Thursday, June 22, 2017

Study on Auto Accident Frequency in Legal Cannabis States

This story has been making the rounds. It was actually e-mailed to me by my boss. A study by the Highway Loss Data Institute (HLDI, pronounced "Hildy") supposedly finds that states that recently legalized recreational cannabis have seen an increase in auto accidents. They reach this result using a naive sort of time-series trend analysis. This is highly dubious.  I wanted to get down a few quick reactions.

- Why are they looking just at auto collision? Why not also look at the liability coverages? Presumably liability property damage should show a similar trend. If there are more stoners and these stoners are hitting things with their cars, it should show up here. Liability bodily injury should ideally show the same trend, although admittedly this is a lower frequency coverage, so noise can swamp even a real trend. Still, it's another data source to validate their results on collision.

-In Colorado the overall collision frequency is about 5%. (As in, 5% of motorists will file a claim in a given year.) A 3% increase to this (the effect overall effect size found in the HLDI study) changes this to a whopping 5.15%. We're talking about small potatoes here.

-And yet...the effect is actually too large to be plausible. According to this document (second table, past month cannabis use rates), the population of users in Colorado rose from 7.3% in 2008/09 to 14.7% in 2014/15. So let's say 7% of the population were previously non-users but have become somewhat-regular users of cannabis (this figure would be 4% for Oregon and also 4% for Washington). For 7% of the population to drive a 3% increase in accidents, the accident frequency for those drivers would have to increase by an implausibly large 43%, which I think is higher than what anyone actually believes. Maybe if all of these new "past month users" were high all the time, but even then this is near the high end of what anyone believes is a plausible effect size.

-The calculated increase in collision frequency was 14% in Colorado, 6% in Washington, and 4.5% in Oregon. But when calculated on a "states combined" basis, the effect size was only 3%, which is smaller than any individual state. There's no mystery here; see Simpson's Paradox. The aggregate effect size can be smaller than any group's effect size (generally, whatever you're measuring) for a number of reasons. I just want to note the very wide range of estimates. It would be a mistake to pick any single one of them as the effect size. Considering my argument in the preceding bullet point, the by-state effect sizes are even more implausible than the overall effect size.

-If you look at a time series of collision frequency (industry-wide data) for Colorado and its comparison states (Utah, Nebraska, and Wyoming), nothing really jumps out at you. Colorado and Utah are sort of trending up, Nebraska is sort of flat, and Wyoming is sort of trending down. But you could easily look at the pattern and say that collision frequency is basically flat, but oscillating randomly around the 4-5% range. Any trends picked out by your eye or by regression analysis are likely to be spurious. The study is looking for very small trends (in the -5% to +5% annual change range), and saying: "We should predict that Colorado would be X based on how its neighbors are trending, but instead it's 14% above X." And it's attributing this difference entirely to cannabis legalization. Similar for the other states. This is not even close to identifying cannabis as a causal factor.

Perhaps I'll have more later.

One more thing. From the link up top: "Moore of the Highway Loss Data Institute said they hope the study's findings will be considered by lawmakers and regulators in states where marijuana legalization is under consideration or recently enacted." Matt Moore is a fine gentlemen. I've met him once and I've had several e-mail contacts with him. But I sincerely hope that lawmakers will not use his study. The study is a fine piece of time-series analysis, perhaps a good exercise for a first course in econometrics. But it's pretty lousy social science.

Wednesday, June 14, 2017

How Drug Laws Degrade Respect for the Rule of Law

Sometimes I see a traffic stop in which several police cars have pulled over a single vehicle. The driver and passengers are standing by the side of the road, and the police are searching the vehicle. The driver and passengers are almost always young, male, and black.

My thoughts are always, "Jeez, they're looking to bust some poor kid for drugs." I'm guessing if they searched a lot of similar vehicles, they could occasionally find a joint or a dime bag and make a few arrests. Once in a while they'd turn up a "distribution" quantity of illegal drugs. I think these kinds of traffic stops are, for lack of a better term, complete bullshit. It is not the proper role of government to harass innocent motorists in search of this kind of so-called contraband.

But perhaps this is completely unfair. Maybe the police know the individuals in the vehicle. Maybe they were looking for one of them specifically in order to question them about a recent crime. Maybe the vehicle, or one closely matching its description, was spotted at the scene of a crime. (A real crime.) Maybe a similar vehicle was recently spotted speeding away from the scene of a murder, and the police are legitimately searching for the murder weapon. 

It could be that the true explanation of the traffic stop is some combination of the legitimate policing functions described in the above paragraph. And yet my mind always jumps to "They're looking to bust some poor black kids for a bullshit drug charge." I don't think that my gut reaction is terribly unfair, either, because the police really do harass a lot of innocent people in the enterprise of drug law enforcement.  

So here I am. I'm a pretty average guy. An actuary. My job is literally to compute averages. Mid 30s. Never been arrested or had any trouble with the authorities. And yet when I see a fairly routine police activity, I'm quietly cursing them and assuming they are up to no good, because so often they are up to no good. I'm not the only one who feels this way, either. I don't instinctively react this way to the sight of law enforcement. There are many law enforcement folks at the martial arts club I am in, and I like all of them personally. I think, "Thank goodness these folks are learning how to physically handle another human being, so they don't one day unnecessarily resort to deadly force. I will coach them the best I can so they have the confidence to handle a bad situation without escalating." When I see a police car patrolling my neighborhood, I'm glad they're there. If I saw one pulling over and ticketing one of the young morons who speeds through my neighborhood, I'd quietly cheer.

A vehicle search is very different from a ticket, though. When I see a search, I have two thoughts at once: "That cop had better know for certain that that kid did something wrong" and "That's rarely the case." Feel free to write me off as being completely unfair, but just understand that this perception exists. It's a pretty common attitude, even among "upstanding taxpayers." My calling attention to it doesn't change anything. I should be able to see police officers doing their job and not have to second-guess their motives. If cops only harassed suspected murderers, thieves, batterers, and rapists, I could rest easy. But my knowledge of the injustices of drug policing forces me to do this kind of second-guessing. I think that for a police force to function properly, it needs to command the respect of the public it supposedly serves. Drug enforcement precludes them from earning that respect. 

Inefficiency of High Taxes and Large Government Sectors

There are some inefficiencies that are due to the sheer size of government and the required revenue to run such a government. A government that consumes 10% of GDP is categorically different from one that consumes 40% of revenue. The latter case isn’t just the former case scaled up by a factor of 4; the latter creates problems that don’t exist at all in the former case.

Take tax avoidance. Rich people and big businesses hire teams of lawyers and tax accountants to lower their tax bill. If you can craft a legal argument that a large expense is tax-deductible, you might be able to save your company, say, $10 million. Your employer will be willing to pay up to $10 million for those savings. From the standpoint of society as a whole, resources used to argue over who gets what are a sheer waste. The loss to society isn’t the $10 million in lost government revenue. The real loss is the alternative uses of those brilliant legal and accounting minds employed to minimize tax bills. With a very low tax rate, the tax code could be very simple. There could be no tax deductions at all, so there’s no game of “thinly slicing the salami” over what is or isn’t a legal deduction. One could do away with capital taxes, which inefficiently double-tax income that has already been earned and taxed (originally as labor income). It could all be replaced with a simple income or sales tax. But the massive revenue required to run a large government sector has led to the taxation of almost all transactions, which inherently means multiple rounds of taxation on any given dollar of earned income.

In the city where I work, there are several buildings in the downtown area that have been vacant for years. (This has changed very recently, but there was a long period of perfectly usable yet unused building space.) Someone suggested to me that this is just runaway speculation: someone is sitting on a property because it could be worth a fortune some day. But I suspect this explanation doesn’t quite cut it. If the owners are able to write off depreciation, then a vacant building can be a substantial “tax asset” to a wealthy owner. That probably doesn’t make it worthwhile to buy and hold a bunch of vacant buildings, but it can certainly move the margin of “acceptable sale price” for the owner. It means that buildings remain vacant longer than they should, for inefficient tax avoidance reasons. I don’t know how big a deal this is, but surely there are other examples of this phenomenon. We have some people holding onto these crumbling "tax assets", whereas in a saner world these things would be seen as a pure loss. The owners would sell these properties to someone who places a real value on them, and society as a whole would derive some kind of use from them. With very low rates of taxation, this becomes almost a non-issue. With 30-40% rates of taxation, the write-off becomes substantial. We miss out on the apartments, restaurants, offices, and stores that those buildings might have become.

None of this is to say it's easy to simply trim our waistlines and cut government to 10% of GDP. Sure, that would create some losers along with some winners. (It's easier than you probably think, though. The big budget items, Social Security, Medicaid, and Medicare, could be mostly replaced by a forced savings policy. We would no longer have those huge liabilities requiring high tax rates.) In this post I am not arguing for a huge reduction in government. Rather I am pointing out that a large government has very high costs, which scale up much faster than 1-for-1. A public sector that consumes 50% of GDP is much more than five times as costly as a public sector that consumes 10% of GDP. The real cost probably scales up with the square or cube of the size of government, rather than a simple linear scaling. My point here is to articulate a trade-off, not to state where we should sit on the trade-off curve. There are costs here that we should face with our eyes wide open. There is the entrepreneur who fails to sell his stock portfolio to invest in a private start-up, because he doesn't want to incur a capital gain this year. There is the business that is worth starting under a zero (or at least single-digit) tax rate, but which is rendered unprofitable at a 35% tax rate. There is the bloating of home sizes, because a more expensive home leads the a larger tax asset (because of the mortgage interest deduction). There is the implicit favoring of debt financing over equity financing because of the high corporate tax rates (because interest paid on debt is now a tax asset). There are the thousands of other distortions that don't come to mind at the moment but that economists spend their lives researching.Ideally taxes are structured so as to minimize distortions.  You don't want a tax to cause someone to zig rather than zag. (Maybe you do if it's a Pigouvian pollution tax, but if the purpose is to collect revenue you want to minimize distortions.) If having a very large government sector is worth all these collateral costs, someone should be explicitly arguing that "It's worth the cost, because the benefits are so large" rather than blithely ignoring the costs or claiming they don't exist. 

Wednesday, June 7, 2017

Government Gives Us the Illusion of Control

Sloppy language can betray hidden assumptions. The case for this-or-that government intervention often employs such sloppy language. I want to explore an example here.

The case for government often rests on an assumption that government action gives us control over a problem, whereas non-government solutions don’t. I often hear phrases such as, “You can’t just leave that to the marketplace.” Or  “What if there isn’t enough charity? Won’t some people get left out in the cold?” Or “Should we just let people do whatever drugs they want? Like, all the time?”

Implicitly there is this assumption that government gives us a handle on social problems. We have some kind of social problem: poverty, crime, greed, discrimination, whatever. It is a mistake to insist that leaving the problem to the marketplace is “doing nothing.” There are always private individuals working hard at solving existing problems. Some of these problems are very difficult, even inherently unsolvable. The great mistake is to think that “government” gives us a control lever over this problem, and the only question is how hard to crank the lever. One might ask, can you think of no examples of government intervention backfiring? Don’t welfare programs create very high marginal tax rates for the beneficiaries, discouraging work and leading to greater poverty? Doesn’t drug prohibition create an unpredictable, violent black market and lead to more overdoses? Do state-run services never run out of resources, such that the needy get left out in the cold anyway? Aren’t those private citizens who are supposedly stingy with their charitable givings the very same taxpayers who fund the welfare state? Should we suppose those people will suddenly become more "generous" in one context than the other?

Markets are an imperfect way of doing things. Government is another imperfect way of doing things. Both solutions are unpredictable. Both operate under enormous uncertainty. Market institutions and government institutions both often fail to achieve their stated goals. Let’s not implicitly favor one over the other. If anyone actually believes, “This government program will solve this problem, and with relative certainty!” let them say so plainly. How much private effort goes into solving that particular problem? How well does it work? What has been the track record of other government programs (similar to the one being proposed)? What can be learned from history? From other countries trying similar approaches? Are there countries where the problem is much smaller or doesn’t exist, but where the government is “doing nothing”? What’s needed here is a comparison of institutions. What one often actually gets is this glib presumption that the government intervention will work as intended.

Here are some examples of what I'm talking about. See this video with Tibor Machan on William F. Buckley's show Firing Line, around the 14 minute mark. Ernest Van den Haag apparently thinks he has a terrific "gotcha": either government intervenes or orphans starve. Van den Haag is far too glib. Bryan Caplan pointed out in an excellent post from a few years ago that every system eventually has to say "tough luck". Sure, sometimes private charity is inadequate and somebody gets thrown to the wolves. But this happens under a robust welfare state, too. (The very familiar phrase "falling through the cracks" expresses this phenomenon.)  Van den Haag offers a vaguely worded historical example of orphans starving because of inadequate private charity, apparently not realizing that the government also failed these same orphans. There was no magical "government" lever to crank. The same society that provided insufficient charity also provided insufficient government. Everyone's gotta say "tough luck" now and then. (Machan, who passed away recently, appears to  have had Caplan's "tough luck" insight on the fly, in spite of being ambushed by this "gotcha" question.)

For another example, a guest from a recent Econtalk:
Moreover, I think I would say that I don't think it should be the case that if you are a child born to poor parents you should have to rely on charity to get an education.
Again, the guest is assuming that "government education" is a control lever, which you can simply crank up (perhaps all the way to 11) if "free-market education" is inadequate.

And a guest from a not-so-recent Econtalk:

And frankly, I realize that your libertarian views aren't necessarily the same as my views about what should be done, but you libertarians have a fundamental problem that you don't seem to get, I think, which is that you are altruistic; you care about people; and when people care about other people we have the free rider problem. Who is going to take care of other people? You say charity. But if I care about that person who has got a broken arm laying in the street, and I know you do, I let you go out and try and help them; and then you let me go out and try and help them. And the guy stays there in the street with a broken arm. That's what we have--it's a public good taking care of that person.
Kotlikoff pulls out the classic "free-rider problem" (or "externality" or "tragedy of the commons" or "prisoner's dilemma") from econ 101. He apparently doesn't realize that the very same free-rider problem is what prevents us from getting good government. I could paraphrase him like this:
and when people care about good government we have the free rider problem. Who is going to read social science literature and policy whitepapers and become an informed voter? You say "civic virtue". You say "democracy". But if I care about informed voting, and I know you do, I let you go out and research government policy; and then you let me go out research government policy. And the citizens sit there in the street with broken institutions and bad policy. That's what we have--it's a public good becoming an informed voter.
Kotlikoff, like others who make this argument, is being far too glib. He's assuming there is this exogenous solution called "government" that fixes social problems, such as those free-rider type problems he describes. But "government" is endogenous. It is the same individuals living in that society infested with social problems who are supposed to give us those government solutions. "Government" isn't a generic steering wheel, or control lever, or series of adjustable dials. It's those same imperfect people who are causing society's problems, except now we are empowering them with the legitimate use of force over their fellow creatures. What could possibly go right?

Money Changes Hands, Therefore Your Rights Disappear

Apparently our freedoms disappear the moment money changes hands. I don’t understand this.

For example, some people think we have a basic right to privacy. The government has no business snooping in our private lives, peering into our bedrooms, or scoping out our associates. We have the right to be left alone. Except…suddenly this all changed the moment money changes hands. For sure, I can have all the secret dalliances I want and go to meetings of clandestine political organizations without the government tracking me. But if my interaction with another human being is “Here’s a sandwich, now pay me $6” that is suddenly blown wide open for government scrutiny. The government can demand to know the sum total of these dollar transactions, and it’s a federal crime to miscalculate this sum. I have to open my kitchen to nosy government inspectors, even though I would not have to do so if I were simply making sandwiches for my own children. (An empirical question: I wonder who is actually more likely to subject someone to food poisoning. A parent using ingredients from the fridge, or a sandwich shop? Not sure if data on this exists, but my guess would be the parent.) If “the right to privacy” is actually a principle, then that principle keeps applying after money changes hands. Money does not fundamentally taint human interactions in a way that negates our rights. If anything, market transactions, where we risk losing customers if we make mistakes, cause us to be more honest than we are in our personal lives.

I remember when the Panama Papers story broke, and everyone was seething with outrage that so many wealthy individuals had offshore accounts. I am quite certain that many of those “outraged” news junkies would, in a slightly different context, assert that we have a strong right to privacy. If asked to articulate why we need such privacy, they might give the hypothetical (or real) example of a government that prosecutes homosexuals or persecutes opposition political parties. We require a principled right to privacy for this to work. Otherwise any clever person (perhaps a government lawyer) can simply argue that the principle doesn’t apply in some particular case. And once we start playing that game, it’s not a principle at all.

We have many other rights that are supposedly negated the moment money is transferred from one hand to another. It is important that we enjoy the freedom to associate with other human beings, under whatever terms we find mutually agreeable. Again, many people will agree with this principle as it applies to marriage or political associations. But the moment I pay someone to perform a task for me, the range of possible arrangements is severely restricted. If freedom of association is even a thing, then it protects my right to sign any labor contract I want with anyone who is willing to accept those terms. Put aside for a moment the economic arguments against minimum wages and other labor market restrictions. There is a moral case for freedom of contract. If freedom of association applies to marriage contracts, there is no good reason why it wouldn’t also apply to labor contracts.

Free speech is another example. Commercial speech is severely restricted. The rationale often given for restricting commercial speech is overstated; the “problems” created by free commercial speech are completely overblown. Under no conceivable regime would businesses be able to completely misrepresent their products to their customers. Fraud would still be a crime even under a radically deregulated regime, even under full-blown anarchocapitalism. Companies that skirt the boundary between actual fraud and acceptable exaggeration (present in all advertisements, but usually obvious enough to not be misleading) run the risk of lawsuits.  The regulation of commercial speech in practice is absurd. (We have government bureaucrats telling a brewery to change the labels on their beer bottles because Santa’s eyes are “too googly” on the Christmas-themed beer.) At any rate, it’s fine to make some sort of argument that the “benefit outweighs the harm” for restrictions on commercial speech. But then you no longer believe in freedom of speech as a principle, and you should say so.

Market interactions are no different from any other kind of human intercourse. Couples, families, clubs, churches, political parties, businesses, and corporations are all just different ways of getting things done together. These are just different arrangements, specialized for achieving certain goals. Economic rights are not second-class rights. They are not even a separate category from other civil rights. The principle that allows me to arrange my social and personal affairs without government interference should logically apply to my economic affairs.

I could respect someone for saying, "Meh. I don't really believe in principle. I'm really a min-maxer. I would support whatever policy happens to be optimal in some particular case." But many people use the language of "rights" to justify things like gay marriage and political organization. And once you've articulated a right or a principle, you don't get to decide when it does or doesn't apply. 

Tuesday, June 6, 2017

Freedom Expands At the State Level First

Should the left favor strong, central government? They often seem to do so as a matter of principal. I think this is a mistake. Many important fights get won at the local level. They establish a foothold in a few localities and then spread to the rest of the country. The ultra-stagnant, conservative federal government simply does not move fast enough.

Gay marriage, for example, appeared to get a foothold when the mayor of San Francisco, Gavin Newsom, directed his city clerk to issue marriage licenses to gay couples. This eventually was adjudicated in California's state supreme court, which legalized gay marriage in the state. I don't know if the 2015 supreme court decision legalizing gay marriage countrywide could have happened without this initial kick at the local level.

Marijuana legalization also got its start at the state level. California legalized medical marijuana in 1996, with extremely lax standards on who can get a prescription. This was de facto legalization for the nation's largest state. I doubt if the states currently legalizing cannabis would have been so emboldened without California's example. And I doubt if public opinion would have changed so quickly without this kind of policy "experiment" at the state level. There are now several states that have adopted full legalization (well, regulated legalization, at any rate). We can point to them and say, "Look, nothing terrible happens after legalization." There isn't an explosion in vehicle accident rates, or even in cannabis use rates. You don't see really see any change in the trend line of social indicators. (Well, there's the obvious one: fewer arrests for nonsensical nonviolent "offenses".)

See no-fault divorce as another example of something starting at the state level. Once again, this is California leading the pack (under governor guess-who). I don't know the history of decriminalization of homosexuality (remember, there used to be police resources dedicated to prosecuting gays!), but from what little I know this started at the state level. The Supreme Court finally forced a recalcitrant Texas and 13 other states to fall in line in 2003, when it struck down state anti-sodomy laws as unconstitutional. But we probably never would have gotten to "Federal government puts a few hold-out states in line" if we hadn't first had "A few extremely progressive states relax their sodomy laws, against the grain of national popular opinion."

Sure, there are cases where a state or local government is "misbehaving" and needs to be told to straighten up. There were certainly some southern states that held onto racist laws for way too long, and it's probably a good thing that the federal government made them change their racist laws. But once you've so empowered the federal government, you've created the danger that it will start doing the wrong thing in every state. I don't see any particular reason to think the federal government gets policy right more often than it gets it wrong. If the federal government is weak (and can't "fix" bad local policies), then, sure, some states will have bad policy. But people can move away from those states. This weak-but-still-important mechanism of error-correction is missing at the federal level. Migrating to another country is far more costly (traumatic even) than leaving a messed-up state. I don't think it's appropriate to trot out the example of southern states in the era between the Civil War and the civil rights movement as a "proof" of the need for strong federal intervention. It is very hard to argue that this example generalizes. How about the Soviet Union? Did it "fix" the "mistaken" policy of its subject states?  Is it a good thing that China is controlled by a central government? How about India?

Don't mistake me as arguing that local sovereignty is inherently more conducive to freedom than a strong central government. The worst states can be just as stifling of freedom as the central government. Even at the very local level of cities or counties, the police force can become a government unto itself and often operates as an extralegal policy-maker. But with empowered local governments there is more experimentation, and more chances to avoid the worst abuses of government by moving away from the truly bad ones.

I get annoyed when I see various slogans and memes on Facebook, decrying that a politician at the federal level has ceded some power back to the states. This is always done far too glibly, as if there weren't a trade-off between having stronger states versus a stronger central government. As if the central government were error-free and the state governments were always at fault. My cynical interpretation is that people really aren't very principled, but just want this particular culture war conflict adjudicated in their favor (whatever happens to be the outrage of the week). Sometimes that means embracing states rights, and sometimes that means embracing a dominant federal government. Which one a person embraces often depends very much on who is "winning" that particular battle in the culture war. If, say, gay marriage doesn't have a foot-hold yet, its supporters tend to embrace states rights. If gay marriage is well-established in many but not all states, those same supporters tend to embrace a strong federal government "forcing" the last few hold-outs to step in line. To me, it all looks like cynical posturing and strategic outrage, calculated to win policy concessions. I wish that the people making these kinds of statements would articulate a principle and stick by it even when it's not convenient. That's the thing about principles: they still apply even when we wish they wouldn't.

Edit: I begin this post by addressing the left, but I should note that conservatives can also be seething hypocrites when it comes to "states' rights." It seems that they (some of them anyway) want a federal drug war to squash local experiments in cannabis legalization. And it seems they (again, some of them) want federal intervention to prevent cities from being sanctuaries for immigrants.

I avoided the term "federalism." Many people think it means "the supremacy of the federal government" while it actually means something more like "states' rights." People who argue that a policy question should be left to the states are arguing for federalism. Of course "state's rights" carries some historical baggage, but "federalism" is potentially confusing.

Thursday, May 18, 2017

The Physics of the Front Handspring

I’ve been working on my front handspring for a while now. After repeated rounds of getting it, backsliding, improving, and backsliding again, something has finally clicked for me. I figured out the physics of the front handspring and that allowed me to identify what I was missing. I’ve looked online to see if there is a write-up of this anywhere, but I never found anything that really satisfied me. So here it is.

First, some basic concepts. In a front handspring your body is flipping over, so the physics of rotation is important here. There is something called “conservation of angular momentum”, which basically means a body cannot simply start rotating or stop rotating. If you’re floating in space, you cannot induce your body to rotate. You would have to push off of something, or something would have to hit you. Imagine you’re floating in space and you try to do a crunch. You cannot just move your upper body. If you crunch and tuck your chin to your chest, it will pull your feet up. Crunching puts a torque on your upper body, but it puts an equal and opposite torque on your lower body. The net torque on your body has to be zero, otherwise you'd start to rotate.

Let’s apply this to the handspring. You start by taking a hurdle-step and then kicking up with your back leg. The kick with the back leg is simultaneous with your reaching to the ground with your straight outstretched arms. Your arms and back leg should be in a straight line, so you look like one of those toy drinking  birds dipping down for a drink. Okay, now imagine you make the common mistake of reaching to the ground with your hands without kicking up your back leg. You’ve failed to build up proper rotational momentum by kicking up your leg, so you have to “catch up” by kicking your leg up very quickly. By kicking your leg up in a powerful arc very quickly, you are placing an equal and opposite torque on your upper torso and head. (Not quite “equal and opposite” because you’re not floating in space. You have the floor to push against. But your kicking leg is still working opposite of the rotation that you need for your handspring.) This is why you need to keep your arms and leg in a straight line. If you reach to the ground without kicking, or if your kicking leg lags a bit, it will put a torque on your body in the wrong direction when it tries to “catch up.” 

Let me demonstrate this with the help of my friend, fully-poseable Spider-Man.

Here, Spider-Man hasn't kept his leg and arms in a line. He'll have to bring his leg up in an arc to catch up, which will place a torque on his upper body in the wrong direction.

Here, it's even worse. Spider-Man simply reached to the ground. He'll have to swing his leg up even faster, which will put an even greater torque on his upper body in the wrong direction. This torque on his upper body is against the direction he needs to rotate to finish the technique.

When your back leg is kicking high and your hands touch the floor, your front leg needs to push hard. This accomplishes two things that allow you to complete the technique: it raises your center of gravity and it increases the speed of your rotation. When you go into your hurdle-step, your front leg should bend so that you can push with the full strength of your leg. Otherwise, if your leg is already straight, you will only be pushing by extending your foot, which will not generate enough power. See how the front leg is effectively pushing on a lever made by your outstretched arms and leg, generating more rotation.

In this image, Spider-Man is in proper position. His outstretched arms are connected to the floor, that point being the pivot point of a lever. The push with his front leg pushes against that lever, rotating it. The harder the push, the faster the rotation, and the easier it is to finish the technique. If you aren't rotating fast enough through the skill, you will land with your feet in front of you, possibly on your heels. This is a hard and unpleasant landing. Rotate faster (i.e. kick harder), and you will land more softly and on the balls of your feet.

The push off the front leg is probably the most important piece. I hate to say that, because botching any step could cause the technique to fail. But I'm tempted to say that a strong enough push off the front leg will give you enough lift and rotation that you can get away with some sloppiness in the other steps. This was the key failure point for me. Once I nailed this, I was landing my front handsprings consistently. Also the next step, the block off the floor, depends on getting this lunge off the front leg down correctly. Do a ton of hurdle-steps into a handstand position. Make sure that your front leg is bent, not straight, when your front leg lands from your hurdle step, so you actually can push with it. You can even place a yoga ball in front of you and fall forward onto it to get a sense of what coming down feels like.

When you are upside-down, you will “pop” off your shoulders, pushing your hands into the ground. If you had a good running start, this will also increase your rotation. (You can complete the handspring without a running start. But if you have forward momentum, the pop off the shoulders converts some of this to rotation.) Think of a running body tripping over a wire. The wire blocks the bottom of the body while the upper body is free to rotate, generating a face-plant. Or think of someone running face-first into a bar. Their head and upper-body are blocked, while their lower body is free to rotate. Their feet will fly up and they will land on their butt or back. Your block against the floor is accomplishing the same effect. Imagine a powerful wizard picks you up with his mind, holds you in a perfectly vertical upside-down position, and throws you upside-down and back-first across the room. But you manage to reach down to the floor and pop off your hands, generating rotation and landing a front handspring. It’s like being “tripped” or “running into a bar,” just from a strange orientation. The block off the floor converts some of your forward momentum into rotation. 

See Spider-Man below, being turned upside-down and flung toward a wall by a telekinetic super-villain:

He manages to catch the floor and "trip" himself, inducing a rotation. Notice the arrows, which represent his velocity. Initially they are all the same length, representing the same speed. His lower body will be blocked, reducing its velocity to zero. The middle of his body will be roughly unchanged, and his legs will be moving faster. Obviously this will result in his body rotating. Now if  he can stick the landing he can recover and face his foe. This is what the block off the floor is doing for you.

The push off the ground also gives you a few more inches of height, which will give you a few tenths of a second more to rotate through the technique. Imagine a powerful wizard (the same one who tried to fling you into a wall) suddenly bringing up the ground by a few inches when you're trying to do the front handspring. You will probably land awkwardly on your heels with your feet in front of you. The push off the floor gives you two things: more height and faster rotation.

A common mistake is for people to try to tuck forward to spot their landing. This is done after the pop off the hands, while you’re still in the air. At this point your body really is floating in space, so the physics of rotation are very important. Your body has as much angular momentum as it will have for the technique, and you can’t push off anything to generate more rotation. If you tuck your chin and try to “sit up” to spot your landing, it will pull your feet up. You will land hard, with your feet in front of you, and with your knees bent. This is a recipe for exploding your knees, so don’t do it. You actually want to arch your back and tilt your head back as much as possible, which will rotate your feet down toward the ground. This way you can land with your legs straight (well…straighter anyway), on the balls of your feet instead of your heels, and with your feet beneath you. When I do a good one, I feel myself “running forward” out of the technique.

So here is Spider-Man floating in space.

If he crunches his body to spot his feet (similar to trying to spot your landing on a front handspring), it will pull his feet up:

If instead he arches his back and looks back toward his hands, it will pull his feet down. He will land on the balls of his feet and with his feet under him, rather than landing hard on his heels with his feet in front of him. No explody knee-caps:

You can think of this in terms of "net torque has to be zero" or "net motion has to be zero". As in, rotating his upper body one way will rotate his lower body the other way ("net torque is zero"). Or: to push his hips up he must push his upper and lower body down (the net motion of his center of mass is zero). Once you've blocked off the floor, you are effectively floating in space for a few tenths of a second. So the physics of free-floating bodies becomes very important.

There is also a body-mechanics reason for not tucking your chin. It becomes almost impossible to arch your back if your chin is tucked. The arch in your back has to suddenly switch directions for your chin to tuck, so your spine is making an “S” shape. If you tilt your head back through the end of the technique, your back will be able to arch more. Your feet will land underneath you, or at least they won't land so far in front of you. 

I am still no expert at the front handspring, by any means. But I have recently figured out how to consistently land softly, and it's because I finally figured out the physics of the technique. That understanding has allowed me to spot some of my mistakes and fix them. My hope with this post was to achieve some sort of synthesis. I have a serviceable front handspring and a graduate degree in physics (probably a rare combination). Athletes who learn the front handspring hear all kinds of tips, do's, and don't's. Well, here are the why's for those do's and don't's.

"Don't just reach your hands to the ground. Kick up with your rear leg to drive your hands to the ground." Yes, because reaching to the ground and letting your leg "catch up" will fight against the rotation you need to finish the technique. "Don't leap off your front leg until your hands reach the floor, because you'll experience a loss of power." Yes, that's because you don't have a rotating lever until your hands are on the floor. "When your weight is on your hands, don't bend at the elbows." Yes, because bending at the elbows causes a loss of height and fails to convert your forward momentum into rotation. "Don't sit up to try to spot your landing." Yes, because doing so pulls up your feet and causes a heavy feet-in-front landing. Surely most people who learn the front handspring do so without learning the physics behind it. I hope this post will help someone who is stuck on one of the steps. 

Monday, May 15, 2017

Singapore and the Puchasing Power Parity Adjustment

Singapore's gdp per capita is about $52,000 in 2015, pretty much the same as in the United States. But adjusted for purchasing power parity, its per capita gdp is closer to $80,000. This was interesting to me. I usually think of the purchasing power parity (PPP) adjustment as bringing up the gdp of very poor nations. This adjustment is accounting for the fact that in, say, Nepal, even though you earn a very low annual income, you can pay very low prices for certain labor intensive services. A Nepali who came to the US to buy a haircut and paid someone to launder his clothes would quickly go broke, but he could buy the same services in Nepal cheaply. If you were to state the average annual income of a Nepali in nominal terms simply by converting the average Nepali's annual income to dollars at the market exchange rate, you would understate their true command over goods and services. I generally think of this as a "cheap labor inputs" phenomenon, so it was surprising to me that a high-income nation got such a boost from the PPP adjustment.

Singapore must really be doing something right. They are a rich nation, but the PPP adjustment brings their gdp per capita up by a great deal. If an average Singaporean were to work one year and then convert his Singaporean dollars to USD and move to the US, he'd instantly have the same purchasing power as an average American. He has more purchasing power in Singapore because his dollars stretch farther. Likewise, if an American were to convert a year's earnings in USD into Singaporean dollars and spend them in Singapore, his purchasing power would jump dramatically (from $52,000 to $80,000). It's not quite correct to say that Singaporeans are "richer" than Americans. It's just that they somehow manage to pay lower prices for a similar basket of goods, so long as they purchase those goods in Singapore.

Here's a quick and dirty purchasing power parity adjustment. (It's probably wrong for a bunch of reasons, but it's an illustration of what the PPP adjustment is supposed to do. Bear with me.) Let's call the gdp per capita $50,000 for both nations (a slight rounding based on the link above). Say Singapore spends 4% of its gdp on healthcare, while the US spends about 18% (close to the real figures). So an average Singaporean buys $2,000 worth of healthcare and $48,000 worth of other stuff. An average American buys $9,000 worth of healthcare and $41,000 worth of other stuff. "But wait," someone says, "Singaporeans get the same health outcomes for lower spending. They have an awesome healthcare system that is far more efficient than ours." It's not quite fair to call the two nation's gdp's "equal", because Singapore is actually getting $48,000 worth of "other stuff" plus $9,000 worth of healthcare. It's just that they're somehow managing to pay only $2,000 for that healthcare. Adjusting for the fact that they get a lot more bang for the buck on their healthcare (and failing to adjust for "more bang for the buck" on other goods and services), their gdp is more like $57,000 (=$48k + $9k). Doing the PPP adjustment for healthcare alone brings up their incomes by 14%.

Obviously this doesn't get you all the way to the $80,000 figure from the link above, so something else is going on. I believe I've read somewhere that they import cheap foreign labor for some of their public works and construction projects. That one is likely to get demagogued as "exploitation", but this kind of arrangement is welfare enhancing for all parties involved. The immigrants get higher wages than otherwise, and Singapore gets more construction than otherwise, so it's good policy. I'm not sure what else could drive it. Good public transportation? Perhaps they get effectively the same quality of transportation using fewer vehicles and less fuel than the United States. That would certainly affect their purchasing power. What else? Diligent work habits? More efficient regulations? (Or perhaps fewer regulations?)

The way I came across this is interesting. In a recent Facebook thread, a few people suggested that Singapore had a very good healthcare system, and I agreed. Someone objected, claiming that Singapore has a very high gdp per capita compared to the United States. His claim was that they can get away with having a different healthcare system, specifically one with a lot more cost-sharing, because the average Singaporean is so much richer than the average American. A quick Google search showed that Singapore has the same nominal gdp per capita as America, but (though it took me a second look to realize it) a higher gdp when PPP adjusted. In other words, Singaporeans aren't "richer" than Americans. Rather, good policy for things like medicine and construction make their dollars stretch farther. Someone had carelessly looked up Singapore's gdp and saw the PPP adjusted number. A more careful searcher should have noticed that there were conflicting numbers (the $52k and $80k figures at the top of this post) and tried to figure out why. I considered this an important lesson: don't just Google until you get the answer you want. Check out contrary information and dig into it.

(It's not relevant to this post, but I also pointed out that Singapore has had the same healthcare system for a very long time, since long before they overtook the United States in gdp per capita. Their health spending per capita was even lower when they were poorer. According to the World Bank it was 2.9% of gdp in 1995 vs 4.9% in 2014. Besides that, their distribution of incomes overlaps ours significantly. They have poor, sick, and elderly, and the system with lots of cost-sharing and first-party payments works fine for them, too. I'm always skeptical when someone tries to dismiss relevant evidence too quickly, and in this case my skepticism was warranted.)

Wednesday, May 10, 2017

Who are you trying to subsidize? At whose expense? And why?

Unfortunately, sometimes discussions of healthcare get pointlessly gender-baited and identity-politicked. As a general principle, you should be paying for routine medicine out of pocket. You should finance these things through savings, not an insurance policy. A straightforward logical implication of this very general principal is that things like birth control, mammograms, and pregnancy should be paid for out-of-pocket. (Unless, of course, your insurer decides it’s worthwhile to pay for these things because it saves future costs. But I kind of doubt this will happen much.)

If I’m trying to argue that it should be legal to issue a strictly catastrophic health insurance plan that doesn’t cover these routine expenses, it doesn’t move the conversation to say, “So, you’re against paying for women’s medicine?” But rather than criticize the shrill sanctimony implicit in these kinds of responses, I’ll take on the premise that mandatory coverage for birth control is a subsidy for women to purchase medicine.

Take pregnancy, for example. Who is subsidized if you force insurance to cover pregnancy costs? Take a married man and woman. They are subsidized in the year they have a pregnancy, but they pay higher premiums every year for the expense. It’s kind of a wash. These people aren’t getting a net subsidy. They could finance the pregnancy out of a combination of saving and borrowing over their lifetimes.

Or take a single working mom with a health insurance policy. Sure, she’s getting a subsidy in the sense that a big expense is being paid for by the other policyholders. That’s probably better than making her pay it out of pocket. But is the intent to subsidize single motherhood? If so, does it make sense to do this through insurance mandates rather than, say, an on-budget direct government program with an official mission statement?

If it’s mandatory that health insurance cover pregnancy, then people without children are subsidizing people who do have children, and the more children the bigger the subsidy. Is this fair? Do families with fewer children have more or fewer resources? Higher or lower incomes? How regressive/progressive is this redistribution? Once again, is the intention to subsidize having more children?

Take birth control. (Please.) Suppose you go from un-mandated to mandatory payment for birth control. If it’s a married man and a woman, it’s a total wash for that household. They both get the benefit of the birth control, but their premiums go up by the cost of that provision. Or suppose there is gender-based risk-pricing. The woman’s insurance premiums would go up in this case, but the man’s would go down. Again, a wash. Effectively, households that don’t use birth control are subsidizing those that do. Is that anyone’s intent? Why?

Supposing we’re talking about a single unmarried female. In this case, her birth control is being subsidized by women who don’t use birth control and by the men on the plan (unless there is risk-pricing, in which case she’s only subsidized by other women, or perhaps not subsidized at all if “takes birth control” is one of the pricing factors). I could probably make a strong argument for subsidizing single women to purchase birth control. The point is to make this argument explicitly, not to let it happen incidentally and not as some kind of knee-jerk gender-issues reflex.

Or take the example of limits on risk pricing by age. Under the ACA, old people cannot be charged more than 3 times as much as young people, even though the actual risk differential is much larger than 3-to-1. Is this fair? Old people are richer and have had a lifetime to accumulate savings, while young people are generally poorer and have had less time to accumulate assets. This is a very regressive redistribution. Is it fair to load the incredibly predictable healthcare costs of the elderly onto the young? Shouldn’t we just tell people, while they’re still young, that they will be expected to cover their predictably higher expenses in their old age? If the problem is that people won’t save even though they should, wouldn’t mandatory health-savings accounts be a more efficient way to tackle the problem? Insurance, in every other context (life, auto, homeowners) is usually about protecting your assets against very large and unpredictable costs. The very predictable high cost of healthcare is not an insurable risk in the traditional sense. It might make sense to insure against the possibility of having atypically high health costs in your old age, but it makes zero sense to "insure" against, say, having a surgery and multiple prescriptions at some point in your 60s. The limitation on risk-pricing makes no sense on its face.

Maybe some of these subsidies make sense and should be continued. But if that’s the case they should be explicitly justified by some kind of argument. The subsidy should be direct and on-budget, not indirectly accomplished by hamstringing our insurance markets.  

Tuesday, May 9, 2017

“Single payer, duh!” (Drops mic, walks off stage)

Sometimes discussions about healthcare get derailed by unserious commentary. My favorite is the assertion that a single payer healthcare system solves all our problems.

Supposedly you don’t get the adverse selection problems you see in the private market. You just force everyone to buy insurance and charge them all the same premiums, or simply declare everyone covered and tax them appropriately on tax day. Actually, this is a bad idea because it forces young people to subsidize old people. Younger people tend to have lower incomes and less wealth than older people, who have decades of experience and wealth accumulation behind them. Forcing the young to subsidize the old is a pretty regressive form of taxation.

Also, supposedly prices in medicine are arbitrarily high because of monopoly power of providers. A single payer could in theory negotiate for lower prices. But this doesn’t really work because you ultimately have a Soviet style central planner dictating prices. You lose the dynamics of the market, and you lose any incentive to actually control costs. You lose innovation, because any new drug or technology that is “too profitable” will be slapped with a mandatory price decrease. Economists don’t agree on much, but they generally agree that price controls have perverse incentives. Price ceilings cause shortages of supply and degradation of quality; price floors cause surpluses and gold-plating. Both stifle innovation. You need a dynamic market to avoid these problems, a market in which customers shop for price and quality. An extremely well-run bureaucracy can get you part of the way there, but will ultimately fail. 

I hate this kind of flippant assertion that government will just magically fix all our problems. Why not have a "single-payer" system for groceries? For auto and homeowners and life insurance? Usually the argument given for single payer isn't specific to health insurance. Adverse selection and moral hazard exist in other insurance markets. And a "single-payer" for food or housing could "negotiate with the suppliers for lower prices." Why not just have the government own and run all hospitals and clinics? It's going to be setting all the prices at will anyway.

Sorry, I don't have any deep point in this post. Just venting my frustration at a very common derailing tactic. Maybe I'll do a more detailed post on a specific argument in the future. Saying, "Single payer! Duh!" just kind of assumes away all of the hard problems without actually solving them. 

Monday, May 8, 2017

Insure Before the Die is Cast, Not After

Discussions of health policy drive me crazy because people get the basics wrong. Even the framing of the problem is usually wrong.

Most people think the problem is something like this: “In the game of life, this man rolled snake-eyes. He now has a massive medical bill. Now I need to get you and you and you and (32 additional you’s who didn't roll snake-eyes) to pay for his bill.” This is wrong. You don’t go looking for someone to pay for your bills after you’ve already incurred them. That’s not insurance. The real problem is more like this: “Okay, we’re all going to roll two 6-sided dice. If it comes up snake-eyes, you’re going to have big medical bills. But it’ll be okay, because we’re all agreeing to cover your expenses.”

Naïvely you might think “Same thing. Insurance is just getting a large population to pay for the few with catastrophic expenses.” But it’s not the same, because in the second example you don't know who's sick yet. If people are shopping around for insurance after they’ve already rolled snake-eyes, nobody is going to want to insure them. There is this huge adverse selection problem, because (uniquely to health insurance) people are dragging their existing liabilities around with them.

Insurers can never quite get the pricing right in the "insure after the die is cast" market. They have to estimate their mix of sick and healthy patients for the next year. This is impossible to do, because the healthy are always going to shop around for a better rate and the sick are always going to try to snag any policy they can get. Health insurance isn't supposed to be "Hey, I just found out I have cancer. Will you give me a policy so you can pay my medical bills?" It's supposed to be, "None of us know who's going to get cancer in the next ten years. Let's lock in a term policy so that when one of us gets the bad news, the others will cover him." To be insurable, traditionally a risk has to be "fortuitous from the point of view of the insured." ("Fortuitous" here means "happening by chance." It doesn't mean "lucky" or "fortunate" the way it's used in common speech.) A known upcoming medical treatment does not qualify under this definition. I'm not just pedantically spewing industry parlance here. There are real world consequences for deviating from the "insurable risks are fortuitous" rule. Risks that aren't insurable under the traditional definition are subject to the extreme adverse selection problem described above. You get the insurance death spiral. You can try to force everyone into a risk pool with mandatory insurance laws, but the penalties have to be pretty big to get them to actually join (and we would have to actually enforce them!).

With risk pricing and coverage exclusions, we'd have a functioning market. Someone who knows they will have an expensive surgery next year will still be able to get a policy. "Shoulder surgery, you say? Sure, I'll write you a policy that will cover you for everything else, but I won't cover the surgery you are already planning. You'll only be covered for new problems that we don't know about yet." Or, "You get sick whenever your dice come up snake-eyes or box-cars? Sure, I'll write you a policy, but you'll pay twice the premium as everyone else." In this world, more insurers would be willing to actually write health insurance policies in the private market (more than the three or so we have today). Premiums would be affordable, because insurers wouldn't be playing a game of "beat the death spiral." 

Inevitably when I'm trying to make this argument I get asked, "Well, what do you do for people who aren't covered the moment their dice come up snake-eyes?" And this is a hard problem. Uncovered liabilities are always hard problems. Some mix of community action, charity, government assistance, and good old fashioned "eat the cost yourself." It's a sticky problem, but it's hardly a problem that's unique to healthcare. I might respond by saying, "You'd see more people buying insurance if premiums were affordable. Follow my prescription of allowing coverage exclusions and risk-pricing and that will be the case." An important first step is to make health insurance affordable and available for some customers. In today's individual market almost nobody is willing to issue a health insurance policy, and those who are willing assume insurance shoppers are extremely high risks. Paraphrasing Deng Xiaoping, let some people get insurance first. 

Sunday, May 7, 2017

Exaggerating the "Market Failure" in Health Insurance

Here is an interesting little trick, which became crystal clear to me after reading a recent post by David Henderson. It is a trick that pundits and policy wonks sometimes use to exaggerate the case for a market failure in health insurance. Henderson lampoons it beautifully. (The term "wonk" usually implies an attention to analytical detail and economic understanding, both of which are unfortunately missing when people commit this fallacy.)

Henderson's piece links to this piece at the Institute for New Economic Thinking. Here is the relevant quote.
The Centers for Medicare and Medicaid Services projects that per capita spending on health care in the US will average $10,800 in 2017. But the cost for the most expensive 10 percent of patients will average $54,000 per person, compared to an average of just $6,000 for everyone else. The cost for the healthiest 50 percent of patients averages under $700 per person.
The implication is that for 10% of us, health insurance is completely unaffordable. You'd have to charge at least $54,000 to cover this unhealthy 10% of the population, plus whatever it costs to administer the policy, handle the claims, underwrite the insureds, etc.

This is a mistake. The mistake is to group people by their actual expenses, known after-the-fact, as opposed to grouping people by their expected expenses, before you know who actually gets sick (has a heart attack, get cancer, and so on).

I'll use an auto insurance example to illustrate how absurd this is. Suppose we're talking about auto liability coverage for property damage. If you hit someone's car with your car, your insurance policy will pay for the damage. (Unless you drive around without auto insurance, in which case shame on you.) The chance of an accident varies depending on the exact demographic (age, gender, mileage driven, credit history), but the overall average is, say, about 5% per year. So, paraphrasing the piece linked to above:
The per capita spending on auto property damage is $150 per capita. But the cost for the most expensive 5% of motorists is $3,000 per person, compared to an average of just $0 for everyone else.
Obviously something is wrong here. You don't see 95% of the market paying a $0 premium on their auto PD coverage, with the unlucky 5% paying $3,000. The problem comes from grouping people by their known claims, after-the-fact. Insurance premiums aren't determined according to actual claims. If they were, there would be no insurance market. Everyone would just be paying for every dollar of expense they incur, so it would make little sense to have these intermediaries (insurers) handling our money for us. In fact, premiums are determined by expected claims. Someone gathers all the historical data on insurance claims and runs a big statistical model, the output of which tells the user the average cost of an accident for every potential insurance customer. (That someone happens to be me. This is what I do for a living, so please take my point.) When you go to an insurance agent, they punch your information into a computer and in the background the statistical algorithm calculates the expected cost of insuring you. Everyone pays something. The people with the highest premium may pay a great deal more than the people with the lowest premium, but the Institute for New Economic Thinking piece is grossly overstating the magnitude of that disparity. You would not have 10% of the population paying $54,000 for health insurance. Likely you wouldn't have anyone at all paying that much. Nobody's expected expenses are that high, even if some people end up having expenses that high. Insurance is priced and sold before the die is cast. The $54,000 figure is something that is only known after the die has been cast.

Suppose you calculated everyone's expected insurance cost, then divided the population into 20 groups. (Such groupings are generically called "quantiles." If there are 20 quantiles, they are called "vingtiles". There's your word for the day. "Deciles" for 10 groupings, "quintiles" for 5, "percentiles" for 100. See the pattern?) It would look something like this:

The blue line is the share of accidents for each quantile (scale is on the left vertical axis); the red line is the average cost by quantile (scale is on the right vertical axis). Quantiles are on the horizontal axis; obviously 1 is best, 20 is worst. This is based on some made-up data, but it's not fundamentally different from what a you'd see from real data.

Most people have an affordable premium in the $50-$200 range, with a few people (at the 90th to 100th percentiles) paying upwards of $600. Big differences, for sure, but still affordable. (The uptick at the very end is a typical result for this kind of quantile plot. 90% of the population shows a gentle, gradually rising slope, but the very worst 10% or so of risks tend to curve up sharply. It's like most people vary along a pretty smooth continuum, but then you get to the 10th percentile and you see all the raging alcoholics with multiple DUIs and impulse-control problems.)

If I were to naively group people by their actual claims history, it would look more like this:

Everyone without an actual claim would be represented as having "zero cost." The 5% of people with claims would have an average cost of about $3,000. Obviously this is retrospective, not prospective. It is useless for determining future expected costs, in the sense that it implies free insurance coverage for 95% of the population and an absurdly high prospective cost for the other 5%. Something is wrong here. But the policy wonks who comment on health policy routinely make this error. Maybe they are just confused. Maybe they are thoughtlessly throwing out a number that seems to bolster the case for government regulation of insurance markets. Or maybe it really is a cynical attempt to exaggerate the market failure in health insurance, crafted by people who have (for whatever reason) already made up their minds that they want a lot of government intervention. Whatever the motive, don't fall for this trick. There may be a small number of people whose premiums in a competitive market would be so expensive as to be completely unaffordable, but it's nowhere near 10% of the population.

By the way, I could make my above example far more stark by using auto bodily injury coverage: "0.5% of insurance customers are responsible for 100% of the claims!" Or term life insurance: "0.1% of customers are driving 100% of the costs!" Dear lord, these people are obviously uninsurable! The only reason you can do this with health insurance without instantly sounding ridiculous is that most people actually have a few little healthcare costs in any given year.

Saturday, May 6, 2017

More on Propublica’s Machine Bias Article

I wrote previously about a really biased Propublica article here. The gist of the Propublica piece was that a statistical model that predicted recidivism rates in criminals was biased against black people, because it had a higher proportion of false positives for blacks than for whites and a lower proportion of false negatives than for whites. Their framing was: this model is unfair because it disproportionately lets white repeat offenders off the hook (falsely identifying them as unlikely to repeat-offend) and it is disproportionately harsh on blacks (falsely identifying non-recidivating blacks as likely to repeat-offend). In both types of errors, the false-positives and false-negatives, it’s harsher on blacks than whites.

I said in my previous post: “I think the “false positive/false negative” result described in the above paragraph is just a statistical artifact of the fact that black defendants, for whatever reason, are more likely to recidivate (51.4% vs 39.4%, according to Propublica’s data).” I’ve confirmed my suspicions. The false positive/false negative disparity arises from the different underlying rates of recidivism for the two races. I am not making any general claims about crime rates by race; these statements are specific to the sample of criminals used in Propublica’s analysis. You could compare males to females, young to old, multiple priors to no priors. Any comparison of a high-recidivism to low-recidivism population will show this false positive/false negative disparity, even if the model is completely unbiased.

Assume you can divide the world into two identifiable classes: Blues and Greens. Suppose we live in a world with 1000 Greens and 1000 Blues. There are 600 high-risk Greens and 400 low-risk Greens. Blues are flipped: 400 high-risk and 600 low-risk Blues. A high-risk person has a 60% chance of recidivating and a low-risk person has a 30% chance of recidivating, regardless of class. Here is the breakdown of high- and low-risk, who subsequently offended or didn’t offend, broken out by class. Notice that the Greens have a higher false-positive rate and the Blues have a higher false-negative rate. The model is fair. It is accurately predicting recidivism rates for each grouping. The false-positive/false-negative differences are driven by the relative propensity of Greens and Blues to recidivate. The “unfairness” of the false-positive/false-negative proportions is driven by the underlying propensity to commit crimes. The model itself is actually fair. (The numbers and proportions chosen for this example match fairly closely to those in the Propublica study.)

Trivially, if we set the proportions of high- and low-risk individuals equal (500/500 for both races), the false positive/false negative disparity disappears. If we exacerbate the difference (say 900 high- and 100 low-risk Greens, flipped for Blues), we also exacerbate the false positive/false negative disparity. You end up with 83.7% false positives and 5.3% false negatives for the Greens and 6.0% false positives and 81.8% false negatives for the Blues. Amazingly, you’re treating everyone fairly. 60% of people labeled high-risk re-offend, Green or Blue. 30% of people labeled low-risk re-offend, Green or Blue. Your model is as accurate as it can be, and it’s not showing a racial bias in terms of recidivism rates. It’s just that there “really” are more high-risk Greens. 

I don't know why the original Propublica piece fixated on the false positive and false negative rates, other than that it gave them the answer they wanted. The false positive rate is the number of false positives divided by false positives plus true negatives. In other words, of those people who did not re-offend, the fraction that was wrongly labeled "high risk." The false negative rate is the number of false negatives over false negatives plus true positives. In other words, of those people who did re-offend, the fraction that was wrongly identified as low-risk. The false positive rate will be high for a high-risk group, even for an unbiased model. Ditto for the false negative rate for a low-risk group. These statistics simply don't tell you anything about whether the model is biased or not. 
At first blush this looks like a pointless statistical exercise. Propublica made a statistically naïve claim, and I’m pedantically debunking it. But I think a more general lesson can be pulled from this. Indulge me for a moment in a fairy tale. Suppose that in some community blacks really do commit more crimes than whites, but the drivers of the difference can be attributed to things like age, prior record, the criminal record of associates, school delinquency, etc. (If you had “race” as a variable in your regression model, it would show up as “statistically insignificant”, meaning not predictive of criminality, because other factors fully explain the entire difference.) But since races differ in their average age, average number of priors, and average number of associates with priors (and whatever else might be predictive of criminality), they have different average crime rates. The difference isn’t driven by race per se; it’s driven by the average demographics of the race. Now suppose that police officers realize that these demographic drivers are important, not necessarily through the use of a computer model, but they intuitively grasp the different crime rates. They use this intuitive knowledge to allocate their resources to younger vs older suspects, or suspects with more vs fewer priors, etc.. They would give equal treatment to two people from different races if they have otherwise identical demographics. People of both races might start to intuitively grasp the false positive/false negative disparity, which arises even if the police are perfectly fair and color-blind.  A black person in that society might fairly say, “Cops are always harassing us for no good reason. And they’re always letting guilty white people off the hook!” And his perception would be statistically accurate: the police in this world really would disproportionately let white criminals off the hook and harass innocent blacks more often, even if the cops aren’t responding to race at all. In this world it probably quickly becomes impossible not to notice race. The police really should be targeting suspects based on demographic factors that are predictive of crime, but this leads to an apparent racial disparity because the races have different average demographics. It might easily become a habit to let “race” become a lazy proxy for these other things. At this point, blacks catch on to the fact that, yes, cops really are unfairly targeting people because of their race. Civil disorder ensues.

You will see this racial disparity arise whenever there is 1) some kind of system for targeting individuals and 2) some resolution as to whether the targeting was correct or not. You will see this so long as there are average demographic differences between the races, even if race itself isn’t a factor (as described in the previous paragraph). Suppose prosecutors use some kind of criteria or decision making process for deciding who to prosecute (step 1) and the resolution is a guilty/not-guilty verdict (step 2). Well, you’re going to see more black people prosecuted and then found “not guilty”, and more guilty white people let off the hook (although you won’t ultimately know how many of these are guilty). Or suppose that cops decide who to stop-and-frisk based on demographic characteristics (step 1), and the resolution is an arrest for possession of contraband (step 2). Once again, you’re going to have a lot of unnecessary police stops for black people, and a lot of guilty white people will be let off the hook. Even if the police really are colorblind.

I’m not trying to argue that the apparent racial disparity in our justice system is all attributable to factors other than race. I’m sure that race itself is a factor in many decisions to stop, arrest, prosecute, convict, beat, or shoot a person. I’m just issuing a word of caution that these disparities will continue to exist even if we achieve a color-blind society. A process will wrongly be labeled as racist even when it isn’t, as the Propublica article demonstrates clearly.

As terrible as the original Propublica article was, I’m sort of glad they wrote it, because I never would have worked out this result otherwise. It’s a good thing to keep in mind. A higher overall rate of something means more false positives and fewer false negatives; a lower overall rate of something means the opposite. You will get this result even from a fair, unbiased statistical model.

Ideological Turing Test for Stuff I Used to Believe

I used to hold a different set of beliefs from what I believe today. I was once a fairly standard “progressive” lefty, perhaps with some libertarian leanings. Today I’m a pretty staunch libertarian. You’d think that having spent most of my life in a different sort of worldview would have granted me deep insight into progressive ideology. Actually, whenever I see weak leftist mantras pasted all over my Facebook feed, I get irritated that anyone could present such a silly argument. I still understand the superficial appeal of progressivism, but this appeal wilts under even a cursory analysis.

So what’s going on here? Why can I not muster a defense of a position that used to be my own? I can think of two competing explanations.

1) There is an intellectually sophisticated version of progressivism, and I just never learned it before I abandoned ship. Most progressives walk around with this sophisticated viewpoint in their heads. I just never got around to learning it.
2) Progressivism is intellectually shallow. It really does wilt under careful analysis, and even more careful analysis fails to exonerate it from the obvious criticisms.

I want this post to be about the general process of changing one's mind, not a troll-inducing smack-down of progressivism. If anyone is hung up on my poor choice of an example (of something I've changed my own mind about), replace it with something else. "I used to believe X, I've changed my mind and now believe Y. I changed my mind based on a deeper understanding and knowledge of the topic, not because of some personal/emotional appeal." I feel like in the case of progressivism I would fail an "ideological Turing test," where someone tries to fairly articulate a position they don't actually believe. I'd end up making a straw-man or somehow betraying my skepticism. 

I want to encourage the question, "What's going on here?" and perhaps discourage jumping to answer 2). If you've read deeply on a topic and it caused you to change your mind in a meaningful way, then you probably hold a sophisticated viewpoint. Possibly people who still believe X don't have your deep knowledge; if you could somehow impart your understanding to them they would change their mind to Y. But always entertain the notion that they will surprise you, perhaps even re-convert you. 

Mandates Aren't Gifts

Some laws mandate that certain organizations (employers, insurers) do certain things (offer benefits, cover certain treatments/illnesses). Such mandates are erroneously called “protections” by people who insist on describing government policy in terms of the desired effect rather than the actual effect.

People with “pre-existing conditions” would be much better protected in a world where insurers could price for the risk and issue policies with coverage exclusions. They would be better protected if government policy didn’t encourage or mandate that employers provide health insurance to their employees. If a real insurance market were legalized and allowed to operate, premiums would be affordable, the insurance payout trigger would be the diagnosis itself (not the treatment that occurs in the ensuing years or decades), and insurance terms would probably be much longer (as they are for life insurance). The concept of a “pre-existing condition” wouldn’t even exist: anything catastrophic enough to make premiums unaffordable would be covered by the insurance policy that was effective at the time the injury was incurred or disease discovered (much as how auto bodily injury coverage actually works in the world today). Serious healthcare reform would remove these “protections” that prevent a real insurance market from operating. I doubt if we’ll see it soon, and part of the reason is the demagoguery surrounding heath policy.

I see even smart people fall for this. Stop doing this, guys. You are trying to frame this in such a way that nobody could possibly oppose your favored policy, even though it has some obvious flaws. (Who could be against "protecting people with pre-existing conditions?”) It makes a person look really obtuse, as if they don’t realize that their favorite policies might have a down-side. As if they don't even realize there might be an argument for some other policy.

Some people think of a “mandate” as a transfer from one party to another, and the removal of a mandate as a transfer in the opposite direction. If we mandate that employers provide insurance benefits to their workers, what we’re actually doing is telling employers, “Pay your employees lower wages/salaries, but use the balance to buy them insurance.” If we mandate that insurers cover something routine (like annual checkups and birth control), what we’re actually doing is saying, “Charge your customers higher premiums, then give them some of that money back when they buy routine medicine.” I see almost no awareness of this incredibly basic economics (arithmetic, really) when I see discussions of mandates on the news or on my Facebook feed. There might be a good argument for certain kinds of mandates, because some kind of market failure exists. But it seems to me that people reflexively see the addition of a mandate as favoring the worker/customer at the expense of the employer/insurer. This is wrong for the obvious reasons outlined above. If people have a more sophisticated “market failure” argument in mind, they aren’t sharing.

Wednesday, May 3, 2017

Probability, Forecasts, and Reading the News

If I say, “There is a 1% chance of a coup in the Ivory Coast this year,” and then a coup happens, was I wrong? Of course not. I told you it could happen. Perhaps I have a giant portfolio of public forecasts. It could very well be that out of all my “1% chance” forecasts, those things happen 1% of the time. My forecast may have been the best possible forecast that anyone could make with the available information. It’s just that unlikely things happen now and then.

If the weatherman says there is a 5% chance of rain today and it rains, was he wrong? Again, no. Weather forecasts are extremely well calibrated. Of all the times they say “5% chance of rain”, on 5% of those occasions it does indeed rain. It’s not fair to call these “bad forecasts” when, taken as a whole, their “5% chance of rain” forecasts are extremely accurate.
Suppose something terrible happens under my leadership. My factory explodes, or my oil rig spills tons of oil into the gulf, or some over-zealous employees beat up a customer. Was I incautious? Was I wrong about my assessment of these risks? Maybe, maybe not. I probably have some kind of corporate risk management going on, perhaps even a team dedicated to studying and avoiding these kinds of risks. (“Enterprise risk management” is a hot topic right now.) My company probably has various safety protocols designed to avoid explosions/oil spills/customer beatings. It could well be that my company is over-cautious compared to my competitors, and I just had bad luck. Maybe my company’s protocols reduce the chance of a factory explosion to 0.1%, while my reckless competitor is at 1%. I could get unlucky even though I’m far more cautious than my non-exploding competitor.
I’m not trying to say, “Let’s be understanding when a large organization causes something terrible to happen.” Maybe public outrage (even uninformed outrage) is a good motivator to avoid mishaps. But if your goal is to actually understand what went wrong, it’s probably a mistake to assume that the mishap was caused by an identifiable error. Sure, you can look over the exploding oil rig’s safety protocols after-the-fact and find them inadequate. But you can probably do the same thing for oil rigs that didn’t explode. You might find that they all have protocols in place calibrated to reduce the risk of a major spill to, say, 0.01%. If there are a few thousand such rigs, one of them is going to spill every few years. It might not be very informative to say, “Gee, what went wrong with this one?” If we're going to publicly dissect disasters, the purpose should be to gain knowledge and avoid future disasters. We rarely hear commentary such as, "It turns out that the airline's protocols for involuntarily removing a passenger were standard and appropriate" or "Actually the safety measures for the exploding oil rig went far beyond the normal standard and they were simply unlucky." But I strongly suspect this is often the case, particularly in these viral "outrageous news" stories. Freak accidents happen even when everyone is exercising appropriate caution. Our rhetoric needs to adjust to reflect this reality.

Saturday, April 29, 2017

Term Life Plus Health Insurance Package: An Insurance Product That Should Exist

Here is my idea for an insurance product that needs to exist, but is precluded by a bad regulatory regime.

Suppose you have a combined term health and life insurance package (possibly with disability coverage thrown in the mix). The term is in decades, say 20 or 30 years, and very hard for either party to cancel. Your insurer gets locked into a certain rate based on your current health status, but also the insurance customer can’t simply jump ship every time s/he finds a cheaper rate. This way, your insurer knows that they are on the hook for your health expenses for the long term. You aren’t going to leave in a few years when you switch jobs, or move to another state, or simply decide to switch carriers because you can save a few percentage points on premiums. If a 30-year hard-to-cancel contract sounds stiflingly authoritarian to you, just realize that the 30-year mortgage and 30-year term-life policies are pretty common (though the latter can be canceled by the insured pretty much at will). As I explain here and here, such policies are perfectly feasible and fundamentally affordable. The “life” portion of the plan covers your family in the event of your untimely death, and the “health” portion covers catastrophic medical expenses. But given this setup, your insurer may voluntarily pay for things other than what it is minimally contractually obliged to pay for, which I’ll explain in a minute.

This setup gets all the incentives right. Your insurer won’t be skimping on medical expenses unless they have a good reason. If a routine blood screening or annual well-checkup or referral to a specialist represents a net savings in health costs, the insurer will pay for it. From the insurer’s perspective, they hold a portfolio of future assets and liabilities. If more people stay alive and healthy, they will keep paying their premiums. If more people get sick or die, then the insurer will lose more of the future premium payments and incur larger future costs (payouts for medical expenses and death benefits). Insurers will be looking very closely at what kinds of preventive care and treatments are effective. Any preventative care with a positive expected return (representing a net savings) will likely be approved. They are still on the hook for the catastrophic expenses if something goes horribly wrong, mind you. They can’t simply deny your claim for cancer treatment just because it represents a negative investment return for them; they are contractually obligated to pay for these kinds of catastrophic expenses. But they will supplement these contractually-mandatory claims with low-cost preventative treatments that, while they aren’t obligated to pay for, it’s in their best interest to provide.

You can think of there being three “tiers” of preventative treatment. There is (1) preventative care that pays for itself by preventing future medical expenses. This kind of care is like an “investment good.” Even if you don’t particularly care about how healthy you will be in 20 years, you’ll shell out because the return on investment is good. Then there is (2) preventive care that has a positive effect on your future health, but doesn’t pay for itself. (It's a consumption good, but not quite an investment good.) So it’s lower value than (1) but still maybe worth buying. Your insurer (under my scheme) won’t necessarily shell out for these treatments, but they may send you a list of things you should be doing to maintain a healthy lifestyle. They’d prefer you to go out and buy (2) on your own, but it’s not worth actually footing the bill for you. Then there is (3) preventive care that has negligible health benefits, even negative health consequences. I’ve heard the PSA test for prostate cancer listed as an example of (3). Supposedly the test provides many false positives for each true positive. But it’s hard to separate “false” from “true”, so a lot of these guys get unnecessary treatments that lead to incontinence or impotence. Many die from complications of their surgery. And this is to treat a cancer that people can live with for a very long time without it causing any problems.  I’m not an expert on this, so I won’t hang my entire case on the PSA example. But suffice it to say you could come up with an example of “preventive care” that’s useless. Imagine monthly cancer screenings for a healthy 20-year-old. Or daily for that matter. There is a line somewhere that separates worthwhile preventive care from worthless. Your insurer will be trying to figure out, at a population level, what goes into categories (1), (2), and (3). They will strongly encourage (1), weakly nudge you toward (2), and ignore or perhaps even try to talk you out of (3). It's often implied that insurers simply want to deny every claim to save money, but clearly that won't be the case if some of those claims lead to lower future costs. With this setup, insurers will approve claims because it's in their own interest to do so.

I think there is great potential if this ever gets going. You will have insurers with massive 20+ million customer portfolios and tons of data on medical procedures and subsequent health outcomes. They will be employing state-of-the-art data-mining to separate good medicine from bad. They will employ econometricians to tease out causal inference, and separate the truly causal from the merely correlational relationships between treatment and outcomes. We will learn things about medicine that we don’t currently know. Pharmaceutical firms will have an incentive not just to pass the FDA’s bar for clinical trials, but to prove to insurers that their drugs have a real health benefit. We’ll see a new age of medical experimentation with tons of data. There will still be academic studies and clinical trials, but conceivably health/life insurers will have better datasets on larger samples. They’ll produce studies that aren’t quite as “controlled” as clinical trials, but may be more valuable nonetheless because of sheer data volume.

Unfortunately, this kind of product is illegal. Health “insurance” is required by law to cover a lot of low-value, low-expense, routine medicine that the patient should really be paying for out of their own pockets. An even bigger problem is that health insurance isn’t appropriately structured. People drag around their “pre-existing conditions” with them. The way it should work is that when you get hit with a big bad diagnosis, you get a big payout that’s calculated to cover the cost of that diagnosis (future cancer treatments, diabetes medicine, etc.). Even if health insurance doesn’t go to 30-year policy terms but renews year-to-year like auto insurance, the policy that was active the year of your diagnosis should cover all related expenses, just as your auto bodily injury coverage covers an accident that occurred the year you were covered (regardless of when a future surgery occurs or when the medical bills come due). We need to allow insurers to exclude pre-existing conditions, or otherwise charge the right premium for them or underwrite against them. This should be fine. It would not, as so many people assume, leave a bunch of really sick people without coverage; if health insurance simply paid out the way other forms of real insurance do, these people will be covered. (I explain this point in more detail in my two links above, repeated here.)

I hear clueless pundits all the time, rambling on about how we need to protect people with pre-existing conditions from ravenous insurers who will price-gouge them or exclude them entirely. I want to shake these people by the lapels and say, “It’s your fault we’re stuck in this situation, you fool!” These are invariably the same people who support health insurance as a mandatory employee benefit, support the tax exemption for employers who purchase such insurance, support tons of mandates for health insurance to cover everything, politicize and even gender-bait the coverage of certain gender-specific provisions, and insist loudly that we can’t allow premium increases or coverage exclusions for pre-existing conditions. It’s a bad combination of these items that has led to very high insurance premiums, a stifled private market, and the transferring of liabilities from insurer to insurer.