My tribute to Freakonomics

The stuff discussed in Freakonomics have raised plenty of eyebrows among economists. Some criticize the book undermines economics research by attracting too many brilliant young minds to work on less important issues. No matter what they say, it is hard not to become one of those freakonomist-wannabes after reading the book.

I was already in the Ph.D. program when I read the book. Still I like the stuff so much that I decided to have my first paper on the same line of thinking. After a year of grueling work, I am now presenting my first paper/draft as an economist: Does how much doctors are paid matter?

Rough might it be, but I can say it is very original. Alas, I have to move on to exchange rate models. After all, they are my ticket to teach in business school.

(Picture: amazon.com)

The sunk cost

I don't like the war in Iraq. A friend of mine sent me a link about how the presidential candidate Ron Paul sees about the war. I agree with his idea of not going to war unless being attacked. But no matter how wrong the U.S. got into the war in the first place, it does not justify a pullout right now.

I think most of the war critics forget what they had learned in Economics 101. Whatever happened in the past is sunk cost. It should not play any role in your plan for the future. You can whip George W. Bush anyway you want, but withdrawing troops from Iraq now is not the right decision for the U.S. It will simply tells the world that the extremists have defeated the U.S. Does anyone out there want an ending like that?

The worst school in America

David Horowitz, the author of the book "The Professors", went on to Fox News to discuss the worst school in America. Guess what? It was UC Santa Cruz!

I don't recall our school has made it to the national media in any sort. I don't watch news channels very often, but got to hear what this guy had to say. It turned out that he was bashing the liberal leaning academia in general and UC Santa Cruz happened to be his pick of the day. I don't deny the fact that our school is very liberal, or sometimes communist like, but the political propaganda Mr. Horowitz hates so much is never seen in economics classes.

Well, any publicity is good publicity. I just hope our undergrads can tell which professor is imposing his/her own view of the world and which one is helping you to become the RIGHT intellectual.

The Dutch treatment

The Wall Street Journal featured the health care reform in the Netherlands on Thursday. I always support the MSA idea better because medical service providers can compete for customers/patients while the patients bear the true medical costs. The key is in competition among hospitals and doctors. Little did I know that competition among insurers works, too. At first glance, the idea should be as good as competition among hospitals and doctors as long as the adverse selection problem is taken care of. In the Dutch system, adverse selection problem is overcome by government subsidy together with mandatory acceptance of enrollment.

But how the doctors are compensated must be carefully studied. Economists will tell you competition among suppliers will not only bring cost savings to customers but also brings about innovation in the industry. If doctors and hospitals fight for customers/patients directly, they will enjoy all the profits their innovations can bring home. With insurance companies in the middle, I don't know if doctors and hospitals will have enough incentives to innovate. Well, innovations can occur in the insurer level, too. But I don't know if that can translate into medical advances.

Speaking of doctors' compensation, I am writing a paper about that under Prof. Dobkin's supervision. I should write another post to discuss it. Stay tuned!

(Picture: wsj.com)