In a Washington Post column, Megan McArdle suggests that we pay people to donate their kidneys as a way on increasing the number of donors and reducing the number of people who must rely on dialysis. Needless to say, to many folks, it is attractive to get market relationships into ever more aspects of our lives. However, if we are interested in getting more kidneys, rather than just getting more money for the health care industry, this is likely a bad way to go.
There was a great study done a few years back with child care centers in Israel. As it was, the vast majority of parents picked up their children on time because they knew that being late meant a teacher had to stay late. The study examined what happened if centers charged a small fee to parents for being late to pick up their kids. It turned out that the fee significantly increased the frequency with which parents picked up their kids late.
The explanation offered is that when there was no fee, parents felt an obligation not to make teachers stay late. When they paid a fee, they felt that they were compensating with the fee, therefore they didn’t feel guilty about being late.
Would it be the same story with kidneys? It’s hard to say, but people donate now with the idea of providing help to someone in need, often a family member or friend. These donations may well fall off if they know kidneys are readily available for the right price.
For my part, I no longer check off the spot on my drivers’ license to be an organ donor. While I would be very happy if one of my organs could extend the life of a person in need, I remember how Mickey Mantle was pushed to the front of the line to get a liver transplant. The great baseball player had destroyed his liver with a life of hard drinking. Nonetheless, he was pushed to the front of the line to get a transplant at the age of 64. He died shortly after the transplant.
I have spent my life trying to combat this sort of sleaze. If some doctors want to get rich providing transplants for the rich and famous, I don’t intend to help them with my death.
Addendum
Robert Salzberg assures me that rules on organ transplants have gotten stricter since the Mickey Mantle days and are carefully regulated by the Organ Procurement and Transplantation Network. If anyone wants to weigh in on the status of the process today, I would be interested in hearing their assessment.
As far as my point on Mickey Mantle, my concern was not so much this specific case, as what it showed about the process. We heard about Mickey Mantle’s transplant because he was a famous baseball player, but the odds are that he was not the only one to jump to the front of the line based on his fame and wealth.
Robert also suggested as an alternative to cash payments to kidney donors that we might offer free medical care for life. This seems like a reasonable benefit that does not pose the same risk of having a market for kidneys where payments could soar into the stratosphere. It also preserves an idea of it being a gift of sorts, reciprocated with another gift.
Here’s another piece on the organ donor system.
In a Washington Post column, Megan McArdle suggests that we pay people to donate their kidneys as a way on increasing the number of donors and reducing the number of people who must rely on dialysis. Needless to say, to many folks, it is attractive to get market relationships into ever more aspects of our lives. However, if we are interested in getting more kidneys, rather than just getting more money for the health care industry, this is likely a bad way to go.
There was a great study done a few years back with child care centers in Israel. As it was, the vast majority of parents picked up their children on time because they knew that being late meant a teacher had to stay late. The study examined what happened if centers charged a small fee to parents for being late to pick up their kids. It turned out that the fee significantly increased the frequency with which parents picked up their kids late.
The explanation offered is that when there was no fee, parents felt an obligation not to make teachers stay late. When they paid a fee, they felt that they were compensating with the fee, therefore they didn’t feel guilty about being late.
Would it be the same story with kidneys? It’s hard to say, but people donate now with the idea of providing help to someone in need, often a family member or friend. These donations may well fall off if they know kidneys are readily available for the right price.
For my part, I no longer check off the spot on my drivers’ license to be an organ donor. While I would be very happy if one of my organs could extend the life of a person in need, I remember how Mickey Mantle was pushed to the front of the line to get a liver transplant. The great baseball player had destroyed his liver with a life of hard drinking. Nonetheless, he was pushed to the front of the line to get a transplant at the age of 64. He died shortly after the transplant.
I have spent my life trying to combat this sort of sleaze. If some doctors want to get rich providing transplants for the rich and famous, I don’t intend to help them with my death.
Addendum
Robert Salzberg assures me that rules on organ transplants have gotten stricter since the Mickey Mantle days and are carefully regulated by the Organ Procurement and Transplantation Network. If anyone wants to weigh in on the status of the process today, I would be interested in hearing their assessment.
As far as my point on Mickey Mantle, my concern was not so much this specific case, as what it showed about the process. We heard about Mickey Mantle’s transplant because he was a famous baseball player, but the odds are that he was not the only one to jump to the front of the line based on his fame and wealth.
Robert also suggested as an alternative to cash payments to kidney donors that we might offer free medical care for life. This seems like a reasonable benefit that does not pose the same risk of having a market for kidneys where payments could soar into the stratosphere. It also preserves an idea of it being a gift of sorts, reciprocated with another gift.
Here’s another piece on the organ donor system.
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The Washington Post had an article about plans by Louisiana to stop paying for Hepatitis C drugs for its Medicaid and prison populations by the dose. Instead, it will take bids from drug companies on how much they would charge for a year of unlimited use of their drugs.
While this will still allow the companies to make large profits on their sales to the state, it has the great benefit that eliminates the enormous gap between the price of the drug and the marginal cost of producing an additional dosage. In the case of Hepatitis C drugs, this gap was enormous. The list price for the drug Solvaldi was $84,000. The cost of producing a high-quality generic version is a few hundred dollars.
For $84,000 it is necessary to think carefully about whether a Hepatitis C patient should get the drug, given the enormous expense involved. At a few hundred dollars, cost really is not an issue. This change in payment structure will allow Louisiana to provide much better care to people in the state suffering from Hepatitis C.
Hopefully this model, which is similar to the prize system that many have advocated, will be adopted for other drugs and in other states. I have argued that paying for the research upfront is a better route since it will allow full openness in research and test results, but the Louisiana system is undoubtedly an enormous step forward from the current system. (This paper discusses the merits of different routes.)
The Washington Post had an article about plans by Louisiana to stop paying for Hepatitis C drugs for its Medicaid and prison populations by the dose. Instead, it will take bids from drug companies on how much they would charge for a year of unlimited use of their drugs.
While this will still allow the companies to make large profits on their sales to the state, it has the great benefit that eliminates the enormous gap between the price of the drug and the marginal cost of producing an additional dosage. In the case of Hepatitis C drugs, this gap was enormous. The list price for the drug Solvaldi was $84,000. The cost of producing a high-quality generic version is a few hundred dollars.
For $84,000 it is necessary to think carefully about whether a Hepatitis C patient should get the drug, given the enormous expense involved. At a few hundred dollars, cost really is not an issue. This change in payment structure will allow Louisiana to provide much better care to people in the state suffering from Hepatitis C.
Hopefully this model, which is similar to the prize system that many have advocated, will be adopted for other drugs and in other states. I have argued that paying for the research upfront is a better route since it will allow full openness in research and test results, but the Louisiana system is undoubtedly an enormous step forward from the current system. (This paper discusses the merits of different routes.)
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In an article on Democratic presidential candidates pursuing a populist agenda in their 2020 campaigns, the NYT contrasted this approach with “the pragmatic politics and big-donor appeal of Hillary Clinton, the 2016 nominee.” It’s interesting that the NYT has decided that efforts to extend health care coverage, access to college, and stop global warming are not pragmatic. Maybe the paper could at some point publish its criteria for grading a policy proposal as pragmatic.
In an article on Democratic presidential candidates pursuing a populist agenda in their 2020 campaigns, the NYT contrasted this approach with “the pragmatic politics and big-donor appeal of Hillary Clinton, the 2016 nominee.” It’s interesting that the NYT has decided that efforts to extend health care coverage, access to college, and stop global warming are not pragmatic. Maybe the paper could at some point publish its criteria for grading a policy proposal as pragmatic.
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It is common to see stories that have China’s economy reeling as a result of the Trump tariffs. While it does seem that China’s economy is experiencing difficulties, it is hard to tell a story where Trump’s tariffs are a major factor.
First, as I pointed out in the past, China’s trade surplus has actually risen in 2018 compared to 2017. In the first 10 months of 2018, (Census is not releasing new data because of the shutdown), China’s surplus on goods trade was up 11.5 percent from 2017. Perhaps the surplus would have risen even more without the tariffs, but it is a bit hard to believe that China’s economy is suffering too much because its surplus with the US only increased by 11.5 percent.
But the other point is that China’s exports to the US are just not that large a share of its economy. If we assume that exports for November and December would be roughly comparable to the prior two months, then the total for 2018 would be $550 billion, which comes to 4.2 percent of its $13 trillion economy.
However, as we are endlessly reminded by supporters of recent trade deals, much of the value in these exports is generated elsewhere. For example, we count the full value of an iPhone manufactured in China as an export to the US even though the vast majority of the value-added comes from other countries. (This is offset by the fact that much of the value-added of goods imported from Japan, Germany, and elsewhere is produced in China. If anyone in this dispute actually cared about reducing the trade deficit, getting China to raise the value of its currency would help to reduce both the direct and indirect trade deficit with China. But in any case, this issue is irrelevant in this context.)
Let’s assume that 30 percent of the value-added in China’s exports comes from other countries. This means that exports to the US are equal to 3.0 percent of its GDP.
Even if we assume a very large impact from Trump tariffs, perhaps he can reduce US imports from China by a third. This would be 1.0 percentage point of GDP. That is hardly trivial, but not the sort of thing that would push China into a recession.
The long and short is that Trump’s trade measures can be a nuisance to China and can undoubtedly cause serious problems for the most affected industries, but anyone thinking that they can sink China’s economy is seriously deluded.
It is common to see stories that have China’s economy reeling as a result of the Trump tariffs. While it does seem that China’s economy is experiencing difficulties, it is hard to tell a story where Trump’s tariffs are a major factor.
First, as I pointed out in the past, China’s trade surplus has actually risen in 2018 compared to 2017. In the first 10 months of 2018, (Census is not releasing new data because of the shutdown), China’s surplus on goods trade was up 11.5 percent from 2017. Perhaps the surplus would have risen even more without the tariffs, but it is a bit hard to believe that China’s economy is suffering too much because its surplus with the US only increased by 11.5 percent.
But the other point is that China’s exports to the US are just not that large a share of its economy. If we assume that exports for November and December would be roughly comparable to the prior two months, then the total for 2018 would be $550 billion, which comes to 4.2 percent of its $13 trillion economy.
However, as we are endlessly reminded by supporters of recent trade deals, much of the value in these exports is generated elsewhere. For example, we count the full value of an iPhone manufactured in China as an export to the US even though the vast majority of the value-added comes from other countries. (This is offset by the fact that much of the value-added of goods imported from Japan, Germany, and elsewhere is produced in China. If anyone in this dispute actually cared about reducing the trade deficit, getting China to raise the value of its currency would help to reduce both the direct and indirect trade deficit with China. But in any case, this issue is irrelevant in this context.)
Let’s assume that 30 percent of the value-added in China’s exports comes from other countries. This means that exports to the US are equal to 3.0 percent of its GDP.
Even if we assume a very large impact from Trump tariffs, perhaps he can reduce US imports from China by a third. This would be 1.0 percentage point of GDP. That is hardly trivial, but not the sort of thing that would push China into a recession.
The long and short is that Trump’s trade measures can be a nuisance to China and can undoubtedly cause serious problems for the most affected industries, but anyone thinking that they can sink China’s economy is seriously deluded.
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Donald Trump has made his tariffs against China and other countries a big part of his agenda as president. He even went so far as to dub himself “Tariff Man” on Twitter.
The media have been quick to assume that Tariff Man is accomplishing his goals, especially with regard to China. It is standard for news articles, like this one, to assert that China’s economy is suffering in large part because of Trump’s tariffs.
In fact, through the first ten months of 2018 China’s trade surplus with the United States on trade in goods has been $344.5 billion. This is up 11.5 percent from its surplus in the same months last year.
The tariffs surely are having some effect, and China’s surplus would almost certainly be larger if they were not in place. But it is difficult to believe that China’s $13.5 trillion dollar economy (measured at exchange rate values) could be hurt all that all that much by somewhat slower growth in its trade surplus with the United States. (For arithmetic fans, the surplus is equal to 2.5 percent of China’s GDP. We are talking about slower growth in this surplus.)
It is worth noting that we will not be getting new trade data until the government shutdown is over since the Census Bureau is one of the government agencies without funding for fiscal year 2019.
Donald Trump has made his tariffs against China and other countries a big part of his agenda as president. He even went so far as to dub himself “Tariff Man” on Twitter.
The media have been quick to assume that Tariff Man is accomplishing his goals, especially with regard to China. It is standard for news articles, like this one, to assert that China’s economy is suffering in large part because of Trump’s tariffs.
In fact, through the first ten months of 2018 China’s trade surplus with the United States on trade in goods has been $344.5 billion. This is up 11.5 percent from its surplus in the same months last year.
The tariffs surely are having some effect, and China’s surplus would almost certainly be larger if they were not in place. But it is difficult to believe that China’s $13.5 trillion dollar economy (measured at exchange rate values) could be hurt all that all that much by somewhat slower growth in its trade surplus with the United States. (For arithmetic fans, the surplus is equal to 2.5 percent of China’s GDP. We are talking about slower growth in this surplus.)
It is worth noting that we will not be getting new trade data until the government shutdown is over since the Census Bureau is one of the government agencies without funding for fiscal year 2019.
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The New York Times ran a piece that mentions four factors that could be bad news for investors in 2019. While returns to investors are not my major economic concern, the piece left out what I would consider to be the biggest risk: a profit squeeze.
The low unemployment rate is finally leading to some acceleration in wage growth. The annual rate of hourly wage growth over the last year has been 3.2 percent. Taking the average of the last three months (September, October, and November) compared with the prior three months, it has been 3.3 percent. While this is still not terribly fast, it is up from 2.5 percent through most of 2017.
Suppose that wage growth edges higher in 2019 to 3.7 or 3.8 percent, hardly an absurd proposition. Productivity growth has been averaging around 1.2–1.3 percent. (The job-killing robots are still hiding from the Bureau of Labor Statistics.) This leads to two possible scenarios.
In the first, wage costs are fully passed on in prices. We would then expect to see inflation of close to 2.5 percent. If the Fed gets strict about its 2.0 percent inflation target (likely) it will jack up interest rates to slow the economy. The track record here is not good. The Fed tends to go too far with its rate hikes and push the economy into a recession. That is going to be bad news for investors, as well as the millions of workers who lose their jobs.
The other scenario is that corporations hold the line on prices, leaving inflation close to 2.0 percent. In this case, the more rapid rate of wage growth would be eating into profit margins. This is fine by me since it means that workers would be getting back some of the share of income they lost in the Great Recession.
But stocks are not moved by measures of social justice, they respond to current and expected future profits. If the profit share falls back to its pre-recession level, that will be bad news for investors.
So if folks asked me for the bad things that could happen for the stock market in 2019, this story of a potential profit squeeze or higher inflation prompted an overreaction from the Fed would top my list. I’m surprised it didn’t make it to the NYT’s.
The New York Times ran a piece that mentions four factors that could be bad news for investors in 2019. While returns to investors are not my major economic concern, the piece left out what I would consider to be the biggest risk: a profit squeeze.
The low unemployment rate is finally leading to some acceleration in wage growth. The annual rate of hourly wage growth over the last year has been 3.2 percent. Taking the average of the last three months (September, October, and November) compared with the prior three months, it has been 3.3 percent. While this is still not terribly fast, it is up from 2.5 percent through most of 2017.
Suppose that wage growth edges higher in 2019 to 3.7 or 3.8 percent, hardly an absurd proposition. Productivity growth has been averaging around 1.2–1.3 percent. (The job-killing robots are still hiding from the Bureau of Labor Statistics.) This leads to two possible scenarios.
In the first, wage costs are fully passed on in prices. We would then expect to see inflation of close to 2.5 percent. If the Fed gets strict about its 2.0 percent inflation target (likely) it will jack up interest rates to slow the economy. The track record here is not good. The Fed tends to go too far with its rate hikes and push the economy into a recession. That is going to be bad news for investors, as well as the millions of workers who lose their jobs.
The other scenario is that corporations hold the line on prices, leaving inflation close to 2.0 percent. In this case, the more rapid rate of wage growth would be eating into profit margins. This is fine by me since it means that workers would be getting back some of the share of income they lost in the Great Recession.
But stocks are not moved by measures of social justice, they respond to current and expected future profits. If the profit share falls back to its pre-recession level, that will be bad news for investors.
So if folks asked me for the bad things that could happen for the stock market in 2019, this story of a potential profit squeeze or higher inflation prompted an overreaction from the Fed would top my list. I’m surprised it didn’t make it to the NYT’s.
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Readers of this NYT piece on Robert Lighthizer, United States trade representative, and his negotiations with China may have missed this point. The piece said that one of Lighthizer’s main goals was to stop China’s practice of requiring that companies like Boeing and GE, who set up operations in China, take Chinese companies as business partners.
This is an effective way of requiring technology transfers since the partners will become familiar with the production techniques of the US companies. This will enable them in future years to be competitors with these companies.
If the US government prohibits contracts that require this sort of technology transfer, it will make it more desirable to outsource some of their production to China. This will be good for the profits of Boeing, GE, and other large companies but bad for US workers. It will also mean that we will be paying more for products in the future than would otherwise be the case, since if Chinese companies would have been able to out-compete US companies, it presumably means that would be charging lower prices or selling a better product.
It is also worth noting that the basic concern expressed by Lighthizer and others assumes that major US corporations are unable to look out for themselves. They are not being forced to enter into contracts with China. This problem arises because they decide to invest in China, even with conditions requiring technology transfer.
We have a great story here where the government, and many analysts, think our largest corporations lack the ability to look out for their best interests. By contrast, when it comes to individual workers who are forced to sign away their right to have class action suits, or individual investors who can be fleeced by the financial industry, the current position of the government is that they can look out for themselves.
The NYT piece also does some inappropriate mind reading when it tells readers:
“Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.”
The reporter/editor does not know that Trump is “increasingly eager” or that he “views” the markets as “a political electrocardiogram of his presidency.”
Good reporting says what politicians do and say. It does not report as fact their alleged opinions.
Readers of this NYT piece on Robert Lighthizer, United States trade representative, and his negotiations with China may have missed this point. The piece said that one of Lighthizer’s main goals was to stop China’s practice of requiring that companies like Boeing and GE, who set up operations in China, take Chinese companies as business partners.
This is an effective way of requiring technology transfers since the partners will become familiar with the production techniques of the US companies. This will enable them in future years to be competitors with these companies.
If the US government prohibits contracts that require this sort of technology transfer, it will make it more desirable to outsource some of their production to China. This will be good for the profits of Boeing, GE, and other large companies but bad for US workers. It will also mean that we will be paying more for products in the future than would otherwise be the case, since if Chinese companies would have been able to out-compete US companies, it presumably means that would be charging lower prices or selling a better product.
It is also worth noting that the basic concern expressed by Lighthizer and others assumes that major US corporations are unable to look out for themselves. They are not being forced to enter into contracts with China. This problem arises because they decide to invest in China, even with conditions requiring technology transfer.
We have a great story here where the government, and many analysts, think our largest corporations lack the ability to look out for their best interests. By contrast, when it comes to individual workers who are forced to sign away their right to have class action suits, or individual investors who can be fleeced by the financial industry, the current position of the government is that they can look out for themselves.
The NYT piece also does some inappropriate mind reading when it tells readers:
“Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.”
The reporter/editor does not know that Trump is “increasingly eager” or that he “views” the markets as “a political electrocardiogram of his presidency.”
Good reporting says what politicians do and say. It does not report as fact their alleged opinions.
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