Global Economics and Management

My Recent Activities in India

Last Wednesday I spoke at the Delhi Economics Conclave, in the presence of several luminaries. On Saturday I spoke at the 15th Neemrana Conference, an annual event bringing together US-based academics and Indian policymakers and thought leaders, to discuss how recent economic research can advance policymaking in India. Tomorrow I will speak at the Delhi School of Economics, in their Winter School. Finally on Saturday I will be a keynote speaker at the Indian Statistical Institute's conference on Growth and Development, capping off a busy couple of weeks in India.

The Economics of the Minimum Wage

I end this quarter of blogging with a return to the topic I addressed at the beginning of the quarter: the economics of the minimum wage. Two recent articles are illuminating:

1) The Economix blog over at the New York Times has an extremely well-written and well-argued post by David Newmark from UC Irvine. The minimum wage is not the best way to address poverty.

2) The Wall Street Journal investigates the early effects of the steep increase in the minimum wage in SeaTac, Wash. It is not a pretty picture.

3) Nobel Prize winner Gary Becker opines, in terms very close to those we discussed in class.

Out-of-Pocket Medical Costs

Today in class I mentioned that in the United States the share of out-of-pocket health costs borne by individuals as a share of total medical expenditures had fallen over the last few decades. My statement was based on a recollection of a Washington Post Wonkblog item from back in February of 2013. Here you will learn that in 1970 the share of out-of-pocket costs relative to total healthcare expenditures was 39.6%. In 1990 that number was 22.5% and in 2010 it stood at 13.7%.

Such a decreasing share of the cost borne by the consumers of medical services, as opposed to publicly funded programs or private insurers, means that the scope for moral hazard in heath spending went up quite dramatically. As I stated in class, this is one of many explanations for rising healthcare costs in the United States.

Note how outraged some of the commenters seem to be about the blog post at the link, and how little understanding of the numbers they display (the main confusion is to mix up the dollar value of out-of-pocket expenses and their share of total expenditure - it is the latter that matters for moral hazard). This is a subject of enormous contention, and there is tremendous public pressure for lower out-of-pocket costs. I would not expect the share of out-of-pocket costs to start increasing back to previous levels anytime soon. 

Further data can be found at the following links:

The Atlantic

The OECD (for international comparisons - the US does not have a particularly high out-of-pocket share)

International Arbitrage on the Luxury Car Market

The Wall Street Journal today has a fascinating article on people buying BMWs in the US and shipping them to China, where they are priced about 3 times higher. The US government is cracking down, but it is not at all clear why. These are high margin exports (up to 66%!) and the US should be happy to increase its exports to China. The only one who benefits from this crackdown is BMW, whose price discrimination practices are being undermined. The only reason dealers are opposed to the arbitrage scheme is because BMW threatens to crack down on them. Otherwise, they would get to sell a lot of cars to China - and might even want to engage in the arbitrage themselves! Prosecuting these practices seems to be a clear instance of misguided public policy. The US government should instead ban BMW from punishing dealers who participate in the reexport scheme, which is a blatant anticompetitive practice.