September 30, 2006
Response on Malaria and DDT-BECKER
Thanks for some informative comments. Clearly, I should have said the WHO rather than the WTO. I apologize for this carelessness that is especially disturbing to me since I often write about the WTO.
I also regret that I probably exaggerated how many lives could have been saved over the years by extensive use of DDT spraying in houses. However, I am not guilty of saying that DDT spraying alone would do the job, for I did say that mosquito nets and drugs are also useful. A combination is the best approach, but these other methods are just not a good enough substitute for DDT spraying. So I do stand behind a claim that opposition to DDT spraying by many organizations caused a very large number of needless deaths from malaria.
Does the recent WHO statements supporting the use of DDT in homes reflect a change in attitudes toward DDT home use by this organization? One strong critic of my discussion points out several errors in what I said, and I am indebted to him for these corrections. However, he is inconsistent on this issue of whether the WHO has "changed" its position. On the one hand, he says that "The WHO…has always supported its use" (that is, DDT spraying), but then quotes with approval a statement by another critic of DDT spraying that "The World Health Organization's new (!) stance on DDT" (my parenthesis). "New" or not new, that is the question? I was wrong to say that the WHO had banned the use of DDT in homes until recently. However, it is accurate to say I believe that the WHO had not strongly endorsed its use until a few weeks ago, and that many donor agencies were for this reason reluctant to finance purchases of DDT for household spraying.
One commenter challenged me (and his challenge was very well answered by another commenter) as to whether DDT house spraying does pass a relevant benefit-cost criterion. Accepting his assumptions, DDT spraying would cost $12 per year per person. That amount seems to be a highly worthwhile expenditure if we relate it to estimates of the value of saving the lives of young persons even in very poor countries. Of course, a full analysis would require knowing the money value placed on their utility by people in poor countries (my paper with Rodrigo Soares and Tomas Philipson in the March 2005 issue of the American Economic Review on declines in mortality in poor countries tries to measure utility value of improved life expectancy, not improvements in GDP alone), the probabilities that such spraying would save lives or significantly improve the quality of lives, the productivity of alternative uses of these funds, such as to find an effective vaccine, and so forth. I, have not, nor has any one else to my knowledge, made these calculations, but if spraying only costs $12 per year, and it is effective in significantly cutting deaths from malaria (some commenters dispute that), to me that seems like a great use of private or public funds.
Posted by Gary Becker at 7:55 PM | Comments (5) | TrackBack
September 25, 2006
Correction--Posner
Unforgivably, I referred to DDT as a "herbicide." It is, of course, a pesticide. A herbicide is used to destroy weeds and other plants.
Posted by Richard Posner at 10:00 PM | Comments (8) | TrackBack
September 24, 2006
DDT and Deaths From Malaria –BECKER
The world health community justifiably pays enormous attention to the number of deaths from Aids, which amounts to about 3 million persons a year worldwide. Malaria receives far less attention, even though it too is very deadly, causing about 11/2 million deaths per year. The world Trade Organization (WTO) declared in 1998 a "war on malaria" that aimed to cut malaria deaths in half by 2010. Instead, deaths from malaria have been increasing, not falling. The reason for the failure of this malaria war is mainly that in the name of environmentalism, the WTO and other international organizations rejected the use of an effective technique, namely spraying DDT on the walls of homes in malaria-infected areas.
What is especially disheartening about the huge number of deaths from malaria, and a fact that sharply distinguishes malaria from Aids, is that malaria deaths could be greatly reduced in a cheap way without requiring any fundamental changes in behavior, A small amount of DDT sprayed on the walls of homes in vulnerable malaria regions is highly effective in deterring malaria-bearing mosquitoes from entering these homes. Finally recognizing this, a couple of weeks ago the WTO relaxed its support of the ban on DDT, and instead supported spraying of DDT on house walls in malaria-ridden areas. This decision is likely to influence the position on DDT spraying of the World Bank, UDAID, and other relevant organizations. Some African countries, like Zambia and South Africa, which are not dependent on international support for their efforts at fighting disease, had already started to use DDT as a fundamental malaria-fighting weapon prior to the new WTO guidelines. South Africa decided to use DDT in the face of EU opposition after suffering a deadly malaria outbreak. DDT apparently helped that country greatly reduce its incidence of malaria.
DDT was developed as the first modern insecticide during World War II, and was remarkably successful in reducing deaths from malaria, typhus, and other insect-borne human diseases. DDT was extensively used worldwide in the subsequent two decades with continued success as protection against these diseases, and was employed even more extensively to rid cotton and other crops of destructive insects. In 1959, the United States alone used 80 million pounds of DDT, with the overwhelming share being devoted to spraying crops. This widespread spraying of crops with DDT generated strong opposition to its use because of evidence that DDT was destroying some wildlife.
This opposition was sparked by Rachel Carson’s 1962 best selling book Silent Spring, which alleged that DDT caused cancer and harmed bird reproduction. Harm to birds and other species is pretty well documented, but after over 50 years of trying, no real evidence has been found linking DDT to cancer or other serious human diseases. In any case, by the end of 1972, DDT's use in the United States was effectively banned. That ban soon became common in all rich countries, and in most poor countries too, as they responded to pressure from international organizations and Western governments.
One unintended consequence of the DDT ban was a devastating comeback by malaria and some other diseases after they had been in retreat. Other pesticides that replaced DDT have been much less effective at reducing malaria and other diseases transmitted by insects. The USAID has been a strong advocate of mosquito bed nets as an alternative to DDT. Mosquitoes operate mainly from dusk until dawn, so netting over beds can be effective if used persistently and correctly. Unfortunately, in many African countries bed nets are not readily available, and they are often not used to protect children since poor families may only have one or two nets. Moreover, families frequently do not bother to use these nets during some of the hours when mosquitoes are still active. So while bed nets could be a useful part of an overall strategy against malaria, they are not a good substitute for DDT.
Drugs that had been effective for a while in curing malaria or preventing its occurrence have become obsolete over time as the pathogens they target mutate into resistant strains. This means that drugs used to fight malaria need to be continually updated, but unfortunately international organizations are notoriously slow at responding with newer more effective drugs.
I am an "environmentalist", but I do not believe that all reasonable cost-benefit analysis should be suspended when discussing environmental issues. The ban on using DDT in houses to fight malaria is an example of environmentalism that lost all sense of proportion. As has happened with nuclear power and in other environmental situations, exaggerated claims about negative environmental effects of DDT on humans were publicized, and these claims were further exaggerated after being picked up by the media and politicians. As a result of the hysteria against the use of DDT for any purpose, millions of lives were lost unnecessarily during the past several decades to malaria and some other insect-borne diseases. These deaths occurred only, I repeat only, because of international pressure on African and other poor countries not to use DDT and certain other pesticides in fighting malaria and other diseases caused by insect bites. The fact is that the quantities of DDT needed to be quite effective against malaria in tropical and other countries, where it is often at epidemic levels, is a tiny fraction of the amounts that had been used to rid crops of pesticides.
Opponents of DDT use in disease control should wake up and realize that there has been a health "crisis" for decades, a crisis that could have been controlled if more common sense had guided international policy. The WTO's reversal of its position to allow small amounts of DDT to be used on the walls of houses to prevent mosquitoes from entering them is a belated but welcome recognition of this continuing health crisis.
Posted by Gary Becker at 3:47 PM | Comments (15) | TrackBack
DDT, Malaria, and the Environment--Posner's Comment
I am a strong environmentalist, and support the ban on using DDT as a herbicide. Although Rachel Carson's belief that DDT causes cancer has not been substantiated, there seems little doubt that its widespread use as a herbicide, if continued, would have caused a significant reduction in biodiversity because of its lethal effect on many fish and bird species. In my book Catastrophe: Risk and Response 63 (2004), I quote a responsible estimate that the combined effect of human population growth (and resulting contraction in animal habitats), herbicide use, global warming, and other factors is causing 10,000 species to become extinct every year. Of course, there have always been extinctions--without which there would be no room for new species to evolve--but the fossil record suggests that the background (i.e., pre-human) average annual number of extinctions is only one. Even the fierce environmental skeptic Bjørn Lomborg estimates that the current annual extinction rate is 1500 times the background rate. And these figures greatly understate the loss of genetic diversity, because much genetic diversity is intraspecies (e.g., birds of the same species but a different color; or imagine if there were only one breed each of dogs and cats). That diversity has been plummeting as well, in part because of selective breeding, which reduces the number of strains of each crop to the best, the others being abandoned.
The decline in genetic diversity--to which spraying crops with DDT would be contributing significantly if it were permitted--is alarming even from a purely selfish anthropocentric perspective because such diversity, like other forms of diversification, performs an important insurance function. This is most obvious when one considers plant diversity; if there were only one strain of wheat, predator evolution would concentrate on it and once the strain was eliminated a significant part of the human food supply would be destroyed. But with animals too, the elimination of a species (or even a breed) can have a ramifying effect throughout the food chain, as when the exctinct species was the major food source of another species, which in turn was a major food source of still another species, and so on.
All this said, the quantities of DDT used in spraying indoor houses in Subsaharan Africa (where 90 percent of malaria deaths occur) are so minute that the environmental effects are inconsequential. The Stockholm Convention on Persistent Organic Pollutants (2001) bans DDT but with an exception for its use against malaria, and the puzzle is why the exception is so rarely invoked, South Africa being a notable exception. An even greater puzzle is why the Bill and Melinda Gates Foundation, which is the world's largest foundation and has made the eradication of malaria a priority, is spending hundreds of millions of dollars searching for a vaccine against malaria but nothing (as far as I know) to encourage indoor spraying with DDT. Of course, spraying can't eradicate malaria, because it just kills malaria-bearing mosquitoes that happen to get inside a house, but it appears to be extremely effective in minimizing malaria infection, as well as being cheap. So it is difficult to understand why the Gates Foundation doesn't divert some of its resources to promoting and if necessary financing the spraying, pending the discovery of a vaccine. As we know in the case of AIDS, the search for a vaccine against a particular disease can be protracted.
Not that eliminating childhood deaths from malaria (I have seen an estimate that 80 percent of malaria deaths are of children) would be a completely unalloyed boon for Africa, which suffers from overpopulation. But on balance the case for eradicating malaria in Africa, as for eradicating AIDS (an even bigger killer) in Africa, is compelling. Malaria is a chronic, debilitating disease afflicting many more people than die of it, and the consequence is a significant reduction in economic productivity.
Considering how much cheaper and easier it would be to (largely) eliminate malaria than to eliminate AIDS (which would require behavioral changes to which there is strong cultural resistance in Africa), the failure of the African countries, the World Health Organization, the World Bank, and private foundations and other nongovernmental organizations to eliminate most malaria by means of indoor spraying with DDT is a remarkable political failure.
Posted by Richard Posner at 3:29 PM | Comments (25) | TrackBack
Identity Theft--Posner's Reply to Comments
Two of the comments make the excellent point that much, maybe most, identity theft consists in a friend or relative stealing personal identifying information and that such "retail" theft should not be punished nearly as heavily as the kind of professional identity theft that my post focused on. The way to deal with this problem, however, as in the case of most crimes that embrace acts of widely varying gravity, is to set a broad statutory sentencing range--say from fine and probation at the bottom to 25 years in prison at the top--and within the range to promulgate sentencing guidelines based on the magnitude of the particular defendant's conduct and other relevant factors, such as his criminal history.
A recurrent issue in criminal law enforcement is how much responsibility for crime prevention to place on potential victims. In principle, it is always cheaper to deter crime by threat of punishment than to require victims to incur expenses to protect themselves from crime, because maintaining the credibility of the threat is likely to be much cheaper than victim self-protection because the latter requires every potential victim to incur costs to avoid being a victim. (It's the difference between penning danagerous animals in zoos and leaving it to every homeowner to fence out dangerous animals.)
But this is in general rather than in every case. The more costly it is for the state to apprehend and prosecute and punish criminals, the more likely it is for victim self-protection (or some combination of public enforcement and victim self-protection) to be optimal. In this vein, some comments express concern that banks and other vendors are not doing enough to prevent identity theft of their customers because they hope to shift the loss to the customers. I doubt that this is a serious problem, but if it is it may argue for requiring protective measures by the banks and vendors.
One comment puzzles over the fact that bank robbery should be a sucker's crime--that is, that though the expected gain is slight relative to expected punishment costs, the crime is still common. It is a puzzle. But my impression is that bank robberies nowadays are committed mainly by stupid or mentally unstable people, who are tempted by what seems the simplicity of giving a bank teller a threatening note. When as perhaps in that instance deterrence fails, the alternative is incapacitation--long sentences to prevent the bank robber from repeating his crime if it is thought unlikely that he will be deterred by the threat of a longer prison sentence the next time (recidivists get longer sentences, having shown by their first crime that they are less deterrable than the average person).
I greatly enjoyed the comment that pointed out that the first and most consequential identity theft was that of the serpent in the Garden of Eden, by Satan. This is not in Genesis, where Satan is not mentioned, but in later versions of the Fall of Man, notably Milton's Paradise Lost, where Satan takes over the serpent while the latter is sleeping, and convinces Eve that she should eat the forbidden fruit because he, the serpent, did and it did him no harm--indeed, it enabled him to learn to talk!
Posted by Richard Posner at 2:20 PM | Comments (5) | TrackBack
September 17, 2006
Deterring Identity Theft--Posner
"Identity theft" (or identity fraud) refers to fraud effectuated by stealing personal identifying data, such as a credit card number or a social security number, often by means of computer hacking or by emails in which the sender impersonates an individual, firm, or agency that has a legitimate need for the identifying data. Identity theft has become extremely common and is estimated to be defrauding Americans of a total of more than $50 billion a year. This is an understatement of the social costs of identity theft because victims often must spend hundreds of hours restoring their credit. Maximum punishments are severe, but the garden-variety identity theft is not heavily punished relative to potential gains. For example, an identity thief who steals $1 million and has no previous criminal record is (if prosecuted for violating federal fraud law) likely to receive a prison sentence of less than five years, except that as a result of the recently enacted Identity Theft Penalty Enhancement Act another two years will be tacked on.
The economic theory of punishment teaches that, at least as a first approximation, the expected cost of the fine or other punishment for crime should just exceed the expected gain to the criminal from committing the crime, in order to make it worthless to him. If we are not completely confident about what the gain from the crime is likely to be (or if we think some crimes, like breaking into an unoccupied vacation house in a snowstorm, should not be deterred, we may want to base the sentence on the victim's loss instead of the perpetrator's gain. In the usual case of identity theft, the loss to the victim will exceed the gain to the thief, because the time costs to the victim are not recouped in any form by the thief. Oddly to a noneconomist, those costs, together with the costs of efforts by potential victims of identity theft to avoid becoming actual victims and the costs incurred by the identity thieves themselves to accomplish their thefts, are the real social costs of identity theft. The mere transfer of wealth from victim to thief does not reduce the social product, but merely rearranges it.
The word "expected" which I used in the preceding paragraph is intended to distinguish between a certain value and a probabilistic one. The expected value of a 100 percent probability of incurring a cost of $100 is $100, but so is the expected value of a 1 percent probability of incurring a cost of $10,000 ($100 = .01 X $10,000). If the probability of apprehending and punishing an identity thief is very low, the punishment will have to be jacked up very high in order to deter. Suppose an identity thief who sends out 100,000 "phishing" emails (impersonating persons or firms who would have a legitimate need for access to the recipient's personal identifying information) anticipates a $10,000 profit. If the probability that he will be caught and punished for his fraud is 1 percent, then a fine slightly in excess of $1 million would be necessary to deter him. Probably he could not pay such a fine, and so a prison sentence would have to be substituted, designed to impose the equivalent disutility on him.
My guess is that very few identity thiefs are caught, and also that many of them make a lot more than $10,000 per fraud, given such techniques as phishing that enable a fraudulent solicitation to be disseminated essentially without cost to an immense number of potential victims; if even a minute percentage of the recipients are hooked, the identity thief can make a killing. If this analysis is correct, the optimal punishment for identity theft is extremely heavy; it might well be life in prison.
Any proposal for punishment that strict would encounter a variety of objections--all superficial. The first is that punishment should be proportional to the gravity of the crime, in the sense of the cost that the crime imposes on the victim. By this criterion, bank robbery is a more serious crime than identity theft (and in fact is punished much more severely) because it frightens and sometimes endangers the bank's employees (only sometimes, because most bank robberies nowadays are "robbery by note"--the robber gives the teller a note saying that he is armed, but he isn't). But bank robbery is actually a sucker's crime; almost all bank robbers are caught because of a combination of surveillance cameras and the money packs that tellers are instructed to give robbers, which explode after a few minutes, covering the robber with indelible ink. Moreover, it is only because crimes that create a risk of physical injury are treated as categorically more serious than white-collar crimes that bank robbery is deemed a more serious offense than identity theft. Probably identity theft is a greater social problem (the average bank robbe's take per robbery is only $7,000), and, even if it is not, almost certainly it should be punished more severely because the probability of apprehension and punishment is much lower than in the case of bank robbery.
Nor would we have to worry, as we do with many crimes, that making the punishment for a particular crime very severe may increase the incidence of a more severe crime--may in other words impair "marginal deterrence." That is the policy of imposing heavier punishments for more serious crimes not because the punishment must fit the crime in a retributive (eye for an eye) sense, but in order to deter the substitution of more serious crimes for less serious ones. Were robbery punished as heavily as murder, robbers would have a greater incentive to murder their victims because that would reduce the probability of punishment (by eliminating witnesses) without increasing its severity. It is difficult to imagining identity thieves substituting more serious crimes for identity theft.
A further argument against severe punishment is that identity theft is easily prevented by potential victims, and it is less costly to society for them to take their own precautions than for the taxpayer to pay for more prisons. There are two fallacies here. The first is the assumption that increasing the length of prison sentences increases the number of prisoners. That depends on the responsiveness of potential criminals to a higher expected cost of punishment. If it is high, then an increase in punishment may reduce the number of prisoners by increasing deterrence by a greater percentage than the added length of the sentence. (Below I argue that it is likely to be high in the case of identity theft.)
The second fallacy is to disregard the heavy aggregate costs of self-protection against identity theft. Everyone who has a credit card or social security number or other personal identifying information (which is to say everyone), and in addition has some financial resources, is a potential victim of identity theft. Among this large group of people, all who are cautious will take some steps to prevent identity theft, as will the custodians of their personal identifying information. These costs, which would be avoided if identity theft could be stamped out, must be compared with the costs of increasing the punishment of identity thieves. Those costs might be slight if the threat of heavier punishment had such a strong deterrent effect that the threat had rarely to be carried out.
A reason to expect a more than average responsiveness of crime to punishment in the case of identity theft is that identity thieves tend to be educated people, or at least to have pretty good technical skills. Educated people tend to have low discount rates because education entails deferral of earning. And people with low discount rates are more responsive to increased prison terms, which involve adding years at the end of the existing term. A person with a very high discount rate might not be deterred when his expected sentence for committing some crime increased from 20 years to 25 years, but a person with a low discount rate might consider that extra five years a significant present cost (that is, after discounting to present value--the lower the discount rate, the higher the present value of a future stream of costs or earnings). Moreover, an educated person is likely to have superior legitimate alternatives to crime than an uneducated person; and the closer a substitute a legitimate earning opportunity is for earnings for crime, the less the expected earnings from crime need be reduced by increased punishment in order to induce the substitution. This is the other side of my earlier point about marginal deterrence.
Posted by Richard Posner at 9:12 PM | Comments (21) | TrackBack
On Identity Theft-BECKER
A few months ago I received an email on an official looking United States Treasury letterhead informing me that I was owed several hundred dollars by the federal government that would be sent if I would just provided some personal information. I had not heard of this scam but it seems unlikely that I would be notified in this way about a refund (and even more unlikely that I had a refund!). To make sure I checked with my accountant. He confirmed my opinion, although he had not heard of this scam either.
Identity theft is one among unfortunately many negative effects of the electronic communication age of credit cards, phones, and the internet. A common claim, probably based on limited evidence, is that about 9 million Americans each year are victims of identity theft, and many additional victims are found in Great Britain, Canada, Japan, and other developed nations. $10,000 is said to be the average loss per victim in the United States. If these numbers are in the right ballpark, the annual amount defrauded in this country alone would be some $90 billion. The worldwide incidence and cost of identity theft is rising rapidly over time as credit cards and the internet spread throughout the world.
Identity thieves prey on the fears and greed of people. Greed is the explanation for why many emails, often supposedly from Africa, promise millions of dollars to a trustworthy person if he can take care of huge sums for a while. All that is asked from victims is their information on their bank account numbers and a little other personal information. These promises are so absurd that one wonders why anyone would respond, but they are cheap to send, and can be profitable if only a minute fraction of recipients fall for it.
Other approaches rely on fear rather than greed. Another real example is a telephone call from someone alleging to be a state or local government official. He threatens that the person called is subject to arrest because he did not report for jury duty. However, he reassures that arrest could be avoided if the victim would provide some personal information that could help clear up his record.
It is difficult to sympathize with people who are "taken" because they are trying to get rich quickly in ways that usually involve participating in illegal activities. Still, effective deterrence of identity theft would be desirable since so many people are victims. As Posner indicates, the aggregate amount taken by identity theft, plus avoidance spending by potential victims, plus the spending of time and other resources by the identity thieves themselves, exceed the total cost of many other crimes.
Posner notes that the economic theory of optimal deterrence implies as a first approximation that the expected cost of apprehension and punishment to the identity thief should be at least as large as his expected gain from stealing identities. However, this first approximation may not give a good approximation to the minimum punishment that would deter this crime because there is a very low probability that such identity thieves are apprehended and convicted. Probabilities are low partly because crimes over the internet are difficult to trace to their source as many criminals are located in small out of the way countries, or in other places that are not easily reached by enforcement officials.
Suppose that the probability of solving a representative identity theft was no better than 1/1000, so that out of say 9 million such thefts each year, fewer than 9,000 are solved by finding the perpetrators. If the typical amount stolen is $10,000, making the expected punishment exceed the expected gain implies that a convicted identity thief would be subject to a penalty of $10 million. Since convicted thieves usually do not have so much wealth, punishments typically take the form of significant prison terms. If identity criminals are quite risk averse, a 1/1000 probability of a $10 million dollar punishment would be much more onerous than a $10,000 punishment with certainty. Hence the punishment required to deter could be much smaller than $10 million. On the other hand, if criminals like risk, and the evidence suggest that they often do, adequate deterrence would require an even greater punishment than $10 million, or its jail time equivalent.
The expected punishment required to deter identity theft may also be much less than the loss to victims because in most cases the gain to the thieves is much less than the loss to their victims. The relatively small gain from gaining access to victim's personal information can be seen from how little is asked online for such information-less than $100 is typical. This is partly because victims and credit card companies spend valuable resources on cutting their risk of losses from such theft. The gain is relatively small also because potential victims suffer a psychic loss since they worry about the potential theft of their identities, and actual victims are hurt and angered about the invasion of their privacy. Net gains to thieves are further reduced below the losses to victims because identity thieves put time and other resources into criminal activities, resources that could have been spent on more socially productive activities.
Posted by Gary Becker at 7:42 PM | Comments (7) | TrackBack
September 16, 2006
Response on Test and Economic Performance-BECKER
I will try to address a few of the various interesting comments.
The comments take very different positions on the importance of mathematics in a modern economy. A couple of things are pretty clear: most employees do not need a lot of math, but math is becoming more valuable for a larger fraction of the tasks in more advanced economies. For example, it is difficult to use regression analysis in ways that illuminates without understanding some of the basic mathematical concepts that lie behind regressions. The statistical theory of estimation need not be mastered, but someone limited to only cookbook knowledge of regressions can make serious mistakes.
The fear of math among many Americans is common, and this fear prevents them from reading simple figures, analyzing say the relation between housing prices and interest rates, understanding probabilities in medical and other areas, etc. Still, many jobs are designed such that only very basic math, even only arithmetic, is required.
The advantage of the American "build up" learning system is that people can more readily change their minds about what interests them as they try out different programs. It also implies that there are second and third chances as students can decide their interests are different than what they had believed, and workers can shift to entirely new lines of work. That flexibility is less common in the learning structures of many other countries.
Obviously, memorization is important to learning, and it is said, for example, that first year medical school is mainly about memorizing various pieces of information about the human body. Perhaps too I exaggerated the importance of rote learning in the Japanese and other educational systems. But Japanese businessmen and scientists frequently complain about an excessive emphasis on rote learning. My experience with Japanese students in the U.S. is that especially at the beginning they have difficulty in thinking on their own, and rely too much on what their teachers told them.
I believe schools systems should establish minimum standards for graduation that are meaningful, but not very difficult. Then individual high schools can top that up to an extent determined by their student bodies.
As I argued in previous posts, inequality in American earnings has grown greatly during past 25 years, in large measure because of increasing demands in a modern economy for workers who have considerable knowledge. Graduates of elite universities have benefited the most from the greater emphasis on knowledge, but all groups that invest in knowledge and information do better in modern knowledge-based economies. I believe America has adopted better than most other rich countries to these changes, in part because of the flexibility in its learning system, and in part because of its emphasis on lifelong learning.
Posted by Gary Becker at 8:07 PM | Comments (1) | TrackBack
September 10, 2006
Test Scores and Economic Performance-BECKER
One of the challenging paradoxes during the past several decades is that American teenagers have consistently performed below average on international tests in math and sciences, and not especially well on reading tests, yet the American economy is more productive than any other. Of course, an economy's productivity depends not only or even mainly on schooling, but also on its physical capital stock, institutions and laws, and various other variables as well. Even regarding human capital, however, the United States does better than suggested by its rankings in international tests.
Frequently cited are the results of tests in 2003 of 15-year-olds in math, sciences and reading. The U.S. ranked about 25th in math, 20th in science, and was above average in reading out of the about 40 countries that participated. I believe these results correctly reflect that most American elementary and high schools are much less challenging in math and science than are schools in Finland, Japanese, Hong Kong, and other high scoring countries. However, the creation of valuable human capital for an economy depends on much more than is measured by tests of fifteen year olds in different subjects.
The philosophy behind U.S. education is to build up, so that later levels of schooling are more challenging than earlier levels. This means that more is expected of students at college than was expected of them in the high schools they attended, even though both high schools and colleges vary greatly in their degree of difficulty. On the other hand, secondary schools in most countries that rank high in these test scores give a lot of home work and expect a lot, while their colleges are often easier. In Japan, for example, getting into the top universities is very hard, but these universities are easy compared to the secondary schools that their students attended. As it were, Japanese students rest in college after the exhausting demands of their high schools. Japan is an extreme version of a build down system, but less extreme versions are found in many of the other participating countries. This difference in education approach implies that a more relevant international comparison of the production of human capital would be to test not teenagers but young adults, say at age 22. The U. S. would probably still perform below average in math and science, and might not excel in reading, but the relative performance of older Americans would be, I expect, considerably higher than that of fifteen or eighteen year olds.
Another important consideration in international comparisons of human capital is that a larger fraction of Americans than is common in other countries continue their learning after high school at junior colleges, trade schools, non-profit four-year colleges and universities, for-profit online education and universities, such as the University of Phoenix, adult education classes, and in other ways. This vast array of learning opportunities allows young (and not so young!) persons to pick out programs that suit them, and to change where and what they are studying if they are dissatisfied. In most other countries, later as well as earlier schooling is not flexible. This again suggests that the human capital of Americans would look better in international comparisons if comparisons were not of teenagers but of adults in their late twenties and thirties.
U.S. education in junior colleges, many four-year colleges, at trade schools, and for-profit universities is more oriented toward improving job-relevant skills than is common in post secondary education in other countries. I refer not only to schools that teach how to drive a truck, use a computer, or cut and shape hair, but also to junior and four year colleges that provide instruction in landscape gardening, bookkeeping, and other practical subjects. This type of education may not help students know much about the world at large, but it does raise their productivity at work.
Another factor is intangible, but nevertheless is relevant in helping American men and women become innovative at work and in other parts of life. American schools are less oriented toward rote teaching than are schools in many other countries, and they are more oriented toward giving students practice in thinking through issues and expressing themselves in discussions. Japan and the United States are outliers at opposite ends among rich countries in the degree of emphasis that schools place on thinking for oneself rather than memorizing information. The United States may go too far in its emphasis on "self expression" at the expense of teaching valuable knowledge and skills, but still international tests of subject matter knowledge, such as the 2003 tests, do not even try to capture originality and related important aspects of human capital accumulation.
Note in this regard that despite the mediocre record on international tests, American trained scientists do extremely well in garnering Nobel prizes and other international awards. American CEO's and investment bankers are ranked very high in the international business world for their energy and creativity, which is why many foreign companies have chosen Americans to head their operations. American workers also rank high when international businesses rank the quality of the workforce in different countries.
To be sure, a significant number of prominent "American" scientists and some business leaders were born abroad and immigrated to this country. This attraction to skilled immigrants must be taken into account in assessing the quality of the human capital that enters the American economy, although it may reflect unfavorably on the quality of education provided to American students in math and the sciences. Still, if America allows India and other countries to pay the cost of training many of the engineers and other skilled workers who end up in the American economy, that is a pretty effective human capital production "system" when considered in its totality.
Posted by Gary Becker at 9:22 PM | Comments (35) | TrackBack
Our Bad Math Scores--Posner's Comment
The Program for Individual Student Achievement (PISA), the source of Becker's statistics, does triennial international comparative studies of 15-year-olds' educational achievements. The latest results to be reported are those of the 2003 survey. The United States came out in the middle of the European pack in reading literacy, but in math proficiency we were below the European average, as well as below several Asian countries in the sample.
There are three questions to ask about these results: (1) Are they meaningful, in the sense of providing an accurate picture of relative math proficiency? (2) If so, are there economic or other real-world consequences? (3) If there are, what if anything should be done to increase our rank score?
(1) The answer to the first question appears to be "yes," partly because of consistency with other studies. There is a good article on this issue by Paul E. Peterson, available on the Web, called "Ticket to Nowhere." See also an article by Mariann Lemke and colleagues in a recent issue of the Educational Statistics Quarterly, also available on the Web. Math skills appear to be deteriorating in the United States as well asto be inferior to the average of the 40 countries in the PISA sample; and this is true even if blacks and Hispanics, who on average do poorly (especially blacks) on these tests, are excluded from this comparison, although such exclusion does increase our international rank somewhat (but a proper comparison would require similar exclusions from some other countries in the sample). I agree with Becker that it would be interesting to see what difference it would make if college rather than high school students were tested. But I would not expect much difference, because little emphasis is placed nowadays on math in American colleges.
(2) But so what? Here I agree with Becker; perhaps I am even more emphatic than he, that better education in mathematics would not have substantial effects on social and economic welfare. Very few jobs nowadays require even simple math skills ("deskilling" is the story of modernity); almost all computation is automated. Even fewer jobs require advanced math skills--and kids cannot acquire those skills by education; they are innate.
What would be socially and even economically useful would be to instruct high school students in the rudiments of statistical theory. That would help them learn to think straight about a range of public policy issues, as well as to avoid certain recurrent mistakes in everyday life. People are terrible at handling probabilities. For example, most people, including otherwise quite intelligent and well educated people, don't understand that randomness is not regular alternation--that a typical random pattern is 1000110110001, not 101010101010. And this mistake leads them, for example, to give undue weight to the recent performance of a mutual fund (e.g., 1101). But whether to teach statistical theory in high school is an issue of educational policy rather than a matter of raising the scores on math tests.
It would also be helpful to the United States, mainly from a public policy standpoint, if more of our people were scientifically literate; and it would help them to be so if they knew some math, because modern science is heavily mathematical. In my book Catastrophe: Risk and Return (2004), I examined the issue of scientific literacy briefly, pointing out that only a third of American adults (adults, not 15-year-olds) know what a molecule is, that 39 percent believe that astrology is scientific, that 46 percent deny that human beings evolved from earlier animal species, and that almost 50 percent do not know that it takes a year for the earth to revolve around the sun (many do not know that the earth revolves around the sun). These are amazing statistics, and yet, according to the materials I consulted, the scientific literacy of the U.S. population actually exceeds that of the European Union, Japan, and Canada.
In the age of the computer and the Internet, school education probably has rather limited effect on job performance, marital stability, happiness, or other measures of welfare, except perhaps for elite people--but they attend elite educational institutions and probably get a better education than is available in any other country; our best colleges and universities are the envy of the world. And because of compulsory schooling, a very bright child almost always will be spotted even if he or she comes from a poor or educationally deprived home, and will be shunted onto the elite track.
So I do not think that the low quality of public education matters a great deal from an overall social standpoint, except that our public schools seem needlessly costly, and also unresponsive to the special needs of very poor students. These are reasons why I strongly support school voucher programs.
(3) If this is wrong and our poor international standing in math proficiency is hurting the United States, the solution is to teach more math and less of something else. It should not be to drill the kids in the 2003 PISA math test so that they can do better on the next one. It is always possible to improve scores on standardized tests by orienting instruction to the tests, by tutoring, or, if worse comes to worst, by withholding the test from the weakest students!
Posted by Richard Posner at 8:26 PM | Comments (24) | TrackBack
Response to Comment on Extending Life--Posner
Very fine comments; a few brief responses:
I apologize for having misnamed Cutler's coauthor as Allison Brown rather than Allison Rosen. However, I don't apologize for having described her as an M.D. That was not denigration! It is entirely appropriate that an article on the economics of health care should be written by an interdisciplinary team consisting of an economist and two M.D.s.
One commenter asked me whether I would have spent $300,000 on end of life medical care for my father. The answer is yes. But now ask me whether I would have spent that amount if it would have required me to take on heavy debt or give up my judgeship and got into private practice. The answer is that my father would not have wanted me to make that large a sacrifice merely to keep him alive for a few more months of a rather miserable existence because of his cascade of ailments and deficiencies.
If I had been paying, however, I would have been vigilant to make sure I wasn't overpaying and I would have avoided painful repetitive tests. That is the difference between a system in which people pay for medical and a system in which the government pays.
I do not favor coupling a reduction in Medicare benefits with imposing a ceiling on what rich people can spend out of their own wealth on medical care. There are three points. Because Medicare will not pay for highly experimental procedures and does not pay 100 percent of a person's medical bills, there is no doubt that rich people get on average better medical care than poor people. There really is no feasible way of equalizing medical expenditures across persons regardless of wealth. But second, the purpose of accumulating wealth is to be able to spend it; if you forbid people to spend it in their preferred ways, you are destroying wealth. Third, when scarce resources are not rationed by wealth, it doesn't mean that they are allocated more "fairly." Under any feasible system of nonprice rationing of medical care, one can be sure that big shots, people with connections, physicians' relatives, the big donors to hospitals, etc., will get the best care.
Posted by Richard Posner at 6:36 PM | Comments (1) | TrackBack
September 3, 2006
Extending Life--Posner
A recent article in the New England Journal of Medicine by an economist (David Cutler) and two M.D.’s (Allison Brown and Sandeep Vijan), summarized last week in articles in the New York Times and the Wall Street Journal, presents estimates of the contribution of medical spending to longevity. U.S. life expectancy at birth has increased by about 7 years (from 70 to 77) since 1960, and the authors, estimating that half this increase is due to medical spending rather than to life-style changes (such as reduced cigarette smoking and safer cars and working conditions), divide aggregate medical spending by the increase in longevity to generate an estimate of the cost of extending life by one year. The authors recognize that much medical spending does not increase life expectancy but does create utility by curing or alleviating medical conditions that do not cause death (blindness and deafness are examples). This implies that their estimates substantially understate the benefits of the spending.
The authors find that inflation-adjusted medical spending since 1960 has on average extended life at a cost of slightly under $20,000 for each year of added life, but that the cost has been growing and is now almost double that, and that when it comes to extending the life of elderly people (65 and up), the current cost per year is $145,000. This range is plausible because 90 percent of the increase in life expectancy, the authors find, has resulted from reduced infant mortality (due largely to better medical treatment for the health problems of premature babies) and reduced death from heart disease, and the treatments for these conditions tend not to be very expensive—much treatment of heart disease consists of prophylactic drug therapy to reduce blood pressure and cholesterol. Keeping old people alive is much more challenging, involving as it does frequent hospitalizations and treatments with increasingly expensive but not very effective cancer drugs. (The authors find that cancer treatment is responsible for only 3 percent of the increased life expectancy since 1960.)
When one considers the value that people attach to their lives (the current average estimate of the value of life of Americans, inferred from their behavior toward risk, is $7 million, though this figure has little significance in the case of elderly and dying patients, who are in fact the principal consumers of health care), the costs incurred in extending the life expectancy of infants and children, young adults, and middle-aged people seem modest, especially when one remembers that medical spending enhances utility in many ways besides just adding years to life. But even without regard to the special problem of medical spending on the elderly, there is a marked discrepancy between marginal costs and marginal benefits. The discrepancy occurs at two levels. Most of the increase in life expectancy that is attributable to medical care is, as I have already hinted at, probably due to relatively inexpensive and rather routine medical interventions, including better prenatal and natal care, blood pressure and cholesterol drugs, angiograms and angioplasty, and coronary bypass surgery (the last is hardly inexpensive, but it no longer requires a prolonged hospital stay, so it is not comparable in cost to treating a chronic disease, such as renal failure). Suppose that 90 percent of the increased longevity due to medical spending is attributable to the first $5,000 spent per year; then aggregate medical spending could be grossly in excess of any reasonable estimate of incremental benefits. The last $15,000 might be purchasing longevity increases measured in days rather than years. An example is dialysis treatment, which is very costly, for dying patients.
This phenomenon is likely to be most pronounced in the case of the elderly. I can speak from my own experience. My father died a few days short of his 96th birthday. He had been in pretty good shape until about six months before his death, and until his terminal decline his lifetime medical expenditures had been quite modest. In the last six months of his life, however, he incurred total medical bills of about $300,000, virtually all paid for by a combination of Medicare and private Medigap (also known as "Medicare Supplementa") insurance. The maximum extension of his life that this expenditure could have bought was six months, but that is plainly an overestimate, since his deterioration was gradual. The quality of his life during this period was poor, though it would have been even poorer without medical treatment. Because people fear death and his treatment was virtually costless to him, he did not choose to forgo any of the treatments offered him. That was a perfectly rational choice, but the economic implications are disturbing. With Medicare supplemented by private insurance, we attain an almost complete divorce between benefit and cost: the patient (and his family) receives all the benefit, and the taxpayer (and the members of private insurance pools) pays all the cost. The incentives for economizing are very weak. The problem is growing as the number of elderly Americans increases along with the cost of advanced medical treatments.
The only solution to the problem that I can think of, brutal as it sounds, is to reduce Medicare benefits. If the slack is taken up by increased private spending, well and good; that would just show that the elderly and their families really do place a very high value on trivial extensions of a not very pleasant life. But the slack will not be taken up fully by private spending, because most people have limited financial means. Although hospitals will not refuse emergency treatment to people who cannot pay for it, they will not provide the most advanced treatments to such people. So cutting public benefits would result in a real reduction in medical spending on the elderly. There would be a loss of utility but in my judgment it would be more than offset by the savings to the taxpayer. If my father's case is typical, expensive efforts to extend the life of elderly people by a few months do not generate proportionate benefits.
Posted by Richard Posner at 11:57 PM | Comments (29) | TrackBack
Comment on Extending Life-BECKER
The United States spends more than any other country on medical care both absolutely and relative to GDP. Medical spending has increased rapidly since 1965, and if past trends continue-a big "if"!- health care would absorb a quarter of American incomes by the year 2050. Trends in medical spending in Europe and Japan are also up, although their rates of increase are slower than in America. Most past increases in this spending are not due to aging populations, but to greater spending at all ages, in large measure due to advances in expensive medical technologies.
Rapidly growing health costs have led to numerous discussions of how to improve the health delivery system to cut down spending without significant effects on health. Much can be done to improve efficiency, but I will mainly ignore questions of greater competitiveness in the health delivery system, larger co-payments, a more effective way to cover spending on drugs by the elderly, and other ways to raise efficiency of health delivery. Instead, I discuss benefits from health spending, and whether benefits can justify costs.
In the article in The New England Journal of Medicine cited by Posner, David Cutler and two co-authors claim that increased medical spending had much to do with the lengthening of life expectancy during the past several decades. They particularly relate medical spending to improved survival rates of infants and from heart disease. After using estimates from various studies on the value individuals place on additional years- about $140,000 per year at prime ages- they conclude that perhaps the big increase in medical spending was justified by the size of improvements in life expectancy. Since their calculations are not precise, the authors might have overestimated the contribution of medical spending to the growth in life expectancy. On the other hand, in one important respect they underestimate the contribution of medical spending, for they do not measure its effect on the large improvement in the quality of life for individuals who contract major diseases.
Any calculation of the benefit-cost ratio of medical spending must confront the fact- as Posner does- that more than ¼ of all medical spending goes to people over age 65. Posner argues that too much is spent by the United States on the elderly because the cost of extending their lives is high, and the benefits are low since they often do not live much longer and frequently have a low quality of life. Posner is surely right that the elderly would not choose to spend as much of their own resources on their health if they could not rely on taxpayers to foot most of the bill. Countries like The Netherlands and France spend much less on the elderly's health than the U.S. does when this spending would contribute little either to improved life expectancy or to a decent quality of life.
Still, several considerations seriously qualify the conclusion that too much is spent on extending the lives of elderly American men and women. One mentioned in passing by Posner I consider quite important; namely, that the vast majority of people have an enormous fear of death. Given this fear, people try to postpone the inevitable as long as they can, even if that would mean spending much of their own resources on modest extensions of their lives. They would partly spend indirectly by contracting for expensive private health insurance that covers payments even for small life extensions. Old persons would spend less if they did not receive subsidies since the elderly who get sick have fewer resources than taxpayers, but older persons would still spend a sizable fraction of their own resources to extend their lives.
Another important factor is the altruism and concern of others toward the elderly who are seriously ill. In addition, without much public spending on the very sick, the US media would go on about the "mean-spirited" younger taxpayers who are unwilling to shell out to provide an 85 year old with an operation or drug treatment that might conceivably keep him or her alive for a while longer. I believe the combination of altruism and politics is the crucial factor in explaining the large public spending on the elderly.
The growing fear of death as people age, altruism toward seriously ill older persons, and bad publicity from withholding treatments that can help the elderly live longer or have a better quality of life, even if only by a little, make it difficult for me to conclude that the large medical spending to extend the lives of elderly persons is clearly socially wasteful.
Posted by Gary Becker at 10:12 PM | Comments (12) | TrackBack
Response on Doping in Sports-BECKER
Good comments, including a couple of corrections of my errors: Lance Armstrong won seven straight Tours, not six, and I meant to write Barry Bonds, not his excellent ball-playing father Bobby.
Perhaps Armstrong used drugs and Landis did not, but I believe it was probably the opposite. However, I admit that neither claim is proved beyond a shadow of a doubt.
If exercise, diet, etc helps an athlete do better in baseball, football, cycling, and other sports, in the absence of regulation, participants would do these in amounts that exceed the optimal levels in their attempt to do better than others. In particular, they might exercise to the point that actually lowers their long run-health. If athletes in contests could control the amount of exercise that everyone takes, they would want to do so. Clearly, however, enforcement would be impossible, so they do not try to implement any controls.
My support of restrictions on the use of various drugs in organized support is not inconsistent with my support of legalizing drugs. I believe people should be free as individuals to use steroids and other drugs, but that is not the same as believing that major league baseball, or the Tour de France, should not have the right to limit the amounts of certain drugs or other chemicals used by participants. No one is forced to enter these races and contests. If bicycle fans want bicyclists to use drugs in races, those races that allowed them would prosper relative to those that did not. To be sure, this argument is less persuasive for major league baseball since they face little competition from other leagues, although baseball does face competition from other sports.
I am not advocating paternalism. "Paternalism" prevents certain behavior that people would engage in if they were not constrained by laws and regulations. Most athletes would support outlawing doping if that could be effectively enforced.
The analogy of drugs in sports to illegal immigrants is not apt. If employers were punished for using illegal workers, that cost has to be added to the cheaper wage of immigrants. If neither the immigrant nor employer had to fear punishment, there would be no competitive advantage from using illegal workers.
Posted by Gary Becker at 8:00 PM | Comments (5) | TrackBack
