Thursday, September 17, 2009

Parks Half-Marathon Formalized

So far I’ve used this blog to describe economics issues of interest to my professional experience. This blog will continue to chronicle those events as my skills are often of most use there. On occasion, some personal event will provide an opportunity to utilize the lessons of economics in a practical way.

Last weekend, I participated in a half-marathon (a 13.1 mile run for the uninitiated). Sure it tested my health but it’s after effect provided a great statistical inquiry. Analysis of the Parks provides a few lessons.

I. Age is of little matter to runners. My results show that age, while statistically significant, has little impact on the timing of a run. In fact, I show below that increasing age by one year increases the total finish time by less than one minute. That’s very impressive when you consider that this equates to an addition of less than 5 seconds per mile.

a. This is course panel data rather than time-series data. While there is little difference amongst people of different ages in this sample it is unclear that runners in this sample will maintain this pattern as they themselves age.

II. Gender does matter. Men run almost 15 minutes faster than their female counterparts of equal age.

Now that you’ve got the headline lets delve into the proof.

Figure 1 below shows the distribution of finish times, in minutes, of all runners at the September 2009 Parks half.

We can see that the values bunch around 120 minutes. Ten percent of runners finish in 98 minutes or less and fifty percent of runners finish in 122 minutes or less.

While this is a helpful way to look at the data, it provides little explanation as to why it occurs. The only other information available about runners is their age, gender, and city/state of residence. I have taken the age and gender of runners to explain finish times.

The results of a linear regression of the finish time based on these variables are in Table 1 below.

Table 1 shows that both variables are statically significant. I’ve used the age difference from (current age-38), as 38 is the median sample age (this should not impact the size of the coefficient but it makes it easier to understand our baseline who is a 38 year old female). The table shows that men finish about 15 minutes earlier than women of similar age and that aging by one year adds about 40 total seconds to finish time.

According to my model, I should have finished my race in about 10 less minutes than I did. This is encouraging. I means that I should be able to PR with some ease in my next outing and that with age I won’t gain too much time.

Thursday, September 10, 2009

Public Option Identity Crisis

The public option will be small and you probably won’t use it. Or at least that’s the message that President Obama presented in his joint address to Congress.

“Let me be clear – it would only be an option for those who don't have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact, based on Congressional Budget Office estimates, we believe that less than 5% of Americans would sign up,” said Obama.

For a provision that was once a major component of Obama’s health care reform, the speech expressed a willingness to experiment to get everyone covered, that’s not a lot of impact. In fact, a plan that size will have little chance of rivaling the big insurance plans that Obama wants to see face more competition. According to Obama’s own count 34 states have at least 75 percent of their health insurance market controlled by five or fewer companies. President Obama’s public option sounds like backing Tata to take on Ford, Chrysler, and GM in the US.

This size issue presents two plausible paths.

The first is that the public option really will only attract 5 percent of the population. Those most desperately unable to access private insurance will gravitate to this plan due to heavy subsidies. Anyone who can get care by other means will continue to do so. The unwillingness of average Americans to join the option will speak to substandard quality of care. It will be poor service targeted at the poor.

Yet the administration wants to argue that the public option can be competitive. Alright, if that’s true than more Americans will want to buy it and its share of the marketplace will rise about 5 percent, possibly by leaps and bounds.

Wait did I say there were two plausible paths? Yes, unless the government does with this small public program what it has done with past programs. Take Social Security for instance. At its founding the program covered only workers in commerce and industry. Railroad workers and more importantly American farmers, who made up a large share of the labor force (in fact according to the Department of Agriculture the number of farms in the US peaked in 1935), were excluded. In the early 1950’s both those groups were rolled into Social Security and today almost all workers are covered by the system. There’s nothing inevitable about this choice. Social Security intentionally excluded wealthy Americans in the beginning because it was believed that they could fend for themselves. As the program grew, our trust in any American’s ability to plan for their own retirement declined and the system’s growing deficit demanded that more people be integrated in order to pay for it.

There’s nothing inevitable about this path for the public option either. Medicare and the food stamp program have expanded in some ways but remain options for the poorest. Obama’s plan would be better directed at those most in need of health care rather than trying to constantly wade between access and leaving most Americans alone. It would make the plan more efficient and remove the spector of government control from people who are already insured.

Thursday, September 3, 2009

The Legacy Continues to Build

Sometime early this year the Administration stopped calling unsalable assets "toxic," as Secretary Paulson had done, and began calling them "legacy assets." Even that rhetoric has evaporated or just been ignored more as of late. That's unfortunate because the Fed's big moves from early last year have mostly evaporated as the true legacy assets are still accruing.

The figure below shows several Federal Reserve programs that began last year.

The two that were most prominent in 2008, central bank liquidity swap lines and the commercial paper program were sensible, short-term program. The liquidity swap lines were extended to other central banks so that they could obtain US dollars. The commercial paper facility allowed firms to trade on their own short-term debt obligations. The move was important because firms rely on the commercial paper market to manage their day-to-day finances.

The other two programs both show a different view of the bailout. The green Maiden Lane line is the sum total of funds given to bailout and purchases assets from Bear Stearns and AIG. These assets are definitely legacy assets. You can see that after the levels only jump when the Fed picked up Bear and then Later AIG. Since then the Fed has been unable to unload these assets. Much unlike the central bank swaps and commercial paper programs where private markets have stepped into resolve the issue, no one wants to touch Maiden Lane.

Also, it's clear that Maiden Lane is simply a small portion of bailout efforts. While the Bear and AIG episodes have lots of other costs, as you can see that the central bank swap lines become much more important once Bear fails, they are not themselves the big cost.

The real cost and the one most likely to resemble Maiden Lane is the Fed's purchases of mortgage-backed securities (MBS). The Fed has continued buying these up in an effort to cleanse financial markets. These are the quintessential "toxic" assets. The Fed will be unable to sell most of this stuff and have to hold it until the underlying liabilities are paid back. Given that a lot of those are home loans, the Fed could have a good deal of these assets for 20 to 30 years. The recession rhetoric may be over but the legacy will be with us for some time.