Unhealthy habits are what's killing us

CNN.com article "Unhealthy habits are what's killing us" (December 28th, 2009) appears to misunderstand that total utility of life comes from both quality of life and quantity. Furthermore, Corrections notes that higher rates of early death for minorities appears as a natural outcome of maximization, rather than a product of irrationality or a failure of willpower.

So if the U.S. health system does such a good job saving its middle-aged and elderly sick, why do Americans die comparatively young?

Answer: because Americans are much more likely to get sick in the first place.

And that likelihood owes very little to the health care system and a great deal to the bad choices American individuals make.

If you eat too much, exercise too little, drink too much, smoke, take drugs, fail to wear a seat belt or ignore gun safety, there is only so much a doctor or hospital can do for you.

Corrections does not see bad health and dying early as a bad decision. Total happiness comes from both quality and quantity of life. Individuals enjoy eating, drinking, smoking, and consuming drugs. The author begs the question whether or not Americans are actually making the right choices.

CNN.com has one additional observation that is not contradictory to a rational-individual hypothesis. Specifically, that minorities often engage in self-destructive behavior at higher rates than whites.

Acting on this information won't be easy: It violates too many taboos. Americans understandably treasure their right to make their own choices, including the choice to super-size it. And many are uncomfortably aware that self-destructive behavior is most often found among the poor and among minorities: Black women are more than three times as likely as white women to be severely obese.

This may be a rational discrepancy. If minorities also have lower wages, then their foregone earnings from dying early are less. The shadow cost of unhealthy behavior is lower--we should therefore expect higher rates of early death, coming not from irrationality or dynamic preferences, but from rational maximization.

A Micronesian Paradise - for U.S. Military Recruiters

Time Magazine article "A Micronesian Paradise - for U.S. Military Recruiters" (December 31st, 2009) is noisome in its abuse of statistics to insinuate fleecing by the U.S. military of the Federated States of Micronesia (FSM), associated states of the U.S. It notes higher participation rates per individual on Yap, an FSM member. It continues by noting higher military deaths per individual on Yap.

In 2008, the country had more Army recruits per capita than any U.S. state. It also has more casualties in Iraq and Afghanistan, per capita. The islands have lost nine soldiers in the wars out of a population of 107,000 — a rate five times the U.S. national average. (Only American Samoa has lost more soldiers, per capita, among U.S. territories.)

We would expect these statistics if FSM soldiers were equally likely to be killed in combat as any other state's soldier. Time Magazine is only showing that exactly what one would expect should happen if all soldiers are treated fairly is indeed occurring, as dictated by the below definitions of Yap recruits per capita, and Yap military deaths per capita.  We can see military deaths per capita is dependent on Yap recruits per capita and a constant (if the military treats recruits fairly).

The proper statistic to compare if we are concerned about fairness is military deaths per Yap recruit compared to military deaths per other country recruit, which Time does not comment on.

Judges Consider New Factor at Sentencing: Military Service

Wall Street Journal editorial "Judges Consider New Factor at Sentencing: Military Service" (December 31st, 2009) waves its hands at, but fails to actually observe any externalities in military service that require the parallel justice system it describes. Specifically, it notes that military veterans coming back from foreign deployment have received special judicial treatment in light of their service.

As more soldiers return home from combat overseas and end up in the criminal-justice system, a number of state and federal judges are deciding to show former soldiers leniency in light of their service. Some veterans are receiving probation coupled with psychological treatment, generally for nonviolent crimes that normally would land them in prison.

The article gives an example of one judge's reasoning:

'We dump all kinds of money to get soldiers over there and train them to kill, but we don't do anything to reintegrate them into our society,' says John L. Kane, a federal judge in Denver. Earlier this month, Mr. Kane sentenced an Iraq war veteran convicted of bribery to probation instead of prison.

Yet Judge Kane's argument does not appear to have sound foundations, in the understanding of Corrections. The United States has a volunteer army. Individuals who sign up are doing so because the total discounted lifetime path of wages (cognitive and monetary) are higher than their next best alternative. If they were not, individuals would choose their "next best" (contradictorily, their best) alternative.

If the cost of joining the army, including the probability an individual survives, breaks down psychologically and commits crimes upon their return is too high, individuals will opt out of military service. They will do so until wages are increased or the future costs that cause them to commit crimes are decreased. This is the proper market solution to unfortunate military conditions. If military service is unattractive and unfortunate, fix it through wages, rather than through fringe benefits, like reducing disincentives on producing negative externalities to others (crime), an unsound economic proposition.

Individuals who perform military service are paid in a variety of ways. The public honors them as protectors of freedom. They are paid a wage. They gain fringe benefits through discriminatory governmental hiring practices. The military should make sure it is paying in the most efficient manner, and it is by no means clear that removing disincentives from criminal activity is welfare-enhancing.

The only case in which offering these fringe benefits to soldiers makes sense to Corrections is if ex ante the military has difficulty predicting the single individual of many to pay higher wages in the form of a light sentence, and ex post it can identify them, that the value of this benefit is high, and the moral hazard it poses is low, an unconvincing conjecture.

One might add that there could simply be sample selection in sentencing. Individuals with military service might be less prone to recidivism, incarcerating them less effective, and lighter sentences may be efficient. The article does not address this, though Corrections sees it as a possibility.

Heath Cuts With Little Effect on Care

New York Times article "Health Cuts With Little Effect on Care" (December 29th, 2009) offers poor partial equilibrium analysis of Richmond health care. Specifically, it makes inferences from data on local rationing of health care to the impact of a global rationing of health care. This is improper in the presence of control group substitution, the search for alternative treatment by individuals denied it by an experiment (in this case, natural).

Since 1996, the Richmond area has lost more than 600 of its hospital beds, mostly because of state regulations on capacity. Several hospitals have closed, and others have shrunk. In 1996, the region had 4.8 hospital beds for every 1,000 residents. Today, it has about three. Hospital care has been, in a word, rationed.

And

The quality of care in Richmond is better than in most American metropolitan areas, according to various measures, and it continues to improve. Medicare data, for example, shows that Richmond hospitals do a better-than-average job of treating heart attacks, heart failure and pneumonia.

The New York Times is broadly examining the impact of a natural experiment in medical care. It implicitly compares a forced change in hospital bed capacity, using a difference-in-difference model. Specifically, the article examines how the difference between American metropolitan hospitals and an unconstrained Richmond changed when Richmond become constrained.

However, it is important to note that individuals living in Richmond who may have been made worse off (implicitly, the control group in this natural experiment) had the capacity to seek out-of-area hospitals that were not limited by (control group substitution). We could therefore observe an increase in Richmond health statistics due to this local prohibition, while observing a decrease in health due to a global prohibition.

Corrections notes that these observations are predicated on the premise that the New York Times is doing proper analysis to begin with. Observations about hospital care rates alone, neglecting individuals that never went to the hospital, would obviously be severely flawed. The claim that quality of care is better when not considering the quantity, which the New York Times appears to do, is an additional and fatal flaw.

The drug war two-step

San Diego Union-Tribune commentary "The drug war two-step" (December 27th, 2009) fails to mention a curiosity in the "War on Drugs" that helps to make interdiction efforts a self-defeating campaign. The article suggests that the elimination of one drug dealer may reduce violence in Mexico but increase the amount of drugs shipped into the United States. Corrections sees a definite possibility for the opposite to occur. Corrections suggests that the elimination of drug dealers could cause more drug-dealer-on-state violence, smaller quantities of drugs shipped, higher drug prices, and higher industry profits.

The question is will “El Barbas’ ”death have any lasting impact on reducing cartel-related violence and reducing the flow of drugs into the United States. On the first point, there may be some hope, but not for the right reasons. Here’s the rub: drug traffickers are peace-lovers at heart, because peace means no competition for customers and profits. With Beltrán Leyva out of the way, “El Chapo” Guzman can expand his business and keep moving up the list of Forbes magazine’s wealthiest people. Meanwhile, the U.S. drug consumers who are padding his bank accounts can rest assured, there will be plenty more drugs available in the days to come.

When something is demanded inelastically, it means that a one percent increase in price will be met with a less-than-one percent decrease in demand. Addictive, illicit drugs are often examples of goods with inelastic demand. While a monopolist will never supply a good on the inelastic portion of the demand curve, competition will. It is not unlikely that the illicit drug industry is pricing drugs on the inelastic portion of the demand curve.

Therefore, if authorities artificially shift the quantity supplied leftward, it may increase illicit drug industry profits. This is depicted graphically below (click to enlarge).

It is in this manner that drug interdiction efforts may actually benefit the drug industry. It is important to note that under this scenario, fewer drugs will be consumed in the period of interdiction, even though the industry is better off. We could imagine that increased drug-industry profits might actually increase its capacity for violence against the government, concluding the reasons for the above predictions.

Corrections notes as a piquant possibility that one method of reducing the quantity of drugs sold in the United States might be to help form a cartel or monopoly supplier. As outlined above, a monopoly supplier will artificially restrict supply, gaining higher profits. It could be that the formation of a monopoly will cause a smaller quantity of drugs into the market, as depicted below (click to enlarge).

Search, but You May Not Find

The New York Times article "Search, but You May Not Find" (December 27th, 2009) evokes market power problems where they do not belong.

Today, search engines like Google, Yahoo and Microsoft’s new Bing have become the Internet’s gatekeepers, and the crucial role they play in directing users to Web sites means they are now as essential a component of its infrastructure as the physical network itself. The F.C.C. needs to look beyond network neutrality and include “search neutrality”: the principle that search engines should have no editorial policies other than that their results be comprehensive, impartial and based solely on relevance.

The article continues to cite examples in which google promotes its favored (google powered) shopping results above others. There are very few barriers to entry in this industry. For example, if consumers are worried that google is biasing their map-searches, they can create a search that presents google's search results simultaneously with yahoos, or msn's, or any of the hundreds of search engines that are displayed when one googles "search engine" (notably, google is hit number nine). The market for internet search has virtually no barriers to entry and Corrections sees no cause for regulation.

Smart Answers to Recidivism

The New York Times editorial "Smart Answers to Recidivism" (December 24th, 2009) fails to consider the major repercussions of eliminating major post-sentence criminal punishments. The article suggests that making legitimate-sector job opportunities more available to ex-convicts will lower their recidivism rates. The article describes the changes to ex-convict employment that it supports:

No reasonable person would suggest that a sex offender be given a job in an elementary school or day-care center. An ex-offender could not be disqualified for employment unless the offense was directly related to the job. Job seekers would no longer be required to disclose convictions on applications for state, county or municipal jobs. The offenses could still be uncovered in background checks, but they would no longer automatically rule out an applicant from the start.

Of course, potential criminals likely are aware of these permanent costs of conviction--a difficult job search. Eliminating these costs would increase crime rates under a model of crime under which criminals weigh expected costs against benefits in deciding wether or not to commit crime. Perhaps better legitimate-sector opportunities lowers crime rates among past-criminals, but less punishment for crime increases crime rates overall. Thus, the question of whether or not such a change will lower total crime rates is empirical, and yet unanswered.

To Save the Planet, Save the Seas

The New York Times opinion editorial "To Save the Planet, Save the Seas" (Decmeber 26th, 2009), fails to provide a marginal cost-benefit analysis of the preservation solution to the climate change problem.

Few people may realize it, but in addition to producing most of the oxygen we breathe, the ocean absorbs some 25 percent of current annual carbon dioxide emissions. Half the world’s carbon stocks are held in plankton, mangroves, salt marshes and other marine life. So it is at least as important to preserve this ocean life as it is to preserve forests, to secure its role in helping us adapt to and mitigate climate change.

Even if 99 percent of the world's carbon stocks were held in marine life, it may not be prudent to spend tax revenues on their "preservation." For example, if it were much more expensive to preserve marine life than forest life, we should spend money on preserving forest life until the benefit from the next dollar spent on forest life is lower than the benefit from the next dollar spent on preserving marine life. Without knowing the relative costs of preservation, no prescription can be offered.

Resolution: Get a Deal on a Gym Membership

New York Times article "Resolution: Get a Deal on a Gym Membership" (December 25th, 2009) requires incorrect assumptions on the U.S. fitness industry.  The article seems to assume that gym membership is procyclical (it increases when the economy is strong and decreases when the economy is weak). Corrections suggests that the opposite is quite possible.

But this year the frenzy has been ratcheted up a notch as clubs try to make up for the recession, which caused many corporate sponsorships to evaporate and many individual members to drop out or cut way back on costly extras like personal training and massage.

First, Corrections notes that according to the International Health, Racquet and Sportsclub Association (IHRSA) in 2006, there were 42.7 million health club members. In 2007, there were 41.5 million members. In 2008, there were 45.5 million health club members.

This makes sense. When individuals consume most goods, there are two inputs--commodities that they buy (t.v. sets, or gym memberships) and time they use to consume the good (tv-watching time, or time at the gym). While gym memberships cost money, we expect the larger portion of their cost comes in the form of time.

In a recession, when unemployment is high and wages are low, we expect that people will move away from money-intensive goods, such as expensive meals, and toward time-intensive goods, such as gym time, and its complement, gym memberships.

We may, however, expect revenues to go down, as shopping around for a gym, and going to a gym farther away becomes more feasible and thus gym memberships become more competitive. The general trends for gym membership are displayed in tabular form below.

Corrections will be sure to post the 2010 IHRSA results from next month.

New rule on airline waits is a big win for consumers

Boston Globe editorial "New rule on airline waits is a big win for consumers" (December 24th, 2009)lauds a Department of Transportion ruling but fails to explain the intuition behind why regulation might increase efficiency, a phenomenon recherché enough to require explanation. Indeed, further examination suggests that the Globe has little reason to cheer.

About 1,500 times a year, airplanes have to wait more than three hours before a takeoff or cancellation of the flight. Such delays affect about 114,000 passengers. In many cases, crews run out of food and drinks for the passengers, and toilets fail. The new rules will also require airlines to provide snacks and drinks after two hours. Airlines that violate the president’s policy will have to pay fines of $27,500 per passenger.

That is more than a wrist slap and will likely push airlines into changing their schedules to reduce chances of extended delays. So be it. Passengers would be happier with schedules that are thinner but more manageable even when weather conditions throw a monkey wrench into operations.

Normally, the Globe's editorial would not be reason to celebrate. However, if there exist customers with heterogeneous preferences for waiting on the tarmac, it is possible that an airline's choice of quality is inefficient for the average customer, while being efficient for the marginal.

Specifically, an airline chooses price and quality to attract the marginal customer.  There is nothing that guarantees that the marginal consumer is a representative consumer.  If the schedule for a marginal consumer's valuation of quality slopes downward, we expect quality to be inefficiently low.  If it is increasing, we expect quality to be inefficiently high.

While this is a possibility, it is unlikely. Multiple airlines can provide a separating equilibrium in which multiple levels of quality are offered. Indeed, the existence of budget airlines make us expect that government regulation will unambiguously reduce utility of everyone involved.  The example of a separating equilibrium for quality is graphically displayed below (click to enlarge).

Despite Recession, Crime Figures Are Down

Time magazine's article "Despite Recession, Crime Figures Are Down" (December 21st, 2009) wonders why the recent recession hasn't triggered a rise in crime; notably, there is no statistical evidence for such a correlation.

Murder and manslaughter dropped a surprising 10 percent for the first half of the year, according to the FBI's data.

In addition, the Pittsburgh Tribune Review puts forth the following explanation in their article "Hard times bring drop, not rise, in serious crime" (December 22nd, 2009)

...there are several possible explanations for the drop in crime, including extended unemployment benefits and other government attempts at economic stimulus that "have cushioned and delayed for many people the big blows that come from a recession."

as noted in the Journal of Economic Perspectives, though changes in fiscally motivated crime-rates (such as robbery and property crime rates) can be explained in part by unemployment, there is no statistically significant correlation between violent crime and unemployment (Levitt, 2004). Fundamentally, the benefits to committing violent crime, especially murder and manslaughter, is unlikely to change in the face of a recession. On the cost side, it is possible that the opportunity cost of going to prison for committing murder does decrease. However, the long-term jail sentence a criminal can expect to serve after committing a murder far exceeds the length of a recession, so long run costs (on which people make decisions) change little. Ultimately, it seems unlikely that thousands of people are lurking in the stands, waiting until they lose their job to commit murder  For illustrative purposes only, the relationship between change in national unemployment and change in graphically below.  As in Levitt's paper, the relationship is negligible.

Consider the evidence

Philadelphia Inquirer opinion editorial "Consider the evidence" (December 21st, 2009) ignores an interesting possibility concerning the delay in police departmental testing of rape kits. The article is perturbed that there is a shortage in processed rape kits.

The backlog of untested kits includes about 12,500 in Los Angeles, 10,000 in Detroit, 6,000 in San Diego, and 4,000 in Houston. (Philadelphia police, to their credit, say their lab tests every kit).

And

Money shouldn't be a roadblock to solving these crimes. Congress passed a law in 2004 to provide grants to states for rape kit testing. But the law allows police departments to use the money for other DNA testing, not just rape kits. Human Rights Watch reported last March that the Los Angeles Police Department's backlog of untested rape kits occurred despite LAPD's receiving $8 million in grants for testing during the previous four years.

There is no explicit price mechanism to clear the market for processed kits, so instead it is cleared by the implicit price mechanism of time-to-process (perhaps mixed with a nebulous definition of priority). Furthermore, supply is constant. If we increase supply, we expect waiting time to decrease in the short run. However, in the long run, prosecutors and police change their standard methods of operation, and increase their use of more sophisticated methods. This, in turn, raises the waiting time. If long run elasticity is very high, we expect supply shifts to only ever shift waiting time a little. Such a case is depicted graphically below (click to enlarge).  Additionally, our expectations on the evolution of "price" and quantity over time are depicted below (click to enlarge).  

It is foolish to focus only on waiting time or backlog--instead, optimizing behavior would be to first minimize the sentence-adjusted cost of bringing in a suspect (which may include many rape kits or few rape kits), and then choose the amount of money one wants to spend, setting the sentence-adjusted marginal benefit to our (minimized) marginal cost.

A Stimulus That Could Save Money

New York Times article A Stimulus That Could Save Money (November 17th, 2009) cites a McKinsey & Company report that neglects the most fundamental economic thinking to argue that increasing home efficiency will reduce energy use.

The bottom line is that cash for caulkers would be trickier than cash for clunkers — yet would have the potential to do far more good. McKinsey, the consulting firm, estimates that households could reduce their energy use by 28 percent over the next decade. In terms of greenhouse gases, that would be the equivalent of taking half of all vehicles in this country off the road.

Corrections notes that far from decreasing energy use, the sign of an impact of increased efficiency on energy use is indeterminate. People don't want energy as an end consumable product; energy is purchased as an input into producing heat, light, or other consumable amenities. The real product they are purchasing, then, is heat and light. Therefore, we can write the "price" of a unit of heat as the price of electricity multiplied by how much electricity is required per unit of heat.

Therefore, we can see that a doubling of energy efficiency (halving the number of units of electricity per unit of light) is the same as halving the price of electricity. In other words, we may think of this "cash for caulkers" idea as reducing the effective price of light.

This is the point at which McKinsey & Company's analysis stops. They examine energy use as "business-as-usual", assuming "no material change in consumer utility or lifestyle preferences" (page 23 of the above report). Using our above analysis, we can say it is ludicrous to say that light use will remain the same if the price of electricity for light is reduced. As light is a normal good, we will observe light use increasing as price decreases. The remaining question is whether or not, when we halve the "price" of light, energy consumption more than doubles or not. If it increases by a factor greater than two, we should see energy use increasing.

The New York Times took McKinsey's mistaken assumption that consumption of light and heat would remain the same in the face of a decrease in their effective price, and concluded that the price of energy may decrease. In fact, from the Slutsky identity, it can be easy for energy use to increase, given that light and heat are normal goods, and the share of income spent on them is not low.  The possibility for the consumption of light to more than double after efficiency is doubled is depicted graphically below (click to enlarge), along with the possibility for it to increase by less than a factor of two.

Mathematically, the percentage change in heat consumption given a percent change in the effective price of heat will be determined by the Hicksian Elasticity of substitution (negative), the share of income spent on heat consumption and the income elasticity of heat (greater than zero). If our LHS is less than negative one, we will see our predicted increase in energy consumption.

As a final point, we can add that we expect energy companies, as monopolies, to be pricing on the elastic part of the demand curve for energy in general. Monopolies never price on the inelastic portion of a demand curve. To the point that prices are set by the government for energy companies, it is important to note that the more inelastic price is, the more companies have an incentive to lobby and change price, and our suggestion that energy should already be priced on the elastic portion of the demand curve remains intact.

U.S. food stamp chief wants California to boost use

Reuters article "U.S. food stamp chief wants California to boost use" (December 18th, 2009) falsely supposes that a welfare-based program will improve total utility. Discussing the need for California to recruit more of its eligible federal food-stamp programs, the article includes the following quote from a nutrition analyst:

'There are economic benefits for everyone, for the entire state, if we increase participation [in the federal food stamp program]'

Likely, however, the economic benefits do not outweigh the economic costs for both citizens of the state and for the state.  Notably, a federal program providing subsidized food gets its funding from all US citizens (including Californians), and so increased participation anywhere only costs most Californians.  In addition, the state can easily be made worse off.  By subsidizing people who do not work, food stamp programs magnify the benefit to California citizens of remaining unemployed.  If the labor force is very responsive to changes in wages (or changes in non-labor payment, like welfare), then it is possible that enough people will stay out of California's labor force (at least in the short-run) to depress state tax revenues, as graphically depicted below (click to enlarge).  Californians working and paying taxes have a positive externality to all other Californians, and labor is inefficiently undersupplied as it is.  Placing a negative implicit tax on not working moves Californians further from an optimal equilibrium.

Not All Drugs Are the Same After All

New York Times article "Not All Drugs Are the Same After All" (December 18th, 2009) offers no economic scrutiny to the complex issue of pharmaceuticals.

Let me start by saying I’m a fan of generic drugs. They save Americans billions of dollars each year and give us access to wonderful drugs at affordable prices. I’ve recommended generics in this column many times and use them myself when possible.

The author goes on to speak on the nature of generics and how they may be inferior to the real thing. What the article does not note is two interesting ways in which generics, chemically-equivalent entities, and brand-name drugs interact.

Monopolies are inefficient, and create deadweight loss. Society grants monopolies to pharmaceutical companies to induce them to research and create new products, which create social benefit, both when the monopoly exists and when the patent runs out; competition from generics runs profit down to zero on a drug and society alone gets the full benefit of the new drug. Traditionally, there is a tradeoff between protracting the life of a patent, which encourages research and development, and shortening the life of a patent, which increases social gain for the drugs that are created. Society balances the positive externalities of research with negative externalities of monopoly.

Therefore, as it is unclear whether or not we are at an efficient patent life of twenty years, it is further unclear whether or not generics are "saving" consumers money off drugs that never exist--harming their welfare. However, elasticity of supply increases as time lengthens--after a matter of years, possibly before the patent ends, a drug can face competition from chemically-equivalent compounds. Compounds that are similar, and free-ride off a drug's preexistent research and development, but are different enough that they do not fall under a patent.

If this is the case, then a pharmaceutical firm might see monopoly profits for a matter of years, let's say seven, at which point chemically-equivalent companies compete and drive down profits for the next thirteen, at which time profits are driven down to zero. It may be the case that shortening a patent life increases profits. Were a patent life ten years, then it is possible chemically-equivalent companies would not find their thirteen years of limited competition to be profitable enough to enter an industry, and a pharmaceutical company would gain ten years of monopoly profit, rather than seven, at which point its profits would go to zero.  This scenario is depicted graphically below (click to enlarge).

Additionally, we note that generics may not save certain Americans money. Let us say that, as the article notes, generic drugs are inferior to their brand-name counterparts. Then it may be possible competition for generics makes prices increase, rather than decrease. The reason this is possible is if there exists a heterogeneous population, for which there are inelastic demanders and elastic demanders. Before generic competition elastic demanders are setting the price of a drug, and their quantity is worth a price tradeoff for the firm. When generics are introduced, elastic demanders shift to generics, while inelastic demanders are now the marginal consumers, at which point it is profit maximizing for a pharmaceutical company to raise the price of a good. It is apropos to note that profits will unambiguously decrease for the firm, as quantity will be reduced more than price is increased (otherwise a profit-maximizing monopoly would have reduced price earlier.)  This is depicted graphically below (click to enlarge).

New York Can Do Better By Juvenile Offenders

Wall Street Journal opinion editorial "New York Can Do Better By Juvenile Offenders" (December 18th, 2009) neglects one potentially large channel through which crime rates are lowered. Specifically, it appears focused only of incapacitation, omitting deterrence.

What does $210,000 buy in New York State? These days, as two recent reports demonstrate, that's what it costs to lock up one child in a brutal juvenile justice system so dysfunctional that its reform-minded commissioner, Gladys Carrion, advises judges not to place children in her facilities.

And

We could not do worse. But 10 years of research shows that we know how to do much better—incarcerate less, and use the latest research to treat delinquents in community-based programs.

The Empire State runs one of the country's largest juvenile prison systems. At its height in 2005, it operated 31 facilities housing 2,500 children. Like many other states in the 1970s and '80s, New York responded to rising crime rates with a get-tough approach that included more punitive laws, more arrests, and more incarceration for both juveniles and adults. In an iconic moment in 1995, the state put razor wire fences around its juvenile facilities.

This approach doesn't work: Almost every boy and girl (nine out of 10 boys and four out of five girls) who leaves state custody is rearrested before the age of 28 and, even within just three years, 75% are rearrested. And the costs are jaw-dropping. This year the operating budget for the juvenile facilities will top $220 million.

It is important to note that there are two ways through which the "get-tough" approach reduces crime. The first is longer prison sentences incapacitates past offenders from committing current crimes because they are locked up for their past crime. The second is longer prison sentences deter past and prospective offenders because it is costly, insofar as it is unpleasant and undesirable, to be locked up.

In Economic Inquiry (Levitt, 1998) there is strong evidence that both deterrence and incapacitation play roles, but that deterrence plays a much larger role in preventing crimes, especially for property crimes. Additionally, in American Law and Economics Review (Katz, Levitt, Shustorovich, 2003) shows that poorer prison conditions, represented by a higher death rate among prisoners, deters crime.

The article in the Wall Street Journal completely neglects deterrence as a factor that mitigates crime rates. Even if more prison sentences and worse prison conditions increases crime rates for those who were incarcerated, which the article, without proper counterfactual, does not show, it is unclear whether this is still an effective tactic through the channel of deterrence.

Foreign interpreters hurt in battle find U.S. insurance benefits wanting

Los Angeles Times article "Foreign interpreters hurt in battle find U.S. insurance benefits wanting" (December 18th, 2009) provides an interesting observation without explanation. Specifically, Iraqi interpreters, injured in Iraq while running the same risks as American soldiers there, are not given the same benefits.

Payments intended to provide a decent standard of living in Iraq or Afghanistan leave the recipients below the poverty level in this country.

and

'When we were in Iraq, we were exactly like the soldiers,' Hadi said. 'Why are we treated differently now?'

After establishing that Iraqi interpreters are paid less, the article deepens the question. A normal, reflex response might be to say that Iraqi interpreters were paid less because they were worth less. After all, in competitive markets, people are paid at least what their second-best-offer is. The article gives evidence that interpreters were worth just as much, in terms of productivity, as U.S. soldiers on the ground.

Retired U.S. Army Col. Joel Armstrong, who served in Iraq and was a leading proponent of the 2007 troop buildup, or 'surge,' that helped reduce violence in the country, said Iraqi interpreters were crucial to the strategy's success.

'Without them, you really can't operate effectively as a force. It's just impossible,' Armstrong said.

Taking the Times at its word, the lapidary answer to Corrections is that when it comes to interpreters of Iraqi Arabic living in Iraq, the U.S. Army is all but a monopsony, a single consumer of a good for which there are many producers. In that vein, Iraqi interpreters will not be given their marginal product of labor, while U.S. soldiers, for which the U.S. Army is not the sole option, shall.

We note that even though contractors hire interpreters, we view them simply as intermediaries, and the article's concern about AIG disputing insurance payments will be reflected in higher ex ante wages rather than ex post coverage. This is true especially if private insurance can be purchased, while risk aversion makes the system less efficient.

Atop Towering Cliffs, a Lonely Campaign to Combat Japanese Suicide

New York Times article "At Japanese Cliffs, a Campaign to Combat Suicide" (December 17th, 2009) takes a moral stance for suicide prevention, where economics paints a less clear picture.

While preventing suicides is a universally difficult task, it is particularly challenging in Japan. Depression remains a taboo topic here, making it hard for those most at risk to seek the help of family and friends. Many Japanese view suicide as an issue of private choice rather than public health, and there are few efforts to highlight the problem.

There are a cornucopia of arguments for why we might want to discourage suicide. Cases in which we might are in a dynamic world with shifting preferences, and in which a private means of "tying Odysseus to the mast" is absent. Or where individuals have incomplete knowledge about the present and future. These are conditions under which potential suicides would be better off with prevention.

But suicide can represent an advantageous lower bound on utility. With that in mind, we may not want to prevent all suicides. This situation is graphically depicted below (click to enlarge).

The argument that interventions avert suicides is not one of these. Adding pressure on an individual not to commit suicide can decrease overall utility while increasing the marginal utility of staying alive. If we apply social pressure to raise the shadow cost of suicides, it is by no means clear what channel through which averting suicide works--one in which suicides are made worse off, or better off.  The situation in which we are worse off is depicted below (click to enlarge).

Starved watchdog

Houston Chronicle editorial "Starved watchdog" (December 16th, 2009) offers the unsupported asseveration that, in wake of several Houston-area industrial accidents, additional resources need to be given to the U.S. Chemical Safety and Hazard Investigation Board.

If only a few workers die in an industrial accident, we won't pry.

That seems to be the philosophy of the U.S. Chemical Safety and Hazard Investigation Board (CSB), the understaffed and underfunded independent federal agency charged with investigating plant and refinery mishaps.

Explosions at two Houston-area facilities within a single week have killed one, injured several more and alarmed thousands of residents near the Valero Energy Corp.'s Texas City oil refinery and the American Acryl facility in Seabrook.

Workers at these industrial facilities are free to move to other jobs. Houston-area industrial facilities are analogously free to put in higher and better safety regulations if the higher wage they have to pay to workers for taking the risk is greater than the cost of additional safety regulations.

But what if the additional safety regulations aren't worth the wage? Then we should see an increased number of deaths, and a higher wage. Corrections states, as a credenda, that individuals are able to decide what they prefer better than an ill-incentivized gallimaufry of their peers. Given a choice across multiple alternatives (one the market has an incentive to give if utility may be gained) a government intervention only hurts the very people they are ostensibly trying to protect.

Incidentally, this argument holds without a right-to-sue for a worker or their estate. A law allowing litigation for injuries or death ex post, rather than wages compensating the chance of injury or death ex ante only furthers the argument that government should not regulate as the Chronicle wishes.

Card Fees only Scrooge could love

San Diego Union-Tribune commentary "Card Fees only Scrooge could love" (December 17th, 2009) offers an ill-reasoned animadversion of credit card company fees.

Because the major credit card brands insist on collecting something on every transaction made on every credit and debit card, so-called “swipe fees” are hidden in the purchase price of all of a retailer’s products. In other words, everyone pays more to cover these fees every time they buy something. This is true even for low-income people who are unranked and must pay with cash. The result is a huge wealth transfer from poor to rich.

In fairness to the Union-Tribune, the economics Ph.D. consulted and cited in the article apparently did not give consideration to the idea that credit card technology could improve the total factor productivity of a firm that sells goods. If this is the case, prices could be lowered because overall efficiency has increased.

This is not an unlikely scenario. We should remember that the adoption of credit cards is optional for a retailer (though once adopted, in Correction's understanding, a merchant cannot charge different prices). If consumers prefer a shop that can offer lower prices but demand cash, then competition will run out the shops offering credit-cards. This is a conjecture robust to a heterogeneous population.