We are too big! part two

After our last post, which  I will retroactively dub as part one,  I came across the following book by chance:

The Size of Nations

Alberto Alesina and Enrico Spolaore

A summary:

The authors of this timely and provocative book use the tools of economic analysis to examine the formation and change of political borders. They argue that while these issues have always been at the core of historical analysis, international economists have tended to regard the size of a country as "exogenous," or no more subject to explanation than the location of a mountain range or the course of a river. Alesina and Spolaore consider a country's borders to be subject to the same analysis as any other man-made institution.

In The Size of Nations, they argue that the optimal size of a country is determined by a cost-benefit trade-off between the benefits of size and the costs of heterogeneity. In a large country, per capita costs may be low, but the heterogeneous preferences of a large population make it hard to deliver services and formulate policy. Smaller countries may find it easier to respond to citizen preferences in a democratic way.

In flipping what I was able to of the online copy, I noted the following at the end of chapter 6:

We provide a model in which the benefits of country size decrease as international economic integration increases.  Conversely, the benefits of trade openness and economic integration become larger for smaller countries.  Second, we argued that economic integration and political integration go had in hand.  As the world economy becomes more integrated, one of the benefits of larger countries (the size of markets) vanishes.  As a result the trade-off between size and heterogeneity shifts in favor of smaller and more homogeneous countries.

One could also think of the reverse source of causality: small countries have a particularly strong interest in maintaining free trade because so much of their economy depends on international markets. Indeed, we could think of two possible worlds. One world of large and relatively closed economies, and another of many more smaller and more open economies.

This explains why it was to the advantage of the United States to be big in the first place.  Those of us who were born in the United States are used to the idea of it being a good thing to be big and powerful.  But minority groups within a big powerful country may have mixed emotions about the idea that being big is in of itself an advantage.  In fact the authors note that one advantage of China (which they may be overstating) is that it is relatively homogeneous for such a large country.

In chapter 11 they note the following historical patterns:

The size of a country emerges from a trade-off between the benefits of scale and the costs of heterogeneity in the population.

·         Heterogeneity costs stem from differences in preferences over public policies. Such differences are related both to non-economic factors (cultural, religious, and linguistic) and to economic factors, such as income differences in the population; regional differences in per capita income create secessionist tendencies.

·         Benefits of scale include the provision of public goods and the size of the market.

·         The benefits of market size depend on the trade regime; small countries are viable in a free trade regime; a large size is crucial in a world of trade barriers.

·         Size matters for security reasons; in a more peaceful world one would observe an increase in the number of countries; conversely, external threats lead to the creation of larger countries and the centralization of federations.

·         Democratization should be associated with an increase in the number of countries; on the contrary, dictators try to consolidate large political jurisdictions…because they are able to extract larger rents from larger populations.

So ideally, in the global economy of today, we would want to be in a small country that is protected by a large country.  Failing that, you could be part of a confederacy (say a union of states) that banded together for the purposes of protection.

But you would not want to be in an oversized bureaucratic state, which has few trade advantages in the open economy of today's world, and whose shear size creates bureaucratic costs, and creates conflicts in desires/aspirations between its component populations.

Nothing to worry about...radiation leaking

A local news channel discusses the situation at Fort Calhoun and its (almost) underwater nuclear power plant (hat tip: For What We Are).  CBS also had a recent report.

The story throughout has people saying that they are confident it is safe, etc. etc.  But is more honest than most in that it does in a very interspersed way mention a lot of negative news.

• the surrounding 10 mile area has been evacuated
• there is leakage at the plant

Fort Calhoun Nuclear Power Plant

Fort Calhoun Nuclear Power Plant birds-eye view.

Coming book reviews

I am planning a series of book reviews.

I am not entirely clear in my own mind how far I should take this.  I like doing the book reviews, but unless it is by a mainstream author - getting the odd random Google hits - they don’t generate much interest.  My thinking is that maybe if I lump them in a sequence they will be of a little more interest: one big block of reviews.

After all, other than the occasional underwater nuclear plant, and European riot, there is not too much going on.

So far I have:

·         The Profession: A thriller

·         Post-Apocalypse Dead letter Office.

·         Emergency: This book will save your life

·         Burning Hills

·         No Blade of Grass

·         Last Light

And could do (because I have read them somewhat recently)

·         This World We Live In

·         The Dead and Gone

·         Life as We Knew It

·         Things We didn’t See Coming

·         Three Monks East

·         The Far North

·         Super Sad Love Story: A Novel

·         The World Ends in Hickory Hollow

·         The Road

·         Long Voyage Back

·         World Made By Hand

·         The Road

·         Random Acts of Senseless Violence

·         Summer of the Apocalypse

And could do repeat, or re-do ones that I have already done in the past.   Not sure where I will go with it.  If anyone has any thoughts let me know.

Pharmageddon

Since we have a fair amount of discussion on the questionable value of prescription drugs in the area of psychiatric drugs, we should in fairness to the industry highlight an area where there drugs work very well- very well indeed:

…Pain killers.

Pharmageddon: how America got hooked on killer prescription drugs

Ed Pilkington in Palm Beach, The Guardian (U.K.), 9 June 2011, hat tip NC.

The Kentucky number plate on Chad's pick-up truck, parked round the back of a doctor's clinic in Palm Beach, Florida, reveals that he has just driven a thousand miles, 16 hours overnight, to be here – and he's not come for the surfing.

 

"It's my back," he says, rubbing his lower vertebrae. "I'm a builder. I fell off the roof and hurt my back."

That's odd, as we have just watched him run out of the clinic and over to his truck without so much as a limp. He's clutching a prescription for 180 30mg doses of the painkiller oxycodone.

Chad is one of thousands of "pillbillies" who descend on Florida every year from across the south and east coasts of America. Some come in trucks bearing telltale number plates from Kentucky, Georgia, Tennessee, even far-away Ohio. Others come by the busload on the apocryphally named Oxycodone Express.

It's a lucrative trade. Chad tells us he has just paid $275 (£168) to the doctor inside the clinic, or pill mill, as it is pejoratively called. The doctor, who can see up to 100 people in a sitting, can make more than $25,000 in a day, cash in hand.

For Chad the profits are handsome too. He will spend $720 at a pharmacy on his 180 pills, giving him a total outlay of about $1,000. Back in Kentucky he can sell each pill for $30, giving them a street value of $5,400 and Chad a clear profit of more than $4,000. If he goes to 10 pill mills in Palm Beach on this one trip he could multiply that windfall tenfold. But then there's the other cost of the oxycodone trade, a cost that is less often talked about, certainly not by Chad or his accommodating doctor.

As noted by a more thorough, but less flamboyant NPR story, Florida doctors prescribe more than 10 times the number of  oxycodone pills than every other state in the country combined – yes, combined.  Florida does not has not had a functioning drug data base, to see who is prescribing what (Source: Greg Allen, The ‘Oxy Express:  Florida’s Drug Abuse Epidemic, NPR).

Which comes to why we need a data base.

Now you could argue on Libertarian grounds that we do not need a data base, let adults make adult-decisions about their own life and pay the consequences accordingly.  However, I think it is fair to say that the Libertarians, right or wrong on principals,  are not going to convince too many people.  Most people are aware of the problems that drug abuse brings not only to the individuals, but to the whole family and community.  They are also aware that the problem goes beyond adults.

Which brings us back to the original question.  Why do we need the data base.  Why must we have these infringements on our liberty.  Why are these types of measures necessary now, but was not (arguably anyway) necessary earlier in our history.

It is because we have to many people, and we are too mobile to keep individuals accountable for their actions.  If you have a psycho-killer for every million people, than there would have been 4 of them at the birth of our country, and people would have noticed the bodies piling up pretty quickly.  Today we would have 309, and it takes us years to figure out who some of them are.

In 1790 our census head count was 3,929,214.  Our 2010 census count was 308,745,538.   That is 78 times the first census.  The growth from the 2000 census alone (a little over 27 million) was almost 7 times the 1790 number.  O.k. you say that is not fair, we are a much physically larger country today than in 1790.  Fair enough, Hawaii  and Alaska both became states in 1959.  The 1960 census was 179,323,175 population.  So we are getting close to twice the size from where we were, at about the time the typical reader of this blog was born.

The U.S. has an actually neutral to declining population without immigration.  That in of itself of course is another argument.  But we need the younger people to continue the growth that our economy needs, and in particular the bulge that is our baby boom.  China has a population bulge similar to our own.

So as we grow, we lose our liberties, and our room to maneuver.  But we need the growth to keep our economy growing.  As we noted before, there is a point at which even positive growth actually collapses an economy.

So we are in a bit of a bind.

But when you hear about the next instance where we lose more of our freedom, the chances are good it is because of marginal behavior that is no longer marginal because of the size of our population.

Fracking Fraud

Fracking is supposed to be a new great source of natural gas wealth, but the oil may not be as easy to reach as proponents have said.  The New York Times, through open record requests,  has looked at the e-mail of industry insiders that have raised question and concerns about the process.  The piece goes so far as to say that their concerns mirror those of insiders before the financial bubble burst.

Insiders Sound an Alarm Amid a Natural Gas Rush

Ian Urbina, New York Times, 26 June 2011 via the (Pittsburgh) Post-Gazzette

"Money is pouring in" from investors even though shale gas is "inherently unprofitable," an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. "Reminds you of dot-coms."

"The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work," an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.

"Our engineers here project these wells out to 20-30 years of production and in my mind that has yet to be proven as viable," wrote a geologist at Chesapeake in a March 17 e-mail to a federal energy analyst. "In fact I'm quite skeptical of it myself when you see the % decline in the first year of production."

"In these shale gas plays no well is really economic right now," the geologist said in a previous e-mail to the same official on March 16. "They are all losing a little money or only making a little bit of money."

A former Enron executive wrote in 2009 while working at an energy company: "I wonder when they will start telling people these wells are just not what they thought they were going to be?" He added that the behavior of shale gas companies reminded him of what he saw when he worked at Enron.

Note that there are so many damming quotes, I am having to heavily cherry pick

The story notes that based on the site with longest production history, The Barnett Shale, many wells will not be financially viable within ten to fifteen years. When they looked at seven year data ending in 2009 on more than 9,000 wells, less than 10% had recouped their costs by their seven year mark. 

The data show that while there are some very active wells, they are often surrounded by vast zones of less-productive wells that in some cases cost more to drill and operate than the gas they produce is worth. Also, the amount of gas produced by many of the successful wells is falling much faster than initially predicted by energy companies, making it more difficult for them to turn a profit over the long run.

But the industry is outwardly still bullish on its prospects, and the hope for a cheap source of fuel for decades to come has pushed both the Federal and State Governments to plan subsidies for the industry.  The industry is hitting back with a claim of new gas wealth, because....they get better at it as they get more practise.  Talking about news that should already be baked into the cake!  In any case, if you read closely the story appears to be talking about only two wells with better than intended results; maybe it is more but that is not what a careful reading actually says; the two wells can each supply all of 1000 households a year.  Take what you can get, but 2,000 households barely handles the smallest of bedroom communities to Raleigh, or Durham around here.

Bliss Thermo Galvanic Treatment cures your ills

I have a book on my shelf:  Edward Stratemeyer’s Bound to be an Electrician, or, Franklin Bell's Success written in 1897.  It is a Horatio Alger adventure: the young lad meets Thomas Alva Edison, and rescues  young lady from being run over by trains, and other such types of adventures.

At one point his kindly boss asks him to go on a mission to find out who is stealing his patent for a wonderful new medical device.

I am the owner of a medical battery, known as the Bliss Thermo-Galvanic, of which I purchased the rights some five years ago… The battery is now manufactured by the H.Y. Smith Co. of Chicago, under royalty.  When old Smith himself was alive, the royalty was promptly paid, but since he died, and his sons took hold of the business, matters have taken a different course. I have it straight that they put out more batteries, yet my income from the royalty is smaller.”

You mean to say that they are cheating you out of part of the royalty?” questioned Franklin with deep interest.

So off Franklin goes on another adventure to bring the chicanery of these crooks to light.  But you notice that there is no hint that there is any problem with the device itself.

Electricity in the 1870s was pretty hot stuff and had all sorts of stimulating properties.  One of uses it was put to was the curing of various mental ailments.  In this case you would take a battery and run a low level current through them.  It likely made them tingle a bit with much in the way of pain.  To the extent it “cured” people, it did so because they thought they were supposed to be cured.  I suspect it worked no worse than the much more painful electro-shock treatments controversially still practiced today.

The treatment of mental ailments has always had elements of quackery to be found within its practices.  If it is not demons possessing us, it is some sort of ethereal imbalances.

Not very long ago, we used to try and talk people through their difficulties.  But with the introduction of Prosac in 1987, that changed.  Said to correct chemical imbalances of seroton in the brain it became a wonder drug.  Soon a host of other medications were brought out to treat other newly found imbalances.  The number of people treated for depression tripled in ten years, and 10% of our population over the age of six now take antidepressants.

But how strong is the evidence that these drugs work?  And if they work so well, why are we treating more people as time goes on and not less?

At the New York Review of books Marcia Angell review three books that investigate the modern practice of the mental health psychiatric industry: Irving Kirsch’s The Emperor’s New Drugs: Exploding the Antidepressant Myth, Robert Whitaker’s Anatomy of an Epidemic: Magic Bullets, Psychiatric Drugs, and the Astonishing Rise of Mental Illness in America, andDaniel Carla’s Unhinged: The Trouble With Psychiatry—A Doctor’s Revelations About a Profession in Crisis.  As Ms. Angell notes, the authors are not impressed with the results:

The Epidemic of Mental Illness: Why?

Marcia Angell, New York Review of Books, June 23, 2011, Hat tip:  MR.

It seems that Americans are in the midst of a raging epidemic of mental illness, at least as judged by the increase in the numbers treated for it. The tally of those who are so disabled by mental disorders that they qualify for Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) increased nearly two and a half times between 1987 and 2007—from one in 184 Americans to one in seventy-six. For children, the rise is even more startling—a thirty-five-fold increase in the same two decades. Mental illness is now the leading cause of disability in children, well ahead of physical disabilities like cerebral palsy or Down syndrome, for which the federal programs were created.

A large survey of randomly selected adults, sponsored by the National Institute of Mental Health (NIMH) and conducted between 2001 and 2003, found that an astonishing 46 percent met criteria established by the American Psychiatric Association (APA) for having had at least one mental illness within four broad categories at some time in their lives… Most met criteria for more than one diagnosis. Of a subgroup affected within the previous year, a third were under treatment—up from a fifth in a similar survey ten years earlier…

The authors emphasize different aspects of the epidemic of mental illness. Kirsch is concerned with whether antidepressants work. Whitaker, who has written an angrier book, takes on the entire spectrum of mental illness and asks whether psychoactive drugs create worse problems than they solve. Carlat, who writes more in sorrow than in anger, looks mainly at how his profession has allied itself with, and is manipulated by, the pharmaceutical industry. But despite their differences, all three are in remarkable agreement on some important matters, and they have documented their views well.

First, they agree on the disturbing extent to which the companies that sell psychoactive drugs—through various forms of marketing, both legal and illegal, and what many people would describe as bribery—have come to determine what constitutes a mental illness and how the disorders should be diagnosed and treated.

Second, none of the three authors subscribes to the popular theory that mental illness is caused by a chemical imbalance in the brain.

And at this point, she is only just getting started.

We have had posts about medical and research quackery in the past.  Psychiatric disability is also one of the growing causes of disability within or increasingly unaffordable disability system.  We are spending a ton of money on unhappy people.

I won’t argue against the idea that we are crazy.  My only question is “Crazy in what way?”

Nuclear soup at the center

Fort Calhoun, Nebraska

(Hat tip Zerohedge)

Supposedly the structure can handle water levels up to 1014 feet.

If I understand this the water level is at 1,016.3.  Although the nuclear reactor folks are saying that water is supposed to get to 1008 feet.

The NOAA forecast is for waters to reach 1016.  Uh Oh!

The weather forecast calls for rain tonight, tomorrow, 20 % Wednesday.  And then you’re too far out to be doing anything other than guessing.

It is located about 200 miles from Lebanon, KS which by some determinations is the geographic center of the lower 48 U. S.

Disasters happen.  What I find interesting is that the denial mode that is always portrayed in your apocalypse-in-progress tales seems to be out in full force.

James Altucher’s four types of people.

James Altucher (hat tip The Browser) is trying to give very cute, but Asperger’s Syndrome afflicted Penelope Trunk advice on how to read and deal with people.  People with Asperger’s Syndrome have a very difficult time reading social cues and responding appropriately to people.  People who worry about where the world is going often trend toward this type of behavior.  Many of them probably fit in category 4 below, but I suspect a lot of them also fit in a self-inflicted version of category 2 that truncates their view of the world sufficiently to wear the wind up in 4.  But 4 is 4: regardless of how you get there.

The very short version of his list of types of people and how to react to them:

·         Category 1  :  Happy People

Response:  Be happy for them: do not be resentful.

·         Category 2:  People in Pain

Response:  Try and comfort them:  but set limits so set some limits as they can be a disguised 4.

·         Category 3:  Good People: Not happy but helpful.

Response:  Do not suspect their motivations  Be grateful that there are

these people.

·         Category 4:  The Crappy People:  LOL.   And here I will use a quote:

People who do you harm, no matter what you do, for no reason at all.  They never will get it. They will say and do things to you and they will never ever understand how evil they are.

And you will hate them.

 

Response: Crappy people are a huge waste of time, he notes that the best response is to completely ignore them and try not to even think of them. Do not give them advice: they will never use it and it will only entangle you further in their affairs.

Obviously there are a lot of ways you could slice-and-dice people. As a knowledge-content (versus experiential, opinion, etc.) hopefully my online persona would be that of a know-it-all number 3. Presumably, I would be better at the know-it-all part of it if I didn’t write so many contradictory posts.

Granted he is trying to make this a simple quick test for someone with real challenges, but I think there are two primary categories of crappy people. The aggressive crappy people, and the insular crappy people. I know a lot of insular crappy people: sometimes I am one myself. They are not particularly helpful, but if you don’t ask anything of them, they will not mess with you either. They are an energy drain when you are forced to deal with, but will not generally cause you too much stress. The aggressive types are the ones who cause an enormous amount of suffering and pain; far beyond their numbers. People write books about it.

More jobs taking foreign vacations

and not coming back home.

I took this quote from Economist's View (ht NC), in part, because while I was away, the delivery of my Wall Street Journal seems to have been interrupted.  I am guessing that it is at least in part due to the tornadoes, so I will not make a fuss.  Of course it is also possible I may not have noticed it without their help.

Big U.S. Firms Shift Hiring Abroad, by David Wessel, Commentary, WSJ

U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization's effect on the U.S. economy.

The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That's a big switch from the 1990s, when they added jobs everywhere... [graph]

The data ... underscore the vulnerability of the U.S. economy, particularly at a time when unemployment is high and wages aren't rising. Jobs at multinationals tend to pay above-average wages and, for decades, sustained the American middle class. ...

While small, young companies are vital to U.S. economic growth, big multinationals remain a major force. A report by McKinsey Global Institute ... estimates that multinationals account for 23% of the nation's private-sector output and 48% of its exports of goods.

These companies are more exposed to global competition than many smaller ones, but also more capable of taking advantage of globalization by shifting production, and thus can be a harbinger of things to come. ...

And there is more:

Michael Spence (a Nobel Laureate) and Sandile Hlatshwayo have a paper out that focuses on current employment trends.

It is discussed in a Washington Post Column here:  Key to job growth, equality is boosting tradable sector of economy, Steven Pearlstein, The Washington Post, March 12, 2011. Reuters also had an article on it: Capitalism is failing the middle Class, Chrystia Freeland, Reuters, April 15, 2011.

And found here and through that site as a pdf here: link.

There study runs from 1990 to 2008, so it is about immediate trends, not really long term trends.

They found that job growth came in the non-tradable areas of the economy:  government, and health care.  And that jobs declined across a very broad range of areas within the tradable areas, particularly manufacturing.

Although employment declined, there was a slight edge in production growth (output) in the tradable sectors.

What this means is that one area had a lot of new jobs but little productivity, while another area lost jobs but added a lot of productivity.

From the report:

The trends in value added per employee are consistent with the adverse movements in the distribution of U.S. income over the past twenty years, particularly the subdued income growth in the middle of the income range. The tradable side of the economy is shifting up the value-added chain with lower and middle components of these chains moving abroad, especially to the rapidly growing emerging markets. The latter themselves are moving rapidly up the value-added chains, and higherpaying jobs may therefore leave the United States, following the migration pattern of lower-paying ones.

As the Washington Post column concluded:

Companies in the tradable sector, under the pressure of global competition, are busily outsourcing low- and mid-skilled work to other countries to become more competitive and more productive. The higher-skilled Americans who remain in those firms share in the benefits of that shift through wages and salaries that started higher and have been growing faster.

In the untradable sector, the story is one of rapidly rising employment but not so rapid a rise in output, which has translated into stagnant wages and benefits, both because of the slower growth in productivity and the increased competition in the labor market from all those workers laid off by the tradable sector. Moreover, now that the credit bubble has burst and households and government have had to cut back on their debt-financed consumption, much of the job creation that has gone on in the non-tradable sector is unlikely

As Chrystia Freeland of Reuters put it:

Taken together, here’s the big story…: Globalization and the technology revolution are increasing productivity and prosperity. But those rewards are unevenly shared – they are going to the people at the top in the United States, and enriching emerging economies over all. But the American middle class is losing out.

To Americans in the middle, it may seem surprising that it takes a Nobel laureate and sheaves of economic data to reach this unremarkable conclusion. But the analysis and its impeccable provenance matter, because this basic truth about how the world economy is working today is being ignored by most of the politicians in the United States and denied by many of its leading business people.

Chrystia Freeland

World Oil Reserves Tapped

The first time they dipped into the reserves was for the first Gulf War, the second was for Huricane Katrina, the third was.....to get reelected.  Note that one of the positives that is mentioned is that lower prices will put pressure on Iran.

But Saudi Arabia is the deadly enemy of Iran, and they said that they were going to make up the difference (Reuters) in lost oil from Libya to stabalize prices.  Obviously, the bottomless well has found its bottom, or at least has found that the spigot at the top is of limited size.

Front page top story of Wall Street Journal hard copy today:

World Oil Reserves Tapped

U.S., 27 countries intervene and Release 60 Million Barrels to Drive Down Prices

Keith Johnson and Guy Chazan, Wall Street Journal, 24 June 2011.

The U.S. and 27 other countries agreed Thursday to release 60 million barrels of oil from strategic reserves, temporarily driving down oil prices to a four-month low in a controversial effort to prop up the world's fragile economy.

The White House said the decision to tap oil reserves—only the third time strategic crude stocks have been tapped in a coordinated global effort—is meant to help replace some of the 140 million barrels of oil production lost as a result of the three-month conflict in Libya, and to boost supplies during the peak summer driving season.

The intervention drew criticism from the oil industry, business groups and Republicans in Congress, who accused President Barack Obama of making a political choice to raid emergency oil supplies instead of embracing their proposals to spur increased domestic oil production.

A quick look at the chart shows that the reality is that it will be the United States that does most of the releasing.  Japan million barrels in reserve, and Germany has 108.  Both were countries we (thankfully) squeezed to death through oil shortages in World War 2, so they are a little less likely to be using reserves for what is not an immediate danger.

Of course if Saudi Arabia went offline, as we were discussing in our last piece, we might want that oil back.  But in fairness, if Saudi Arabia goes offline, you are probably looking at rationing –or $20/gallon at the pump- in any case.

Link (hat tip to Zerohedge)