Economics – Page 254 – artdiamondblog.com

Unintended Consequences of Sending Food: More on Why Africa is Poor

Millet in bowl. Source of photo: online version of the NYT article cited below.

NIAMEY, Niger, Sept. 21 – The images coming out of this impoverished, West African nation have been unrelentingly grim: hungry children with stick-thin arms and swollen bellies, mothers carrying babies hundreds of miles to look for food after a poor harvest and high prices put local staples out of reach. A few months ago, those images prompted a torrent of food aid from Western donors.

But now, after a season of good rains, Niger’s farmers are producing a bumper crop of millet, the national staple. This should be a cause for rejoicing, yet in one of the twists that mark life in the world’s poorest countries, the aid that was intended to save lives could ruin the harvest for many of Niger’s farmers by driving down prices.

The newly harvested millet and the donated food will reach market stalls at the same time, and with prices depressed, poor farming families may be forced to sell crops normally set aside for their own use and use the money to pay off debts. The effect would be a new cycle of hunger and poverty.

For the full story, see:

Burley, Natasha C. "In Place Where the Hungry Are Fed, Farmers May Starve." The New York Times (Thurs., September 22, 2005): A3.

Source of map: online version of the NYT article cited above.

Distorted Incentives in Medicine

Source of book image: http://www.harpercollins.com/books/9780061130298/The_End_of_Medicine/index.aspx

The problem right now, as Mr. Kessler sees it, is that we fight the "big three" — cancer, stroke and heart attack — with treatment rather than early detection. Cancer cells and blood-vessel plaque can be handled much more easily in the early stages, but we spend most of our money on the later ones. More than 80% of health-care dollars are paid by insurance companies and the government, and neither is especially interested in detecting disease when it first appears. Doctors, regulators, researchers and payers of all kinds are locked into what Mr. Kessler calls — a bit ungenerously — the "cholesterol and cancer conspiracies."

A complicated system of mutual dependency distorts the incentives. "The FDA is like the FCC and Big Pharma is like the regional Bells" is what Mr. Kessler hears from Don Listwin, a former Cisco executive who now heads the Canary Foundation, a Silicon Valley-based effort to promote preventive medicine. In other words, in medicine as in telecom, the big players end up exploiting regulations more than opposing them, if only to preserve their monopolies. The Food and Drug Administration — understandably but narrow-mindedly — wants "cures" for cancer and other diseases. Thus tens of thousands of chemicals are screened, only a handful make it even to Phase I trials, and by the time a new drug is approved a billion dollars has been spent. Even then the new drug may help only 10% of patients.

Yet if someone were to invent a device with a wide, preventive usefulness — say, a nanotech implant that would spot the proteins that indicate the first minute presence of cancer — it would have to go through the same process of billion-dollar testing. Since the government and insurance companies are reluctant to add anything to their repertoire of coverage — and since such a device would be targeted at the much broader pool of people who are not sick — research might well stall in its earliest phases for lack of reimbursement-funding.

For the full review, see:

WILLIAM TUCKER. "Bookshelf; The Art of Navigating Arteries." Wall Street Journal (Tues., July 18, 2006): D6.

A full reference to the book reviewed, is:

Kessler, Andy. The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor. HarperCollins, 2006.

Welfare Reform Increases Number Employed

Source of graphic: online version of the NYT article cited below.

WASHINGTON, Aug. 20 — Ten years after a Republican Congress collaborated with a Democratic president to overhaul the nation’s welfare system, the implications are still rippling through policy and politics.

The law, which reversed six decades of social welfare policy and ended the idea of free cash handouts for the poor, was widely seen as a victory for conservative ideas. When it was passed, some opponents offered dire predictions that the law would make things worse for the poor. But the number of people on welfare has plunged to 4.4 million, down 60 percent. Employment of single mothers is up. Child support collections have nearly doubled.

“We have been vindicated by the results,” said Representative E. Clay Shaw Jr., Republican of Florida and an architect of the 1996 law who was vilified at the time. “Welfare reform was one of the most successful policy changes in our nation’s history.”

For the full story, see:

ROBERT PEAR and ERIK ECKHOLM. "A Decade After Welfare Overhaul, a Shift in Policy and Perception." The New York Times (Mon., August 21, 2006): A12.

Money Buys Happiness, and Governments Tax It Away

We are . . . all constantly reminding each other that "money doesn’t buy happiness."

Economists aren’t so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are "very happy" than people in the bottom fifth, and only about half as likely to say they are "not too happy."

There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of "consumerism" explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others — so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

Perhaps you’re unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are "not too happy." At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

For the full commentary, see:

ARTHUR C. BROOKS. "Money Buys Happiness." The Wall Street Journal (Thurs., December 8, 2005): A16.

Canon Prospers By Ignoring the ‘First Mover Advantage’

Canon’s new HV10 high definition camcorder. Source of image: the NYT article cited below.

In the dot-com era, many believed that in each niche, the future belonged to the company that got-in, and got-big, first. Sometimes this was called the ‘first mover advantage.’ There are many counter-examples. Here is one more:

(p. C1) Next month, Canon will release the world’s smallest and least expensive high-definition tape camcorder, a one-handable beauty called the HV10.

. . .

This image-quality business, as it turns out, is the new Canon’s specialty. Talk about being blown away the first time you play back your recordings — let’s hope you have a sturdy couch.

Several advances are responsible for the brilliant picture quality. First, Canon has paid extra attention to two of the most important aspects of HD recording: focus and stability. Because the high-def picture is so sharp and so wide, moments of blur-(p. C11)riness or hand-held jitters are far more noticeable and disturbing than in regular video.

So the front of the HV10 bears a special external sensor that, when you change your aim, handles the bulk of the refocusing extremely rapidly. A standard through-the-lens focusing system does the fine tuning after that. Together, these two mechanisms nearly eliminate the awkward moment of blurry focus-hunting that mars other camcorders’ output.

. . .

. . . , by entering the high-def camcorder market a year and a half after its rivals, Canon has played the same conservative waiting game it once used with digital cameras and camcorders. Its goal, of course, is to watch and learn as the pioneers get all the arrows in their backs.

If the HV10 is any indication, the company is off to a very good start.

For the full review, see:

DAVID POGUE. "A Head Start On the Future Of High-Def." The New York Times (Thurs., August 10, 2006): C1 & C11.

“Financial Incentives Can Change the Way Medicine is Practiced”

An angioplasty being performed in Eyria, Ohio. Source of photo: online version of the NYT article cited below.

Medicare patients in Elyria receive angioplasties at a rate nearly four times the national average . . .

. . .

. . . some outside experts say they are concerned that Elyria is an example, albeit an extreme one, of how medical decisions in this country can be influenced by financial incentives and professional training more than by solid evidence of what works best for a particular patient.

“People are rewarded for erring on the side of an aggressive, highly expensive intervention,” said Dr. Elliott S. Fisher, a researcher at Dartmouth Medical School, which analyzed Medicare data and found Elyria to be an outlier.

Medicare pays Elyria’s community hospital, EMH Regional Medical Center, about $11,000 for an angioplasty involving use of a drug-coated stent.

The cardiologist might be paid an additional $800 for the work. That is well above the fees for seeing patients in the office. And with the North Ohio doctors performing thousands of angioplasties a year — about 3,400 in 2004, for example — the dollars can quickly add up.

Some medical experts say Elyria’s high rate of angioplasties — three times the rate of Cleveland, just 30 miles away — raises the question of whether some patients may be getting procedures they do not need or whether some could have been treated just as effectively and at lower cost and less risk through heart drugs that may cost only several hundred dollars a year.

. . .

Experts know that changing the financial incentives can change the way medicine is practiced.

For example, Kaiser Permanente, the big health system that employs its own doctors, says its patients in Ohio, including some in Elyria, are slightly less likely than the national average to undergo the type of cardiac procedures the North Ohio Heart Center doctors perform so prolifically.

Kaiser’s cardiologists, who work on salary instead of being paid by the procedure, typically treat patients in that region at the Cleveland Clinic, where they have hospital privileges. And they follow established protocols about when a patient should undergo an angioplasty, when drugs might suffice and when bypass surgery might be the best resort.

“It’s not just individual doctors making up their minds,” explained Dr. Ronald L. Copeland, the executive medical director for Kaiser’s medical group in Ohio. With no financial reason to perform expensive procedures, the Kaiser doctors frequently choose to manage the patients’ heart disease with drugs only. “Our doctors have no disincentive to do that,” Dr. Copeland said.

. . .

For many cardiologists, the natural tendency when they see a patient with heart disease is to perform a procedure to try to clear arterial blockages. And patients, cardiologists say, tend to rely on their doctors’ judgment.

“It’s sort of like, you go to a barber and ask if you need a haircut,” said Dr. David D. Waters, chief of cardiology at San Francisco General Hospital, who is currently studying the effectiveness of different kinds of treatment for heart disease. “He’s likely to say you do.”

. . .

Experts say it can be difficult to detect cases in which doctors cross a medical line and are clearly performing unnecessary treatments.

“A lot of decisions are discretionary,” said Dr. Harlan M. Krumholz, a cardiologist and professor at Yale.

“It’s about where the thermostat is set,” he said, arguing that doctors in a particular geographic area tend to be unaware if the way they are treating their patients is markedly different from the practices of their peers in other areas.

Traditional measures of medical quality are not set up to detect whether patients are being treated too much, he said, unlike the kinds of safeguards that prompt credit card companies to call their customers to discuss unusual spending activity. “Right now there are no ‘smart’ systems in place,” Dr. Krumholz said.

In the absence of any real monitoring or oversight, doctors in most places, including Elyria, have few incentives not to favor the treatments that provide them the most reimbursement. Dr. Waters, the San Francisco cardiologist, said that the way physicians are typically paid — more money for more procedures — results in too many decisions to give a patient a stent.

“You can’t be paying people large sums of money to do things without checks and balances,” he said.

For the full story, see:

REED ABELSON. "In Ohio City, a Heart Procedure Is Off the Charts; SIDE EFFECTS; A Stent Epidemic." The New York Times (Fri., August 18, 2006): A1 & C4.

Source of graphic: online version of the NYT article cited above.

Eleven-Year-Old Crippled for Life by Mao Supporters

Source of book image: http://www.holtzbrinckpublishers.com/henryholt/Search/SearchBookDisplayLarge.asp?BookKey=1524294

(p. B29) This improbable journey, from Maoist orthodoxy to the entrepreneurial quasicapitalism officially described as “socialism with Chinese characteristics,” is the main theme of “Chinese Lessons,” but Mr. Pomfret, a reporter for The Washington Post, gives his tale a twist. He tells it not only through his own experiences as a student and journalist but through the life stories of five university classmates, who suffered through the Cultural Revolution as children, found inspiration and hope in the growing democracy movement and lived to see a China that neither they nor their parents could have imagined. . . .

All the lives Mr. Pomfret explores are extraordinary, and each sheds its own light on recent Chinese history. Perhaps the most endearing of his characters is Guan Yongxing, better known as Little Guan, who as an 11-year-old suffered social ostracism after accidentally using a piece of paper with “Long Live Chairman Mao!” on it to wipe herself in the bathroom.

After classmates threw her to the ground, no doctor would treat her dislocated shoulder, leaving her crippled for life. Her father’s job as a schoolteacher made the Guan family a prime target for abuse, and Little Guan, rather than endure ridicule and torment at school, picked cotton and sprayed fertilizer on the fields, her back constantly burned by chemicals leaking from the tank on her back. Tough, determined and highly intelligent, she survives and eventually prospers in the new China.

. . .

Zhou Lianchun, called Book Idiot Zhou by a contemptuous Communist Party official, meted out insults and torture as part of a Red Guard brigade. “I did what I was told and, being 11, I liked it,” he tells Mr. Pomfret.

. . .

More even than sex, students want just a little bit of the good life that seems to be in reach as China’s rulers relax their economic policies. To get it they master a strange kind of doublethink, pledging allegiance to the party and Communist ideals while scheming to start a business.

Book Idiot Zhou, a history teacher by day, jumps into a business partnership to process urine for the pharmaceutical industry. “Several days a week, he taught Marxism, Leninism and Maoist thought and railed against the exploitation of the capitalist class,” Mr. Pomfret writes. “The rest of the time he spent as a budding entrepreneur, employing dozens at rock-bottom wages, working the system to enrich himself, his partners and his family.”

. . .

His classmates have done well. But their lives, and the China described in “Chinese Lessons,” bear a heavy load of suppressed grief, terrible compromises and boundless cynicism. At a new drive-in called the Happy Auto Movie Palace, Mr. Pomfret notices something strange about the concrete slabs underneath his feet. They show the marks of tank treads. The drive-in owner bought them after the government repaved Tiananmen Square.

This strikes Mr. Pomfret as bizarre, but not the owner. “It was a good deal,” he says.

For the full review, see:

WILLIAM GRIMES. "Books of The Times; Twisting Along China’s Sharp Curves." The New York Times (Fri., August 4, 2006): B29.
(Note: ellipses added.)

Big Business Is Often Bashed, But Is Not Always Bad

(p. 4) BUSINESS bashing by politicians in America has a long history, including rhetoric far more inflammatory than the denunciations being directed at Wal-Mart this year by some Democrats, who sometimes sound as if they are running against the company instead of another politician.

. . .

The company may not appreciate the honor, but its place in the political debate reflects its revolutionary effect on the American economy.

Put simply, the big winners as the economy changes have often been scary to many, particularly those with a stake in the old economic order being torn asunder.

“Twice as many Americans shop at Wal-Mart over the course of a year than voted in the last presidential election,” said H. Lee Scott Jr., the company’s chief executive, in a speech to the National Governors Association in February.

Wal-Mart’s success reflects its ability to charge less for a wide range of goods. That arguably has reduced inflation and made the economy more efficient. It has introduced innovations in managing inventory and shipping goods.

. . .

But the fact that Wal-Mart has more shoppers than any politician has voters shows that many of those workers — and many people higher on the income scale — find its prices irresistible. That group no doubt includes some of the company’s critics.

Previous business targets of politicians have similarly been both popular and reviled. The railroads enabled much of America to prosper, but to many people in the late 19th century they were viewed as villains.

They upset old economic relationships by making it possible to ship goods over much longer distances, thus introducing competition for local businesses and farms.

For the full commentary, see:

FLOYD NORRIS. "THE NATION; Swiping at Industry From Atop the Stump." The New York Times, Section 4 (Sun., August 20, 2006): 4.

(Note: ellipses added.)

Illinois protesters bashing Wal-Mart during the summer of 2006. Source of photo: online version of the NYT article cited above.

Perverse Incentives Lead to Useless Heart Surgeries

The old idea was this: Coronary disease is akin to sludge building up in a pipe. Plaque accumulates slowly, over decades, and once it is there it is pretty much there for good. Every year, the narrowing grows more severe until one day no blood can get through and the patient has a heart attack. Bypass surgery or angioplasty — opening arteries by pushing plaque back with a tiny balloon and then, often, holding it there with a stent — can open up a narrowed artery before it closes completely. And so, it was assumed, heart attacks could be averted.

But, researchers say, most heart attacks do not occur because an artery is narrowed by plaque. Instead, they say, heart attacks occur when an area of plaque bursts, a clot forms over the area and blood flow is abruptly blocked. In 75 to 80 percent of cases, the plaque that erupts was not obstructing an artery and would not be stented or bypassed. The dangerous plaque is soft and fragile, produces no symptoms and would not be seen as an obstruction to blood flow.

That is why, heart experts say, so many heart attacks are unexpected — a person will be out jogging one day, feeling fine, and struck with a heart attack the next. If a narrowed artery were the culprit, exercise would have caused severe chest pain.

Heart patients may have hundreds of vulnerable plaques, so preventing heart attacks means going after all their arteries, not one narrowed section, by attacking the disease itself. That is what happens when patients take drugs to aggressively lower their cholesterol levels, to get their blood pressure under control and to prevent blood clots.

Yet, researchers say, old notions persist.

”There is just this embedded belief that fixing an artery is a good thing,” said Dr. Eric Topol, an interventional cardiologist at the Cleveland Clinic in Ohio.

In particular, Dr. Topol said, more and more people with no symptoms are now getting stents. According to an analysis by Merrill Lynch, based on sales figures, there will be more than a million stent operations this year, nearly double the number performed five years ago.

Some doctors still adhere to the old model. Others say that they know it no longer holds but that they sometimes end up opening blocked arteries anyway, even when patients have no symptoms.

Dr. David Hillis, an interventional cardiologist at the University of Texas Southwestern Medical Center in Dallas, explained: ”If you’re an invasive cardiologist and Joe Smith, the local internist, is sending you patients, and if you tell them they don’t need the procedure, pretty soon Joe Smith doesn’t send patients anymore. Sometimes you can talk yourself into doing it even though in your heart of hearts you don’t think it’s right.”

Dr. Topol said a patient typically goes to a cardiologist with a vague complaint like indigestion or shortness of breath, or because a scan of the heart indicated calcium deposits — a sign of atherosclerosis, or buildup of plaque. The cardiologist puts the patient in the cardiac catheterization room, examining the arteries with an angiogram. Since most people who are middle-aged and older have atherosclerosis, the angiogram will more often than not show a narrowing. Inevitably, the patient gets a stent.

”It’s this train where you can’t get off at any station along the way,” Dr. Topol said. ”Once you get on the train, you’re getting the stents. Once you get in the cath lab, it’s pretty likely that something will get done.”

For the full story, see:

GINA KOLATA. "New Heart Studies Question the Value of Opening Arteries." The New York Times (Sun., March 21, 2004).

French Slow Innovation By Violating Apple’s Intellectual Property Rights

THE French take pride in their revolutions, which are usually hard to miss — mass uprisings, heads rolling and such. So, with the scent of tear gas in the air this past month from the giant protests against a youth labor law, it was easy to overlook the French National Assembly’s approval of a bill that would require Apple Computer to crack open the software codes of its iTunes music store and let the files work on players other than the iPod. While seemingly minor, the move is actually rather startling and has left many experts wondering (as ever): What has possessed the French?

. . .

If the French gave away the codes, Apple would lose much of its rationale for improving iTunes. Right now, after the royalty payment to the label (around 65 cents) and the processing fee to the credit card company (as high as 23 cents), not to mention other costs, Apple’s margin on 99-cent music is thin. Yet it continues to add free features to iTunes because it helps sell iPods.

Opening the codes threatens that link. Apple would need to pay for iTunes features with profits from iTunes itself. Prices would rise. Innovation would slow.

Even worse, sharing the codes could make it easier for hackers to unravel Apple’s FairPlay software. Without strong copy protection, labels would not supply as much new music.

For the full commentary, see:

Austan Goolsbee. "ECONOMIC SCENE; In iTunes War, France Has Met the Enemy. Perhaps It Is France." The New York Times (Thurs., April 27, 2006): C3.

Over-regulating Lenders is a Recipe for Stagnation

MICROFINANCE is based on a simple idea: banks, finance companies, and charities lend small sums — often no more than a few hundred dollars — to poor third world entrepreneurs. The loan recipients open businesses like tailoring shops or small grocery stores, thereby bolstering local economies.

But does microfinance, in fact, help the poor?

To help answer this question, I visited Hyderabad, India, in June. . . .

. . .

My visit suggested that microfinance is working, but it is often more corporate, more commercial and under more attack than I had expected.

. . .

Near Hyderabad, in the state of Andhra Pradesh, political opposition to microfinance has begun. State officials have fed negative stories to the media. They charge that microfinance debts have driven some people to ruin or perhaps suicide. They call Spandana’s programs “coercive” and “barbaric.” They question whether the “community pressure” behind repayment is sometimes too severe.

The motives behind this campaign are twofold. The state is not a neutral umpire but rather has its own “self-help group” banking model, which lends at the micro level. Spandana and some of the other private microfinance groups are unwelcome competition. More generally, opposition to money lending has been frequent in the history of both India and the West. Not every loan will have a positive outcome, and it is easy to focus on the victims. Not all Indians have accepted the future of their country as an open commercial society with winners and losers.

. . .

The Indian political authorities must decide whether they will allow new businesses to spread, even when commercialization leads to some disappointments or competes with a state interest. The stipulation that no one can be harmed by progress is a sure recipe for stagnation.

For the full commentary, see:

Tyler Cowen. "ECONOMIC SCENE; Microloans May Work, but There Is Dispute in India Over Who Will Make Them." The New York Times (Thurs., August 10, 2006): C4.