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.