Who Should Provide Anesthesia Care? (Redux)

Recently, Corrections wrote on the New York Times article "Who Should Provide Anesthesia Care?" (September 6th, 2010), a post that elicited widespread interest, enough to warrant further analysis.

Corrections would like to further note that even if anesthesiologists are harmed in the short run by the law, they're unlikely to be harmed in the long run. Our reasoning is that there are substitute specialties for individuals who practice anesthesiology. While currently-practicing anesthesiologists might not quit, if there are substitute professions (for the sake of an example we name surgery), then the relevant marginal individuals are new medical school students.

Observing declining wages in one profession, they opt into the other. This consequently reduces wages into that profession until the wages equalize (assuming they are perfect substitutes) or the difference is mitigated, not by immediate exiting of the profession but instead by a lack of new entrants.

Below, we graphically depict what we would expect to happen to anesthesiologist wages, surgeon wages, and nurse wages and stock before and after nurses are allowed to practice particulars of anesthesiology (click to enlarge). The idea is as follows: the supply of nurses in the short run is fixed, and therefore their wages immediately rise. As their wages rise, more nurses are trained until, as discussed previously, their wages go back to the reservation wage of the (presumably) vast reservoir of individuals who can become nurses.

For doctors, more newly-minted doctors will be surgeons, and fewer anesthesiologists. As the number of anesthesiologists drop, their wages begin to rise. As the number of new surgeons begins to rise, surgeon wages fall, eventually rising as wages converge back to equilibrium. (Note we operate off the assumption of a vast reservoir of positions substitutable to anesthesiologist positions. Otherwise, the long run equilibrium wage would be slightly lower than the original wage).

N.Y. to Try Again to Tax Indian's Cigarette Sales

New York Times article "N.Y. to Try Again to Tax Indians' Cigarette Sales (August 31st, 2010) fails to note why a government tax program is ill-concieved.  New York is currently considering attempting to tax the cigarette sales of Indian reservations.  In an attempt not to tax reservation consumption of cigarettes, it will give vendors a lump-sum tax break.  This is the reverse of efficient taxation.

The state’s plan does make exceptions for cigarettes sold to tribal members, estimating, based on the population of an Indian reservation, what portion of the sales are made to them. Taxes are charged on the remaining packs, on the assumption that they are bought by customers who are not Indians.

In fact, this does not make reservations for tribal members.  Vendor prices should be the same for all cigarettes, sold to Indians on reservation or not.  The reason is that it appears stamps must be on all cigarette packs--there is no "dual supply" problem.  In this case, vendors will raise the price of all cigarettes by whatever the tax is (recognizing competition and constant returns to scale production) and simply take the tax cut as pure producer surplus.  The supply-and-demand equilibrium before and after is depicted below (click to enlarge).  The upper blue-to-red supply line depicts the taxed supply.  The red line depicts supply without tax.  As we can see, because of the law of one price, producers have in effect been given a lump sum transfer, which will not be reflected in their prices.

The structure of taxation will make this effectively a tax on on-reservation Indian consumption of cigarettes.

The gulf tragedy doesn't negate the fact that oil is a green fuel

Los Angeles Times editorial "The gulf tragedy doesn't negate the fact that oil is a green fuel" (June 15th, 2010) suggests that ethanol production causes more expensive food. Whether or not this is true isn't immediately clear to Corrections.

Ethanol production steals precious land to produce inefficient fuel inefficiently (making food more scarce and expensive for the poor).

An increase in the demand for ethanol likely an increase in the demand for, example, corn. Normally, one might associate an increase in demand for corn with an increase in the price for corn. However, if the supply of corn is perfectly elastic, we should expect that price will not rise. This situation is depicted graphically below (click to enlarge).



The idea of the above diagram is as follows: corn is supplied and sold to the highest bidder. If we are to have corn going to both corn feed and to ethanol production, then the prices must be the same--otherwise a corn producer would sell it to the higher bidder--law of one price holds. Therefore, price is set by combined demands and corn supply--price is projected back to individual demands and determines quantity.

This assumption as a long-term assumption is not necessarily absurd. We might add that productivity growth is endogenous and inputs into agricultural production have not risen over the last 60 years, while output has risen 150% (it is 250% of what it was in 1948, for the same inputs). We imagine that not only might land use be easy to scale, so might productivity. Data from the USDA on output, productivity, and inputs are displayed in the figure below (click to enlarge).