How would you fix Social Security?

The U.S. Treasury released a report yesterday called Social Security Reform: The Nature of the Problem. Here is the summary:

Social Security faces a shortfall over the indefinite future of $13.6 trillion in present value terms, an amount equal to 3.5 percent of future taxable payrolls. Looking at the gap over a shorter horizon provides only limited information on the financial status of the program.

Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax revenues. Other changes to the program might be desirable, but only these changes can restore solvency permanently.

Delaying changes to Social Security reduces the number of cohorts over which the burden of reform can be spread. Not taking action is thus unfair to future generations. This is a significant cost of delay.

By itself, faster economic growth will not solve Social Security’s financial imbalance—realistically, there is no way to “grow out of the problem.”

So my question is "What would you do?"

What would you do if approached by a beggar?

You are walking down the street in New York City with $10 of disposable income in your pocket. You come to a corner with a hot dog vendor on one side and a beggar on the other. The beggar looks like he’s been drinking; the hot dog vendor looks like an upstanding citizen. How, if at all, do you distribute the $10 in your pocket, and why?

The answers of these famous folks is a perfect example of the motto on my door. Post what you'd do and why.

Arthur Brooks:

We face this situation all the time — both literally and figuratively. If you live in a city, you are frequently confronted by needy winos. Do you give to them, or not? In your heart, you fear that they will just ruin their lives further with your pocket change. But it feels hard-hearted not to give.

This dilemma goes beyond just how we treat the homeless. In our public policies, we see parts of the population which, we fear, might become dependent on the government “dole” if we provide that kind of help to people in need. Some even argue that whole nations can lose their self-sufficiency through foreign aid. This is why we have metaphors about giving fish versus teaching people to fish, and so forth.

Furthermore, some people worry a lot about the dignity of folks in need. For some, that means we should give them whatever they ask for. For others, it means charity is degrading and no good, and should be replaced totally by government programs. As the Inuits say, “Gifts make slaves, as whips make dogs.”

So how does all this help me figure out what to do as I approach the tipsy beggar and the upstanding hot dog vendor? I have to figure out whether I care about a) the desires and sovereignty of the beggar; and b) the impact and effectiveness of my gift to do good in the world. There are four possibilities, with four different associated actions:

1. I care about the beggar’s sovereignty, but not the impact of my gift. I give him some cash, which he will probably spend on booze. But hey, we all have free will, right? I didn’t force him to buy booze instead of food.

2. I care about the impact of my gift but not the beggar’s sovereignty. I buy him a hot dog — or better yet, I donate the money to a cause to help the homeless.

3. I care about both the beggar’s sovereignty and the impact of my gift. This is the toughest case, and usually involves the futile exercise of trying to convince the beggar to “get some help.” Imagine trying to have an intervention on the street.

4. I don’t care about either the beggar’s sovereignty or the impact of a gift. This is the easiest case of all. I buy myself a hot dog and ignore the wino. Put some kraut on that and give me a Diet Pepsi, too.

Which is my choice? I usually take number two, unless I’m feeling really lazy or I’m with somebody who knows I write books about charity — in which case I sometimes choose number one.

Tyler Cowen:

I’m not keen on giving the money to the beggar. In the long run, this only encourages more begging. If you imagine a beggar earning, say, $5,000 a year, over time would-be beggars would invest about $5,000 worth of time and energy into being beggars. The net gain is small, if indeed there is one. It is rumored that in Calcutta people cut off body parts to be more effective beggars; that is a polar example of this phenomenon. I explain this logic in more detail in my new book, Discover Your Inner Economist.

Oddly, the case for giving to the beggar may be stronger if he is an alcoholic. Alcoholism increases the chance that he is asking for the money randomly, rather than pursuing some well-calculated strategy of wastefully investing resources into begging. But in that case, I expect the gift will be squandered on booze, so I still don’t want to give him the money.

If I liked hot dogs, I would buy a hot dog from the vendor rather than giving him the money for free. At the end of the day, he’ll probably throw out food. He’s going to get the money in any case, so why waste a hot dog?

A third option, only implied in the question, is to simply rip up the money. This will make the currency of others worth proportionately more and spread the gains very broadly. Since many dollar bills are held by poor foreigners (most of all in Latin America), the gains would go to those who are able to save in terms of dollars. This would include many hard-working poor people, a group I regard as worthy recipients.

I have two worries about this option, however. First, drug dealers and other criminals hold lots of cash — why should I help them out? Second, the Federal Reserve might (if only in the probabilistic sense) reverse the effect of my actions by printing more currency.

The bottom line: Buy a hot dog.

The second bottom line: Don’t exercise your charity in New York City.

Mark Cuban:

I keep the money in my pocket and keep walking because I have no reason to just hand over money on a street corner.

Barbara Ehrenreich:

Could we first dispense with the smarmy connect-the-dots answer this question seems to cry out for? That is, that I’d use the $10 to buy a hot dog for the beggar and perhaps give the change to the vendor as a tip, thus rewarding a hardworking citizen while assuring that the shiftless beggar does not get the wherewithal for another drink — while of course giving me a nice little hit of middle class self-righteousness.

Although I’m atheist, I defer to Jesus on beggar-related matters. He said, if a man asks for your coat, give him your cloak too. (Actually, he said if a man “sue thee at the law” for the coat, but most beggars skip the legal process.) Jesus did not say: First, administer a breathalyzer test to the supplicant, or, first, sit him down for a pep talk on “focus” and “goal-setting.” He said: Give him the coat.

As a matter of religious observance, if a beggar importunes me directly, I must fork over some money. How do I know whether he’s been drinking or suffers from a neurological disorder anyway? Unless I’m his parole officer, what do I care? And before anyone virtuously offers him a hot dog, they should reflect on the possibility that the beggar is a vegetarian or only eats kosher or Hallal meat.

So if the beggar approaches me and puts out his hand, and if I only have a $10 bill, I have to give it to him. It’s none of my business whether he plans to spend it on infant formula for his starving baby or a pint of Thunderbird.

High energy prices = new solutions (the market in action)

Power station harnesses Sun's rays
By David Shukman
Science correspondent, BBC News, Seville

There is a scene in one of the Austin Powers films where Dr Evil unleashes a giant "tractor beam" of energy at Earth in order to extract a massive payment.

Well, the memory of it kept me chuckling as I toured the extraordinary scene of the new solar thermal power plant outside Seville in southern Spain.

From a distance, as we rounded a bend and first caught sight of it, I couldn't believe the strange structure ahead of me was actually real.

A concrete tower - 40 storeys high - stood bathed in intense white light, a totally bizarre image in the depths of the Andalusian countryside.

The tower looked like it was being hosed with giant sprays of water or was somehow being squirted with jets of pale gas. I had trouble working it out.

In fact, as we found out when we got closer, the rays of sunlight reflected by a field of 600 huge mirrors are so intense they illuminate the water vapour and dust hanging in the air.

The effect is to give the whole place a glow - even an aura - and if you're concerned about climate change that may well be deserved.

It is Europe's first commercially operating power station using the Sun's energy this way and at the moment its operator, Solucar, proudly claims that it generates 11 Megawatts (MW) of electricity without emitting a single puff of greenhouse gas. This current figure is enough to power up to 6,000 homes.
But ultimately, the entire plant should generate as much power as is used by the 600,000 people of Seville.

It works by focusing the reflected rays on one location, turning water into steam and then blasting it into turbines to generate power.

As I climbed out of the car, I could hardly open my eyes - the scene was far too bright. Gradually, though, shielded by sunglasses, I made out the rows of mirrors (each 120 sq m in size) and the focus of their reflected beams - a collection of water pipes at the top of the tower.

It was probably the heat that did it, but I found myself making the long journey up to the very top - to the heart of the solar inferno.

A lift took me most of the way but cameraman Duncan Stone and I had to climb the last four storeys by ladder. We could soon feel the heat, despite thick insulation around the boiler.

It was like being in a sauna and for the last stages the metal rungs of the ladders were scalding.

But our reward was the cool breeze at the top of the tower - and the staggering sight of a blaze of light heading our way from down below.

So far, only one field of mirrors is working. But to one side I could see the bulldozers at work clearing a second, larger field - thousands more mirrors will be installed.

Letting off steam

I met one of the gurus of solar thermal power, Michael Geyer, an international director of the energy giant Abengoa, which owns the plant. He is ready with answers to all the tricky questions.

What happens when the Sun goes down? Enough heat can be stored in the form of steam to allow generation after dark - only for an hour now but maybe longer in future.

Anyway, the solar power is most needed in the heat of summer when air conditioners are working flat out.

Is it true that this power is three times more expensive than power from conventional sources? Yes, but prices will fall, as they have with wind power, as the technologies develop.

Also, a more realistic comparison is with the cost of generating power from coal or gas only at times of peak demand - then this solar system seems more attractive.

The vision is of the sun-blessed lands of the Mediterranean - even the Sahara desert - being carpeted with systems like this with the power cabled to the drizzlier lands of northern Europe. A dazzling idea in a dazzling location.

HOW THE SOLAR TOWER WORKS

1. The solar tower is 115m (377ft) tall and surrounded by 600 steel reflectors (heliostats). They track the sun and direct its rays to a heat exchanger (receiver) at the top of the tower
2. The receiver converts concentrated solar energy from the heliostats into steam
3. Steam is stored in tanks and used to drive turbines that will produce enough electricity for up to 6,000 homes

Global Warming is Jane Fonda's Fault.

In the linked Freakonomics column Dubner and Levitt explain how a movie may have negatively impacted the nuclear energy industry. It is interesting how much affect popular culture (even when misinformed) can have on important issues.

So should we reconsider nuclear energy?

Is the Surge Working? Ask the Data, Not the Politicians

By Steven D. Levitt

One of the most important political questions of the day is whether the troop surge in Baghdad is working. If you ask politicians, the answer you get to that question is very predictable. Republicans say yes, Democrats say no.

What do the data have to say about this question?
Michael Greenstone, an M.I.T. professor, good friend, and one of the best young economists in the world, has just released an incredibly thorough and thoughtful analysis of the impact of the surge.

He finds the answer is mixed.

On at least one dimension, there is strong evidence of progress. The data clearly suggest that deaths of civilians in Baghdad have fallen, and there is no evidence that the crackdown in Baghdad has shifted violence to the rest of the country.
Coalition troop fatalities have been stable since the surge, which in some ways signifies progress since they were on a steady upward trend prior to the surge.
The surge does not seem to have helped in other dimensions such as the amount of oil produced or hours of electricity in Baghdad.

The most interesting part of Greenstone’s paper is his analysis of the pricing of Iraqi government debt. The Iraq government has issued bonds in the past. These entitle the owner of the bond to a stream of payments over a set period of time, but only if the government does not default on the loan. If Iraq completely implodes, it is highly unlikely that these bonds will be paid off. How much someone would pay for the rights to that stream of payments depends on their estimate of the probability that Iraq will implode.

The bond data, unlike the other sources he examines, tell a clear story: the financial markets say the surge is not working. Since the surge started, the market’s estimate of the likelihood of default by the Iraqi government has increased by 40 percent.

I have a few thoughts after reading Greenstone’s work:

1. This paper shows how good economic analysis can contribute in a fundamental way to public policy. Anyone who reads Greenstone’s article will recognize that it is careful and thorough. It is even-handed and apolitical. It combines state-of-the-art data analysis techniques with economic logic (e.g., using market prices to draw conclusions about how things are going).

2. Top economists like Greenstone virtually never write papers like this. The simple reason is that this sort of work is not rewarded in our profession. Academic economists are judged by the papers they publish in peer-reviewed journals. The lag time between submission to these journals and publication is often two or more years. By that time, no one will be interested in the surge, so editors won’t want to publish the paper. Consequently, good economists don’t think it is worth their while to do topical work like this.

3. Instead, this sort of analysis tends to be done by bad economists, or economists on the payroll of special interests. These reports might appear informative, but instead are often pure propaganda. To outsiders, it is difficult to determine what is careful analysis like Greenstone has produced versus the usual junk.

4. The internet can potentially solve both problems (2) and (3) above, leading to an increased supply of good, timely analysis. If people like Greenstone can immediately get their findings into the public debate through the internet, it gives a real purpose (not just an academic one) to doing the work. In addition, there are now online peer-reviewed academic journals that have greatly sped the time from submission to publication, potentially increasing the academic payoff to someone like Greenstone. With many respected economists now blogging, there is also a vehicle for these folks to weigh in on the quality of policy-related economic writings — like I am doing in this blog post.

Can advertising reduce smoking?

Do you think that anti-smoking ads work? Check out this one. What would you do to make an effective ad?


You might also want to check out this "Ghetto Science"

So you think you want to be a rock star?

In case you didn't already know,rock stars die young.

LONDON (AP) — Living fast and dying young has long been part of rock 'n' roll lore.

And now there are statistics that affirm the image, according to a study released Tuesday.

Researchers at Liverpool John Moores University, whose report appeared in the Journal of Epidemiology and Community Health, studied a sample of North American and British rock and pop stars and concluded they are more than twice as likely to die a premature death as ordinary citizens of the same age.

The team studied 1,064 stars from the rock, punk, rap, R&B, electronic and new age genres in the "All Time Top 1,000" albums published in 2000. They compared each artist's age at death with that of European and U.S. citizens of similar backgrounds, sex and ethnicity.

Mark Bellis, leader of the study, said his research showed the stereotype of rock stars was true — recreational drugs and alcohol-fueled parties take a toll.

The report found that, between two and 25 years after the onset of fame, the risk of death was two to three times higher for music stars than for members of the general population matched for age, sex, nationality and ethnic background.

In all, 100 of the stars studied had died — 7.3 percent of women and 9.6 percent of men. They included Elvis Presley, Jim Morrison, Kurt Cobain, Janis Joplin and Jimi Hendrix.

The average age of death was 42 for North American stars and 35 for European stars.

Long-term drug or alcohol problems accounted for more than one in four of the deaths, the study found. The first years of success are the most dangerous, with both British and American musicians three times more likely to die than the average person during that time.

While the music world is not only filled but also fueled these days by aging music stars — Paul McCartney, Willie Nelson, the Rolling Stones and Bob Dylan among them — industry observers were not surprised by the findings.

"Being a pop star is a crash-and-burn sort of lifestyle," said rock journalist and broadcaster John Aizlewood. "If you go into it, you want adulation. You want to respond to the crowd. You can't be a pop star in isolation. If you need that adulation, you obviously have other needs.

"It was ever thus. If you look back to Victorian times — Byron, Shelley those kind of people — being creative requires living on the edge in a way that being in insurance doesn't."

Dr. Tim Williams, a psychiatrist specializing in addiction at the University of Bristol, also said the increased mortality might be a byproduct of the artistic personality.

"You could argue that rock stars and pop stars have a sensation-seeking personality, that they have this desire to put themselves in these terrifying situations — performing in front of a large group of people — that also makes them vulnerable to dependence on substances, which markedly increases mortality," he said.

In good news for aging rockers, the study found that after 25 years of fame, stars' death rates began to return to normal — at least in Europe. A European star still living 25 years after achieving fame faces a similar mortality rate to the European public. U.S. artists, however, continue to die in greater numbers.

The study said this difference "might be explained by differences in longer-term experience of fame, with more performing in later years ... continued media interest and associated stress and substance use in North American pop stars."

Additionally, said Bellis, "Many (U.S. musicians) die in poverty and there is not the same type of public-health provision there" as in Europe.

"The music business would do well to take the health risks of substance abuse and risk-taking behaviors more seriously," wrote Bellis, the lead author of the study.

"This is not only because of the long-term effects on the stars themselves, but also because of the influence these stars exert on others."

Dr. Francis Keaney, an expert in addiction treatment at the Institute of Psychiatry at King's College London, said the death rates are likely to fall in the future.

"People are better educated about drug and alcohol abuse than they were in the past," Keaney said. "Thirty years ago, you could name dozens of people living hedonistic lifestyles in the music industry. Today there are far fewer."



What profession do think would lead to a longer life? Have you considered this as you decide what to be "when you grow up?"

I often steal good blog articles from Freakonomics. Such as the following.

In Case You Think Police Officers Are Overpaid…
By Steven D. Levitt
I just finished Edward Conlon’s memoir Blue Blood, about a Harvard-educated writer who joins the NYPD. I found it highly enjoyable — and I’m not the only one who thought so.
Whenever Conlon addressed a topic that I know something about (like the economics of the war on drugs — see p. 170 of the book’s paperback version), his analysis was always right on the money — which gave me confidence in his accuracy when discussing issues I know nothing about.
Among his many interesting insights is the following, which takes place on p. 239: Conlon has been getting information from a homeless heroin addict named Charlie, regularly paying Charlie small sums of his own money in exchange for tips. Charlie has a homeless friend named Tommy. One day on the street, Conlon runs into Tommy, who tells him a location where crack sales occur. Conlon writes:
I handed Tommy some money, he held up his hands and said, “C’mon, Eddie, you don’t have to, it’s okay.” I said, “It’s all right, you guys work, you take risks for us, you should get paid.” He took the money, but he shook his head.
“Don’t take this the wrong way, but I feel a little funny, since you guys pay out of your own pockets. Do you know how much we make out here, panhandling, during rush hour?’
“No, how much?”
“About a dollar a minute.”
“Oh.”
I didn’t take my money back, but I saw his point. Charlie and Tommy made more money than us. I should have realized that earlier, as the math was not complicated — we took home less than a hundred dollars a day, while their habits were at least that. I tried not to dwell on the fact that, economically, a New York City police officer was a notch down from a bum.

Whenever I feel bad about teacher pay I think of my friend who is a cop and remind myself that at least people don't shoot at me (usually).