the top panel above) peaks after 2040 at about a 30% share (lower panel) of total electricity generation.

My forecast should be contrasted with the very pessimistic forecast from the US EIA (the solid line above) compared to my forecast (the dotted line) for net generation in billion kilowatt hours. The EIA forecast is based on an analysis of plans and goals of the nuclear power industry. Time will tell; no one knows the future. The EIA forecast seems more reasonable.

P.S. The first new uranium mill built in the US in 25 years is about to come on line...

Airline Re-regulation

The process of airline re-regulation is about to start with DOT's decision to fine airlines that keep passengers waiting in planes for more than three hours before takeoff. Airline deregulation started in 1978 and there are two views about how successful it has been. The first view, advanced by neo-liberal and neo-conservative economists is that airline regulation has had "... overwhelmingly positive results." Any small problems (poor service, bankruptcy, safety violations, monopoly practices, overloaded traffic control systems, NIMBY constraints on more airport construction, lack of profitability, luggage fees, TSA shake-downs, intransigent unions, terrorist attacks, etc.) would be solved by more free market fundamentalism.

The other view is that airline deregulation has been an unmitigated disaster--for all the same reasons. Environmentalist would also add that air travel has a very large carbon footprint (even higher than automobile travel). In fact, airlines will be the first industry (even before coal-burning power utilities) to face cap-and-trade requirements in the European Union.

Which side of the argument you favor depends to some extent on your view of the future. If the future holds unrestrained exponential growth in air travel with continually decreasing prices, your projections about the future are probably based on assumptions about how increasingly free markets generate unlimited economic growth. If the future doesn't look that positive, you probably favor some kind of airline re-regulation. You might also favor a broader perspective that looks at a range of transportation alternatives (you probably recall that the Penn Central railroad failed a few years before airlines were deregulated and marked the end of long-haul private-sector passenger service in the US).

So, how well does the airline free market work and what are the predictions for the future? The figure above (data from the US Bureau of Transportation Statistics) shows a forecast for the airline market with airfare prices on the bottom graph and airline operations on the upper graph. Prior to 2009, there was a huge expansion of airline operations peaking in 2008 with very modest price movements (actually, prices have been highly variable, increasing to 2001, decreasing to 2005, increasing again to 2008 and then collapsing during the subprime mortgage crisis--the time plot is just compressed due to the large forecasted price increase).

The forecast suggests that we haven't seen anything yet: prices are going to skyrocket and operations are going to stagnate. If this happens, travelers are going to divert to automobiles (my wife and I are already doing this for long trips in the US). We would use long-haul passenger train service (as we do in Europe) but that was dismantled in the late 1970's. If only the system had not been dismantled in the brave new world of economic deregulation. Do you think we'll all ever have personal jet packs?

P.S. My forecasting model finds that there is very little interaction between quantities and prices in the airline market. That shouldn't be surprising since operations are flow-constrained. Market fundamentalism won't remove the current network and environmental constraints so the neo-liberal dreams of unconstrained growth in air travel are just dreams.

Controlling Drug Promotion

The US and New Zealand are the only countries that allow direct-to-consumer (DTC) advertising of pharmaceuticals. The policy debate in the US involves whether or not DTC advertising should be controlled. On Wednesday, I presented a paper on the topic in the Health Care Track at the Winter Simulation Conference. My response to the policy debate: controlling DTC advertising is unlikely to have much impact and misses a better approach to controlling overall drug promotion.

The time plot above (from the Donohue et. al. 2007 data set), provides the simplest summary of my findings. DTC advertising has increased modestly since 1997 when the FDA modified its side-effect disclosure rules to allow television advertising. The real action, as can be seen from the time plots, involves free samples and promotional detailing (pharmaceutical sales agents direct contact with physicians). In fact, starting in 2004, there has been a substitution between free samples and promotional detailing. Detailing is expensive and physicians tend to discount claims of sales agents. The marginal cost of handing out free samples is very small and has a powerful effect on future prescribing. Controlling free samples and detailing, rather than the much more visible DTC advertising, provides the most direct path to controlling the effects of drug promotion on the sales of patent medicines.

Improving Health Care Through Computer Simulation

In the morning session at the WSC Conference, Sally Brailsford from the University of Southampton, UK presented an interesting statistic: under 10% of all healthcare simulation studies reported in the massive academic literature were actually implemented! The politics and conflicting stakeholder demands in healthcare present the major hurdles to implementation. This should be contrasted with manufacturing where discrete event simulation has had a major impact on increasing the efficiency of industrial processes. In Tillal Eldabi's presentation, he noted that we are dealing with the "wicked nature of healthcare problems." A wicked problem indeed!

Cracks in Climate Policy

In today's keynote address at the Winter Simulation Conference, Undersecretary of Science Ray Orbach highlighted three major challenges for computer simulation: modeling cracks that form in the containment vessels of nuclear reactors, taking a systems approach to CO2 generation and absorption (a fixable flaw in the Kyoto Protocol and the U.S. Cap-and-Trade plans) and including human behavior in Global Circulation Models (GCMs). Each of these problems will require immense amounts of computing power and the U.S. Department of Energy has the computing power available through its Innovative and Novel Computational Impact on Theory and Experiment (INCITE) program.

I'll pick up these topics in later posts. Back to the conference...

Squeeze the Public Option Trigger

Ben Smith reports that, in response to the Senate shift away from a public option, an insurance industry insider says "We WIN. Administered by private insurance companies. No government competitor."

There are lots of reason to think a public option trigger won't work and will face opposition in the Senate. A well-crafter trigger that went into effect when measurable conditions weren't met (decreasing percent without health insurance, reasonable rates, elmination of regional monopolies, etc.) and was supported by a strong planning effort over the next few years, could be effective. Does anyone think our political process can produce such a result?

In the end, it's time for our political leaders to prove their stuff. They were elected to govern and now they need to deliver. If the only way forward is a public option or if it's expansion of Medicare or if it's expansion of the Federal Employees Health Benefits Plan (FEHB), now is the time to see whether our publicly elected officials can make policy that benefits the American people.

Stabilizing Emissions with Policy Wedges

Robert Socolow and Stephen Pacala have a plan to keep carbon emissions in check (as discussed in today's Global Warming Debate). The plan is based on a divide-and-conquer strategy: divide the total emission reductions needed into manageable pieces ("wedges") and propose existing technologies to tackle each wedge.

Total carbon emissions are forecast to be 14 billion tons a year by 2056. To get back to the 2006 level of 7 billion tons per year you need seven billion-ton-a-year wedges for the next fifty years. Pacala and Sokolow actually propose 15 wedges covering end-user efficiency and conservation, power generation, carbon capture and storage (CCS), alternative energy sources and agriculture and forestry--an ample menu of existing technologies to choose from. And, after 2056, we can implement another 3 wedges to get us back to 4 billion tons a year which is around the amount of carbon that the existing earth systems can effectively absorb.

Essentially, Pacala and Sokolow take the Emission Equation and focus on carbon intensity, energy intensity and population growth (it could be one wedge if reduced) while leaving output per capita (economic growth) alone. This is a very attractive formulation (it's even been applied to controlling the US health care system). Electric cars, wind turbines, solar panels, new CCS coal-fired power plants, super-insulated homes, etc. all create economic growth and improve our standard of living.

There is even a Stabilization Wedge Game that can be used as a teaching tool. Actually, the game has drawn more criticism than the scientific articles: the costs are underestimated, the implementation time is underestimated and the demand side (population growth and economic growth) is ignored in favor of technological "fixes".

My problem with Stabilization Wedges is that they ignore the systemic aspects of the environment. Carbon is not the only problem facing the world system. Demand has increased our ecological footprint beyond sustainable levels and there is no quick technical fix for creating more ecological capacity than our current Earth system can provide. We will need both supply and demand solutions.

Mammography and the PSA Test

One criticism of both mammography and the PSA test (for prostate cancer) has been that both tests produce false positives. What should be remembered is that positive results from either mammography or the PSA test does not lead immediately to radiation, chemotherapy or surgery.

For mammography, the American College of Radiography has a uniform way for radiologists to describe mammogram findings and suggest a follow-up plan.

Notice that levels 4-6 require a biopsy after a positive test. The same is true for the PSA test. Each is part of a process and the presence of cancer is still established with a biopsy even if the initial screening test is positive.

Carbon Accounting and Policy in Copenhagen

The challenge for policy makers at the upcoming (Dec 7 - Dec 18) UN Climate Change Conference in Copenhagen can be seen from some simple carbon accounting and one equation (as discussed today in the Global Warming Debate).

The Figure above (from IPCC 2007 WG1 Ch. 7 Fig. 7.3) displays the estimated carbon cycle for the 1990's. What's important to notice is the equilibrium flows (up- and down-arrows). The black arrows indicate pre-industrial "natural" fluxes and the red arrows indicate "anthropogenic" (man-made) fluxes. The question here is how much carbon will the biosphere and the oceans absorb relative to how much is emitted. If you add together all the net fluxes for Weathering, Respiration, Land, and Oceans you get 4.4 GtC/yr of carbon absorbed by the biosphere and the oceans. Of course, notice the 6.4 GtC/yr unbalanced emission from fossil fuels.

To say it another way, the biosphere and the oceans are capable of absorbing about 4.4 GtC/yr (+/- 20%). The figure above shows the actual world carbon emissions from 1950 to 2010. In 2008, we emitted 8.59 GtC/yr which is about twice the absorptive capacity of the biosphere and oceans. In other words, sometime in the 1970's or early 1980's the world's carbon cycle went out of equilibrium. Ultimately, that equilibrium has to be restored.

The "Emissions Equations" shows our policy choices:

CO2 = (N) x (Q/N) x (E/Q) x (CO2/E)

(CO2 Emissions) = (Population) x (Output per capita) x (Energy Production per capita) x (Carbon Intensity)

(CO2 Emissions) = (Population) x (Output per capita) x (Energy Intensity) x (Carbon Intensity)

If we want to control CO2 emissions we can (1) reduce population growth, (2) reduce output per capita, (3) reduce energy intensity or (4) reduce carbon intensity. Since reducing population growth is off the table (only China has tried population control) and since reducing output per capita (economic growth) is off the table, we are left with the technical challenges of reducing energy intensity (heavily insulated buildings, electric cars, mass transit, etc.) and reducing carbon intensity using renewable energy sources (solar, wind, geothermal, etc.)

If only it was a "simple" as totally changing out our existing energy systems. The figure above shows a plot of the World's Ecological Footprint (EF), a measure of human demand on all the Earth's ecosystems. The figure above is calculated as a ratio of the number of Earths needed to support human demand over the number of earths actually available (one Earth). Interestingly enough, we exceeded the Earth's ability to meet human demands at about the same time in the 1970's that we exceeded the ability of the biosphere and the oceans to absorb our carbon emissions.

There is no immediate, quick fix technical solution (heavily insulated buildings, electric cars, etc.) for the EF problem. However, both the EF and the carbon cycle have to be brought back into equilibrium. To be successful in Copenhagen, policy makers will have to find a way to take us back the the 1970's in terms of our carbon emissions and our demands on the Earth's ecosystems. With population growth and economic growth taken off the table, they don't have a chance.

Controlling Health Care Demand

The Senate started the debate on health care reform today and at the same time there have been a flood of stories about health care demand covering mammography, autism, proton therapy and H1N1 and others.

CNNs H1N1 story this morning caught my attention. A mother tried repeatedly to get her otherwise healthy daughter treatment for flu symptoms. She was repeatedly told "take two aspirins and get bed rest." When her daughter's health started declining rapidly, she ended up in the ER where it was found that the virus had attacked her heart. The daughter barely survived.

Compare this story to the ones where parents are demanding risky, unproven treatments for autism, men are demanding expensive proton therapy for prostrate cancer, women are demanding yearly mammograms and siblings are demanding heroic end-of-life treatments for their elderly parents. All these demands are being made without supporting scientific evidence.

Clearly, there's an element of American middle-class society that demands instant treatment for any illness, regardless of the cost. And, there is an element of the medical community that is willing to provide the treatment. On the other hand, there is another element of American society that doesn't have health insurance and can't afford to get their teeth cleaned or have a yearly check up.

The health care system is trying to fend off these demands--maybe not successfully as in the H1N1 case. The danger of excessive demand and the attempts to control it are that it's overloading the medical system and making it difficult to separate the truly sick and needy patients from the hypochondriacs.

Gift Giving is Irrational

Hardheaded economists have looked at gift giving and concluded that gift giving is irrational (Scroogenomics). Research shows that people value gifts they receive 20 percent less per dollar than products they purchase for themselves. Since $65 billion (approximately) is spent in the US on gifts, 20% of that is about $12 or $13 billion a year in destroyed or wasted value. Worldwide, the number is about twice that big.

So, let's see: the bond market is irrationally selling derivatives with no value; mortgage lenders are irrationally making subprime loans with no value; investors are irrationally buying dot.com stocks without value; physicians are irrationally ordering tests without medical value; and people are irrationally giving gifts to their acquaintances who place little value on what they get.

Are any economic actors doing anything rational? Whatever happened to homo economicus? Is the rational actor, after all, just a neoliberal fantasy?

The Evidence for Evidence-based Medicine

The recent recommendations of the US Preventive Services Task Force (USPSTF) regarding mammography have created confusion and resistance from both the medical community and the general public. The USPSTF recommendations were based on the application of evidence-based medicine (EBM). The current firestorm threatens the entire EBM enterprise.

My recommendation to Kathleen Sebelius, the US Secretary of Health and Human Services (who walked away from the task force recommendations), is to take a cue from the Intergovernmental Panel on Climate Change (IPCC). Ask the USPSTF to stick to the science and avoid the policy recommendations.

The EBM enterprise essentially conducts a literature review of existing studies in the field and assesses the risks and benefits of a particular treatment. This is essentially what the IPCC does in it's Assessment Reports (ARs) and this is where the IPCC scientists stop, understanding that they are not politicians.

EBM as practiced by USPSTF (I know this is acronym overload, but can't help myself), however, can't resist taking two further steps. Evidence-based guidelines (EBG), meant to be applied at the organizational or institutional level, use EBM literature reviews to develop guidelines, policy and regulations for medical practice. And, USPSTF appears willing to even take a further step into evidence-based individual decision making (EBID) which is the application of evidence-based medicine to the individual patient.

Purely from the standpoint of statistics, EBID is a dangerous idea. Population statistical data and results have little if any useful application to individuals. All population statistics describe central tendencies and confidence intervals based on distributions of patients. There is simply no way for a clinical practitioner to locate an individual patient within that data storm.

Even though EBID is not useful, the literature reviews provided by EBM are very useful. The medical literature is huge and of widely varying quality. USPSTF provides an extremely useful service reviewing this research and reaching a consensus opinion on the risks and benefits of a particular treatment. As should be obvious from the mammography debate, they loose their credibility by going any further. Let's shift the pressure to the organizations and institutions that deliver health care to use the gold-standard EBM results to develop guidelines, policies and regulations. And, let's require them to defend those decisions with more outcomes data.

The System Strikes Back

The US government is earnestly focused on solving complex problems (health care delivery, climate change, terrorism, etc.) but tends to think very linearly. "If we could only implement some government policy, everything would change". The difficulty is that we are dealing with complex systems and the systems will fight back.

Here's an example from an island nation in the central Pacific, Kiribati (pronounced KIR-a-bahs) that has a simple Robinson Crusoe economy. The natives either catch fish or pick coconuts (I'm not making this up). The government was concerned about overfishing so it decided to subsidize coconut production to give people a better standard of living and reduce overfishing. The result was that fishing increased by 33 per cent and the reef fish population dropped by 17 percent. What's going on here?

The standard textbook economic analysis says that as people's incomes increased they would choose more leisure. And, that's what happened, except they chose to spend their leisure time fishing!

Textbook economics does not provide the only lesson here. Most governments approach policy making with a linear mindset: subsidize coconut production and we will solve overfishing. But, we're intervening in a system with three positive feedback loops that the government policy disrupted. And, the system worked to defeat the policy initiative.

There has been a debate in economics about whether people's expectations defeat government policy initiatives (rational or model-consistent expectations theory). Although there is a kernel of truth in the theory (people do have expectations), it entirely misses and could easily be confused with the system aspects of government interventions.

The Kiribati economy and the problem of over-fishing is more complex than presented in the diagram above. In 2004, my wife and I visited Fanning Island (Tabuaeran), an atoll in the Gilbert (Kiribati) Islands. The highest point on the island is only a few feet above sea level and there was even concern when we visited that any sea level rise might flood the island. In the face of looming environmental problems, the government did not really try to understand the reasons for over-fishing: are the the coral reefs dying and supporting fewer fish? Is population pressure created by economic growth pressing on declining resources?

There have to be some lessons here (similar to the Robinson Crusoe lessons from textbook economics) that would inform our current policy debates. Understanding systems is a prerequisite for effective government policy. How well do we understand the US economic system or the US health care system or the World environmental systems? How likely to be effective are policies based on linear thinking? If we don't understand something, it's a signal to invoke the precautionary principle.

A Lens on Climate Change

Had enough charts and box diagrams explaining climate change? Here's a great video site, Consequences by the NOOR climate change project (scroll down the page for video and photography about the pine needle infestation in British Columbia; sea-level rise in the Maldives; the burning coal fields of Jharia, India; nomadic Nenet tribes under threat from global warming; the Canadian oil tar sands; Somalia's environmental refugees; and more).

Regional Variation in Health Care Spending

We know from the Dartmouth Atlas that there are large regional variations in the cost of health care. Now it is being reported that academic medical centers are resisting attempts by the Institute of Medicine to study the sources of variation. The academic medical centers are raising the old argument that their patients are sicker and so cost more to treat (an argument that can easily be refuted). So, why would academic medical centers, the "guardians of the scientific basis of medical practice" resist a research study? Are they afraid of the answer?

Here's my hypothesis about why costs of care are different at different academic medical centers. The capital budgets for buildings and technology are different across the centers and positively correlated with costs. A center with a large capital budget must pay the debt on it's buildings and machines and it must utilize the buildings and technology fully to justify their costs and to justify better facilities and better technology in the future. It's just a hypotheses but it will be difficult to test since, unlike the public Canadian system, US hospitals do not make their budgets public.

Doomsday 2012

Will the World end in 2012? Evidently, some people are worried by ancient Mayan prophecies. "If you want to worry, most scientists say, you should think about global climate change, rogue asteroids or nuclear war."

Health Care Market Failure

Yesterday, Harvard economist Greg Mankiw pointed out that increasing demand for health care driven by expanded insurance coverage will increase prices. Today, the New York Times reported that pharmaceutical manufacturers are increasing prices in anticipation of health care reform. The magnitude of price increases for physician's services depends on how quickly supply increases to match demand and unilateral price increases should reduce demand for pharmaceuticals. So what's going on?

Here's the textbook graph for the pharmaceutical market and the market for physician's services. Pharmaceutical manufacturers can unilaterally increase prices without worrying about demand because most buyers (particularly for patented medications) are price insensitive. Either you must have the drug or someone else is paying for it.

The Pharmaceutical industry says the price rise is due to the need for more R&D but the Congressional Budget Office disagrees. When you exclude spending on human clinical trials and the money spend on manufacturing process (neither of which are research) as the National Science Foundation did (above), pharmaceutical R&D expenditure has been flat.

We also expect large price changes for physician's services (the right panel in the first graphic). Because the supply of physicians services is fixed both in the short- and long-term (it takes a long time to train a physician, not every unemployed manufacturing worker can be retrained as a physician and US medical schools have graduated the same number of physicians every year for many years), large price increases can be expected from increased demand.

Markets for pharmaceuticals and physician's services are classical examples of market failure. A public option that could directly bargain with pharmaceutical manufacturers (as exists in every other major industrial company except the US) would help hold down drug costs and have very little impact on R&D. Increasing supply of physicians services would require restructuring how health care is delivered. Physician's assistants could easily give screening physicals, for example, in response to increased demand. The public option might also be able to exert some leverage here. Reducing payments to physicians could induce some innovation and reorganization.

Moonstruck Lunacy

Predictably, NASA's $79 million mission to crash the Lunar Crater Observation and Sensing Satellite (LCROSS) into the moon succeeded beyond expectations, kicking up 25 gallons of water. Regardless of this space spectacular, the Moon is still dryer than any dessert on Earth. Not many people live and work in Death Valley. Why is NASA so excited about this finding and why are we fixated on the Moon?

The Review of U.S. Human Spaceflight Plans Committee has just released its final report and NASA is worried. The committee is trying to scale back NASA's budget and reduce the cost of space exploration recommending that (1) astronauts be lifted to low-Earth orbit using private resources and (2) NASA bypass the Moon to concentrate on unmanned flight to more remote planets in the Solar System. But NASA and the rocket jockeys that are all over cable news today want to go to the moon.

Why are we doing this? "The Committee concludes that the ultimate goal of human exploration is to chart a path for human expansion into the solar system." Really? Humanity has not expanded into Death Valley. There is no planet, asteroid or moon in our Solar System that is inhabitable. Travel beyond our Solar System within the currently understood limits of physics would subject humans, unprotected by Earth's atmosphere, to severe radiation. Is human space flight just delusional escapism?

Actually, this is all about a Federal agency and the interest groups that inevitably form around agencies with large budgets, trying to maintain it's budget. Space flight has produced few scientific advances (see my earlier post) and the money being wasted here is desperately needed for Federal Energy R&D. If NASA's R&D budget was immediately transfered to DOE, the budget for energy R&D would be doubled--exactly what's needed right now.

Is there a role for NASA in the real world? Currently NASA is on a crusade to convince the public that the world is not coming to an end on December 21, 2012 as predicted by the Hollywood movie 2012. There are popular beliefs about an apocalypse in 2012 fueled in part by NASA's own predictions about the most intense Solar maximum in fifty years scheduled for 2012. All this seems an appropriate example of mass hysteria as a result of a society and Federal agency under stress. We need right now to deal with the world we're living in which is also under a lot of stress.

Sheila Bair, Bear Sterns, Bare Knuckles

The regulators are starting to weigh in (the boxing metaphor) on financial regulation. Sheila Bair, FDIC director, gave an interesting interview tonight on the PBS News Hour. Her comment in response to Paul Solman's question about the Christopher Dodd, D-CN, financial regulation bill: "I believe strongly in checks and balances." Reading between the lines, there are no checks and balances on the Federal Reserve. Checks and balances require multiple regulators with clear missions watching not only the regulated but each other.

But, she didn't explain how to avoid regulator shopping (looking for the regulator who will give you the best deal). This problem exists throughout the Federal government and is not unique to the banks. In bioterrorism, for example, university laboratories would rather be regulated by the CDC than by the Department of Agriculture, the later being perceived as uninformed about and out of touch with university research. Multiple regulators, regulator shopping, captive regulators and poor regulators are just some of the problems surrounding practical regulation. There's the bell for round one.

An Inconvenient Half-Truth

Al Gore's documentary and associated book, A Inconvenient Truth, has been the subject of intense controversy and has stood up quite well to the attacks. But, nothing is perfect and here's one example discussed this week in the Global Warming Debate.

From the book (page 196): "If Greenland melted or broke up and slipped into the sea--or if half of Greenland and half of Antarctica melted or broke up and slipped into the sea, sea levels worldwide would increase by between 18 and 20 feet." This is a true statement and if it happened the World Trade Center Memorial would be under water.

The assertion, however, begs the question of (1) how likely is a sea-level rise of 18 to 20 feet and (2) how likely would such a sea level rise result from the melting of the ice sheets in Greenland or Antarctica? The Intergovernmental Panel on Climate Change (IPCC) has the answer buried in its reports.

Sea-level rise (SLR) is forecast to increase by about one-half foot every 100 years. In other words, sea level is expected to rise by 20 feet in the year 6000. What are the most likely sources of SLR?

This graphic is a little more difficult to explain since there are different measurements from two periods (Blue=1961-2003 and Brown=1993-2003). The important point to notice is that for either period, thermal expansion and glacier melt are the two most important sources of SLR. The melting of Greenland and Antarctica, given the error bars, provides almost a zero contribution.

This is not to say that we should not be concerned about the Greenland ice sheet or that there might not be a tipping point where the rate of melting gets accelerated. It's just that it's pretty far off in the future.

Fixing the Fed

Christopher Dodd, D-CN and chair of the Senate banking committee, introduced a 1,136 page plan to overhaul regulations for banks and other financial institutions. There are many obviously needed new regulations proposed in the bill (control of derivatives, consumer protections, controlling systemic risk, etc.) but what caught my attention was the provision that takes banking regulation away from the Federal Reserve. This step should be thought about very carefully and I haven't seen any blog traffic but expect to see a lot of discussion soon.

The mission of the Federal Reserve has changed over time (read the history here), but one of the original founding objectives was control of the money supply. The US Treasury controls how much money is printed but the banks control the extension of credit (effectively creating money) and the Federal Reserve controls bank reserves (the source of credit). On the one hand, the Fed needs a very good understanding and control over what banks are doing if it wants to control the money supply. On the other hand, the Fed is just another bank, the central bank. Since it operates independently, it begs the question of "who regulates the regulator"? I guess this is the point of Ron Paul's, R-TX, bill and book ("End the Fed").

We seem to be at an historical conjuncture where the Fed is loosing political support for its mission. It would be useful, before acting, to reflect on the financial history of the late 20th century, re-read Hyman Minsky's "Stabilizing an Unstable Economy" and have a very open public discussion about financial regulation and the role of the Federal Reserve. It would also be useful to think about how fast we want the US economy to grow and how much of the growth should be the result of financial manipulation. Slower growth and less financial manipulation would lead to fewer housing and stock market bubbles and lower CO2 emissions. Unfortunately, politicians are hooked on growth and they will ultimately decide the fate of the Fed.

Sick Around the World

Last night PBS Frontline replayed "Sick Around the World: Can the U.S. learn anything from the rest of the world about how to run a health care system?" I've seen it twice now and have been struck each time by a number of points: (1) there seems to be general agreement that ending the fee-for-service system (essentially, paying physicians a fixed yearly salary) will control prices for physicians services, (2) mandating health insurance, eliminating underwriting and, here's the tough one, making insurance companies nonprofit organizations, solves the coverage problem, (3) fixing drug prices (in Switzerland) did not reduce innovation (although Swiss drug firms still had the lucrative US market), and (4) setting limits on prices for medical technology (e.g., CAT scanners) led to the development of lower-cost technology (Japan). These four steps, if they could be implemented in the US (a big "if"), would effectively control health care costs.

However, I was also struck by the cultural differences between the other capitalist democracies (United Kingdom, Japan, Germany, Taiwan, and Switzerland) compared to the US. There is a clear agreement in these countries (even among conservatives, it seems) that health care is a basic right, something that every citizen should have regardless of income. In the US brand of capitalist democracy, health care is still a commodity. Without a change of philosophy in the US, there can't really be a change in policy.

Divide-and-Conquer in Health Care

After struggling with health care reform since the passage of Medicare in 1965, the US House of Representatives passed H.R. 3962, the Affordable Health Care for America Act. The fate of H.R.3962 is unclear. At least for Senator Lindsey Graham, R-SC, the bill was "dead on arrival to the Senate." What, if anything, might get through the US Senate and be eventually resolved in conference committee?

If you just look at H.R. 3962's rock-solid provisions, health insurance reform has to top the list. Eliminating underwriting and cancellation when the policy holder becomes sick (makes a claim) would be a major step forward. Providing subsidies for the poor seems like a necessary part of insurance reform but it creates another set of marginal tax rates that differ from the marginal tax rates on income. When you think about the interest groups that support H.R. 3962 (AARP, AMA, AHA, AJA, PhRMA, etc.), any proposed reform beyond health insurance will have a difficult time in the Senate.

Comprehensive health care reform would have to provide universal coverage and deal with controlling why health care costs so much in the US. A study by the International Federation of Health Plans and other research shows that prices of hospital visits, physician visits, routine procedures, and laboratory tests are all much higher in the US than in other countries. To this list, we might as well add tort reform to keep Republicans on board. Notice that the list of cost drivers pretty much matches the list of interest groups that support H.R. 3962 (the America Hospital Association, the American Medical Association, the Pharmaceutical Manufacturers Association, the American Justice Association, etc.). The bill doesn't address these cost drivers.

The major problem with comprehensive health reform is taking on all the interest groups at once as was attempted in 1993 during the Clinton administration. A divide-and-conquer strategy would make a lot more sense. There seems to be wide-spread support for taking on the Health Insurance Industry. Let's make sure that health insurance reform gets passed. Then, lets take on the remaining interest groups one at a time. It will be slower but it's probably the only realistic approach to comprehensive health care reform.

A Global Warming Denial Based on Vapor

One commonly heard argument in the Global Warming Debate is that since water vapor makes up the largest greenhouse gas (GHG), CO2 emissions can't be having that much effect on global temperature. Water vapor is the most important GHG, but focusing on this fact ignores the difference between forcings and feedback.

Fossil fuel emissions, a forcing, kicks off a positive feedback loop involving water vapor. Atmospheric CO2 increases temperature (since CO2 is a GHG) which increases the saturation capacity of the atmosphere which increases water vapor which in turn increases temperature. What is less clear is the effect of increases in water vapor on cloud formation. Clouds are water droplets and the formation of those droplets and the level they form in the atmosphere determine whether clouds have a positive or negative effect on temperature. The effect is called the Iris hypothesis and it is currently being tested by climate scientists, with mixed results. The formation and effect of clouds is poorly understood and presents a challenge for current Global Circulation Models (GCMs) used to make climate change predictions. This doesn't mean the GCMs are wrong (a subject for a later post) just incomplete.

How the Health Care Free Market Works

Although I'm guessing here (its not evident from their Common Sense Health Care Reforms), Republicans probably favor a free market for health insurance. What would that be like and how would it work? Here's an example from the Midwest. A woman from Bethel, MN was shocked to learn while her husband was lying in the intensive care unit of an Arizona hospital, that she had no health coverage even though she had a health insurance card. She had been duped.

Dubious health insurance plans are spreading across the US according to the Coalition Against Insurance Fraud. The Minnesota Attorney General has reportedly sued two out-of-state insurance companies and ten more investigations are under way. This is the current free market for health care and this is how an expanded free market would work under Republican plans.

Actually, we've been here before. Prior to the Flexner Report that reformed health care in 1910, we had a free market for health care. Anyone could hang a shingle out, practice medicine and dispense snake oil. The US has already seen the unregulated free market for health care. Let's not go back there.

Buying Health Insurance Across State Lines

The number one plank in the Republican Party's "Common-sense Health Care Reforms Our Nation Can Afford" is: "let families and business buy health insurance across state lines." What does common sense tell us about this policy recommendation?

Currently, health insurance is regulated by State insurance commissioners. If you have a problem with your insurance company, at least in Wisconsin, you can file a complaint. Now, let's imagine you have purchased insurance from an insurance company in the State of Alabama. If you have a problem with the company, say they refuse to pay a large hospital bill you think is covered under your policy, what do you do? Under the Republican proposal, I'm not sure. You can't appeal to the State of Wisconsin, since they don't regulate Alabama companies. You probably can try to appeal to the State of Alabama and file a complaint, but on their website they say "Our mission is to serve the people of Alabama..." and you are a Wisconsin resident. Good luck with that appeal.

Or, possibly the Republican Party had in mind a Federal Regulator who would regulate interstate commerce in health insurance. Somehow, I don't think this was their intent. My guess is that their intent was to leave interstate commerce in health insurance unregulated. Since Republicans believe in the free market, let's imagine what will happen. The first avalanche of rejected claims and resulting health care related personal bankruptcies, will force people back into buying insurance within their own state where they have legal protection. This is common-sense?

Scientific Consensus and the Precautionary Principle

Since scientific consensus is never infallible, how do we respond to the debate between the Intergovernmental Panel on Climate Change (IPCC) and its critics? One approach is to adopt the precautionary principle: in the absence of infallible scientific consensus, do nothing that might harm either the public or the environment. The burden of proof is then on the critics.

Applying the precautionary principle in practice can be difficult. For example, higher gas prices will reduce CO2 emissions but place an added economic burden on drivers. Rather than applying the precautionary principle issue-by-issue, let's take a broader look at slowing down the overall growth of the economy. One positive benefit of the current Subprime Mortgage Crisis is that reduced economic growth has led to reduced CO2 emissions.

Our current economic system is caught in a vicious positive feedback loop: population increase (either through natural increase or through immigration) leads to greater consumption which leads to greater resource exploitation and more production, which leads to larger emissions and more people seeking a higher standard of consumption. Politicians are also hooked on growth. Today's new programs are funded by future tax revenues resulting from growth. When the system collapses, as it did during the Subprime Mortgage Crisis, public spending programs become unsustainable.

An economy with a slower growth rate or even a steady-state economy would concentrate on development rather than growth: improve the energy efficiency of existing homes (rather than sprawling into the suburbs), increase recycling, improve the quality and durability of products, replace the existing fleet of inefficient vehicles with electric vehicles, replace coal-fired power plants with renewable sources, improve population health and education, etc. Minimally, slower growth would buy time while new, carbon neutral technologies are developed. Or, we could get off the growth treadmill entirely and focus on improving the quality of life for the existing population.

Scientific Consensus and the IPCC

The reports of the Intergovernmental Panel on Climate Change (IPCC) are based on scientific consensus. Scientists have been wrong before: the Earth was thought to be flat, bodily fluids were thought to be associated with personality types (the four humors) as was the shape of the skull (phrenology), and during the 1970's climate scientists thought the world might be cooling. At one time, all these ideas more or less commanded scientific consensus. Should we believe the IPCC scientific consensus today?

First, we no longer accept flat-earth theories or phrenology based on the accumulation of (negative) evidence over time. The initial global cooling pattern was based on satellite data that was not corrected for changes in satellite orbits (the red line in the graphic above shows the uncorrected data, the blue line shows the corrected data that now agrees with other measures of global temperature--presented today in the Global Warming Debate). Second, since it takes time for data to accumulate, be analyzed, reanalyzed, critiqued, and possibly refuted, we are asking a lot of the IPCC. They are making their assessments based on reading the current, peer-reviewed literature.

Some climate change critics have submitted their results to peer-reviewed journals but most simply present their conclusions based on cherry-picked data or pure opinion. Time will resolve these disagreements but many scientists are concerned that we don't have the luxury of time.

A Primer on Climate Change Denial

There are basically four arguments made by those in "climate change denial":

(1) The world is not warming.

(2) Climate variability is natural and not anthropogenic.

Climate scientists who have participated on the Intergovernmental Panel on Climate Change (IPCC) consider the first two issues as having been answered by current research. The following two issues are areas of active concern and research:

(3) Future climate changes and impacts will be small.

(4) We can't stop climate change and, in any event, it will cost too much.

I will comment on all these points in future posts as the topics come up in the Global Warming Debate.

Black Thursday, Monday and Tuesday

This week marks the 79th anniversary of the Great Depression. On October 24, 1929 "Black Thursday," the stock market bubble burst and a pool of bankers attempted to prop up the market with an investment of money. On October 28, 1929 "Black Monday," the stock market fell 22.6% as did markets around the world. On October 29, 1929 "Black Tuesday," panic set in and a record 16 millions shares were sold. Reviewing the history of the Great Depression in the middle of the Subprime mortgage crisis (Great Depression II) is particularly salient. One of the best reviews is currently running on the PBS American Experience "The Crash of 1929".

The history of the Great Depression touches a number of current policy questions: (1) Did government policy before the crash create the bubble and did government policy after the crash make the Depression worse? (2) Should we bring back the Glass-Steagall Act of 1933 that separated banking and financial organizations and was repealed in 1999? (3) Did the stock market crash cause the Great Depression or were there other forces operating in the US economy and the world system? (4) Is our financial system becoming increasingly unstable with larger boom-and-bust episodes? (5) Did anyone see the Great Depression developing? Did anyone see the Subprime mortgage crisis developing? If they did, how were their forecasts received? (6) Is it even possible to forecast recessions and depressions?

Moving Toward Health Care Compromise?

This morning on CNN's State of the Union, Orrin Hatch (R-Utah) made the following comment:

Republicans would like 50 state laboratories, 50 states working on these things with yes, the help from the federal government and doing it in accordance with the needs of those states. If we did that, I think you'd find a really good health care system that would incrementally grow, be better, save costs, save -- bring down insurance premiums from where they are going to go if we don't. And I have to say, you know, stop the federal government from taking over everything in our lives.

My first thought was to reconsider my earlier posts on the state-level health care option. My second thought was that Senator Hatch was signaling some movement on the part of Republicans toward compromise. That would be useful.

A caveat might be that States that want to opt out of the public option be required to develop a program with measurable criteria (coverage and cost containment goals for starters) that would have to be reevaluated after experience with their program. If States want to pursue ideas such as Health Savings Accounts and catastrophic private insurance, let's see whether such programs (surprisingly, there are neo-liberal and liberal variants) will work better than the public option. It's a way to either confirm or reject some of the free-market ideas based on experience rather than argument.

Will Climate Change Impact Cherry Picking?

Although Wisconsin's Door County is still known for cherries, the cherry picking talked about this week in "The Global Warming Debate" involves data.

One type of cherry picking found in the global warming debate involves time scales. The graphic on the left above shows that over the last 300M years, there has actually been global cooling. Of course, at techtonic time scales, peak temperature occurred at a point when crocodiles where swimming at the North Pole. During the period of modern human civilizations (the far right graphic above) we are about to enter the warmest period modern human civilizations have experienced. Whatever the cause of the warming, the bigger question is what are human civilizations going to try to do about it (if anything).

Another kind of cherry picking involves focusing on a single decade. From that perspective, 2008 was the coldest year in the last decade. Taking a longer time scale, 2008 was the 9th warmest year on record.

One outcome of the global warming debate might be that people will take a little longer view of statistical data. But, myopia is endemic in the analysis of current events. From March 2009 to the present, the DJI has increased by 150%, a great Bull Market, but from October 2008 to March 2009 it fell 230%.

Freaked Out Neoliberals

There is an interesting comment on Paul Krugman's blog in response to the about-to-be-published book "Superfreakanomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance". The point of the comment was that economists should "...stick to your third-quarter profit forecasts and leave climate predictions to real scientists!" I would slightly qualify this comment to read "neoliberal economists" since the ecological economist are doing research that is complimentary to the earth scientists.

Hey, Pizza Face!

It's National Pizza Month and the industry is suggesting that moms make pizza faces for their kids. Here's an example:

From the press releases I've read about this campaign, I can deduce that no one on the marketing team for this promotion attended my high school where "pizza face" was a term reserved for someone with a bad case of ache.

Incentives to be Smart

This morning on CNN, Lloyd Blankfein, CEO and Chairman of Goldman Sachs, commented (approximately): "You can incentivize someone to move from one part of the room to another ... but you can't incentivize someone to be smart." Although I know this isn't what he meant (he went on the say that the problem was with the dumb "risk managers"), if we can't incentivize people to be smart, what's the point of Mr. Blankfein earning $53.4 million in 2006?

Mr. Blankfein has been on a charm offensive recently and Goldman Sachs earnings did fall short of setting a record this quarter, but I'm not sure the charm offensive is helping his case.

Neoliberalsim and The Power of the Poor

Last night, our local Public TV channel ran "The Power of the Poor," documenting Hernando de Soto Polar's efforts to expand property rights for the poor. The program was evidently developed by the FreeToChooseNetwork which supports neoliberal ideas ("...the interdependency of personal, political and economic freedom sustained by the rule of law.")

The documentary touched on a number of issues: the tragedy of the commons (the poor without property or employment must earn their living off the commons), the ownership society (a Bush II era idea that led to the Subprime Mortgage Crisis), and the provision of public goods (ownership of private property does not absolve the government from providing public goods as is argued by market fundamentalists).

It would be very useful in the United States (and in the IMF), to have some agreement on the proper role of government: support for private property rights but where markets fail or where private property rights damage the public interest, the responsibility falls on government to intervene and regulate. Progress here would involve giving up the Reagan-era idea that government is the problem and must be dismantled.

Cannon Fodder

Why have neo-conservatives and neo-liberals opposed the economic stimulus package and health reform? This morning, CNN's Pentagon correspondent Barbara Starr reported that for the first time since the 1970's, all three branches of the military have reached their recruiting goals. The reasons given were (1) the economic downturn driving the unemployed into the military, (2) large cash bonuses being offered for enlistment and (3) the availability of health care. So now I understand the neo-cons: someone has to have an incentive for fighting their wars and their "public option" for health care is the military.

Starr also reported that General Stanley McChrystal's request for more troops in Afghanistan actually contained a range of recommendations from 10,000 to 80,00 with 40,000 being the desired increase. Let's see, 80,000/2 = 40,000. This is an old consultant's trick: provide three estimates, a low-ball, a high-ball and the one you want. Hopefully the president will not fall for this.