Noise Between Stations

Category: Economics

  • Reflexivity of the dollar

    James Surowiecki elegantly encapsulates yet another economic trend, this time it’s the falling-yet-floating dollar. Essentially the dollar is falling because Americans don’t save and keep spending, accumulating incredible debt, and the dollar is not crashing because Americans keep buying… from Asia, who is interested in buying lots of dollars to prop up our currency and our spending habits.

    So if no one panics, we’re alright for a while. But once the US population pyramid flattens out, we’ll have less spenders and more older adults wishing they had saved. And then maybe Asia won’t view us as such a great candidate for subsidies.

    I was talking to Monika and Ulrike from Germany last night and that country has the reverse problem: a lot of saving and not enough spending. Compared to the US, it seems their habits favor long-term stability and short-term pain.

  • Integrated thinking in health care

    Brett points to The Quality Cure? (paid archive) a New York Times profile of David Cutler’s ideas for reforming healthcare in America, where providing more care without going bankrupt seems impossible. Cutler, an economist, developed financial models to show how we should “focus on improving the quality of care rather than on reducing our consumption of it. Rather than pay less, he wants to pay more wisely — to encourage health-care providers to do more of what they should and less of what is wasteful.” (see Atul Gawande’s The Bell Curve for more on measuring doctors’ performance.)

    To accomplish this, he’s acknowledged that purely financial thinking isn’t enough, we need to integrate the economics with human-centered organizations, smarter use of technology and innovative organizational design:

    Reoriented to managing ”health” rather than merely costs, H.M.O.’s might again become a useful part of the healthcare landscape, Cutler says. Managing care, he says, was a necessary idea that went off the tracks as H.M.O.’s became remote, single-minded cost-control freaks. His models for the future are the progressive organizations (he calls them hippie places) like Kaiser [Permanente, the insurer and provider based in California] that employ their own doctors, invest in computers and ”engage” their patients. They manage quality as well as cost.

    Also see Aligning the Stars: Using Systems Thinking to (Re)Design Canadian Healthcare (.pdf).

  • The new global currency?

    The Economist says, tongue-in-cheek:

    …the dollar has been dethroned even sooner than we expected. It has been superseded not by the euro, nor by the yen or yuan, but by another increasingly popular global currency: frequent-flyer miles.

    Turns out there’s about $14 trillion in frequent flier miles in circulation.

  • Econ 101

    I recently read Naked Economics: Undressing the Dismal Science by Charles Wheelan, a writer for The Economist. He covers many of the more interesting ideas, highlights some underappreciated thinkers, and offers a sound perspective on a field that tries to stay within the boundaries of statistics while undeniably bleeding into politics and sociology. Also see Peterme’s review for more about this.

    Here’s some of the concepts he covers, all of which are useful even if you never tread into what is traditionally thought of as economics. Most of the definitions are on the Wikipedia.

    Incentives

    • Creative destruction
    • Prisoners delimma
    • Law of unintended consequences
    • Principal-Agent problem
    • Dead weight loss
    • Progressive and regressive taxes
    • Externality

    Government

    • Property rights
    • Rule of law
    • Public goods
    • Supply-side

    also…

    • Adverse selection
    • Our skills and health comprise 75% of our wealth as a nation
    • Rule of 72: rate of growth divided by 72 equals how long it takes for a growing quantity to double
    • Interest represented as r, the rental rate on capital
    • We often receive more utility via relative than absolute wealth
    • Catastrophe bonds are a way to spread risk and rewards
    • The Tournament model

  • Selling many to many

    Chris Anderson’s article in Wired, The Long Tail, is about making previously unprofitable products profitable by making them more widely available.

    C. K. Prahalad’s book, The Fortune at the Bottom of the Pyramid, is about making previously unprofitable products profitable by making them more widely available.

    The primary difference is that Anderson describes it happening in the digital realm, e.g. .mp3 files, in ways that aren’t possible in the physical realm, and Prahalad describes how it’ll work in the physical realm. Anderson’s “tail” is all the products that don’t fit in stores and normally don’t get sold. Prahalad’s pyramid bottom is all the people that are poor and normally aren’t sold to.

    Imagine locking Anderson and Prahalad in a room until they figure out how to best distribute our digital and physical surplus to the poor of the world and make money for companies in the process.