Possible Insight

Archive for August 2009

Manufacturing Fallacy

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Just in case you hear phrases like, “America no longer makes things,” “…decline of American manufacturing,” or “China is now the world’s factory,” here are the facts…

Don Boudreaux points out that the latest official statistics from 2007 show that US manufacturing output that year was 8% higher than in 2000, 69% higher than in 1990, and 184% higher than in 1980 (all adjusted for inflation).

Moreover, if you look at the value added in the manufacturing chain, the US leads the world by a healthy margin.  In fact, as you can see, the US produced about twice as much manufacturing value added as China in 2005.

Of course, if China keeps growing at their current rate, they will pass the US sometime around 2017.  But that’s good because it means they’ll have created a ton of wealth.


Written by Kevin

August 24, 2009 at 2:17 pm

Posted in Economics

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Killing Cancer Stem Cells

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My second cancer post in a row.  Rafe must have made my news antennae more sensitive to the issue.

The Broad Institute announced that they have identified a compound that kills breast cancer stem cells: salinomycin.  What’s particularly cool is the way they went about it.  Evidently, cancer stem cells tend to lose their “stemness” in the lab, making it hard to run tests on them.  The Broad team overcame this challenge by figuring out how to convert regular cancer cells to stem-like cells to get a stable population.

With this foundation in place, they constructed a large-scale screening operation and searched for activity in thousands of compounds.  Once they identified active compounds, they tested them on mice.  Lo and behold, salinomycin dramatically reduced (100 to 1) the cancer stem cell population in mice with breast cancer.

Even better, they can apply this same technique to any cancer that produces solid tumors maintained by stem cells.

Written by Kevin

August 18, 2009 at 1:51 pm

Incentive Problem in Cancer Drug Trials

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I saw this brief New York Times article syndicated in the San Jose Mercury News.  Evidently, one of the challenges in identifying new cancer treatments is recruiting enough patients for drug trials.  The issue is that oncologists have little incentive to encourage their patients to enroll in drug trials.

Evidently, 60% to 80% of an oncologist’s revenues come from providing chemotherapy.  When a patient enrolls in a trial, his doctor loses that revenue.  As Scott Schaefer recently posted, the evidence is pretty clear that doctors respond to financial incentives.  Result: a dearth of volunteers.  So here’s an idea.  Let’s pay a significant finder’s fee to oncologists that refer patients to trials.  You could even start a “charity” to do this.

Written by Kevin

August 16, 2009 at 2:11 pm

Is Money an Emergent Phenomenon?

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The two economists that have most informed my view of the current macroeconomy are Arnold Kling and Scott Sumner. In both cases, their models and explanations make sense to me.  They use solid reasoning and evidence; I don’t feel I’m getting a lot of hand waving. Unfortunately, at first glance, their views seem mutually exclusive.  Kling believes business cycles are the result of many planning errors by individual agents (for example, this recent post and this follow up).  Sumner believes business cycles are the result of contractionary monetary policy by the central bank (for example, this recent post and this one).

How can they both be right? I think they are operating at different levels. Yes, individual agents make their particular planning decisions.  In aggregate, these decisions drive monetary variables like interest rates, exchange rates, liquidity demand, etc.  However, these variables then feed back into the next round of planning decisions.  Moreover, at least some of these plans take into account the effect of the agent’s actions on the monetary variables.  So you get classic chaotic/complex behavior with temporarily stable attractors, perturbations, and establishing new regimes. There may even be aspects of synchronized chaos. I think the monetary variables are the key emergent phenomena here.  They are like “meta prices” that provide a shared signal across just about every modern economic endeavor.

Food for thought.  I’m going to keep this in mind when processing future articles on the economy and see if it helps my thinking.

Written by Kevin

August 11, 2009 at 2:46 pm

Must Read Article on Farming

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Some of you may recall my post Organic Farming Harms the Environment. As I wrote, one of the things that bugs me about organic proponents is that they act as if there are no tradeoffs.  I don’t understand much about farming, but I do understand something about how economic activity works.  I presume that modern farming has responded to market pressure and evolved to optimize along many different dimensions.  I’m pretty sure you can’t magically improve along one dimension without sacrificing along another dimension.

Thus, I was not surprised to read this article (hat tip to Tyler Cowen at Marginal Revolution) on modern farming by an honest to goodness family farmer.   It is full of good examples of the tradeoffs I suspected were lurking.  For instance, by using herbicides, farmers reduce the need to till, which is a major source of soil erosion.  Hog crates and turkey cages may seem inhumane, but they prevent sows from killing piglets and turkeys dying from drowning. Crop rotations that decrease the need for synthetic fertilizer increase the amount of water needed to produce the desired crop.

Read the whole thing.  It reinforced my confidence in the general rule of trying to avoid legislating solutions.  Send pricing signals by allocating resource rights and taxing negative externalities.  Then let the market do its optimization.

Written by Kevin

August 4, 2009 at 9:16 am

(Price) Inflation Is All In Your Mind

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I apologize for the non-existent blogging the past few weeks.  I’ve been really busy with my new company.  I’m going to try blogging more short items rather than my trademark essays in the hope that reduced barrier to entry will result in more supply.

First up is a provocative post by the ever-interesting Scott Sumner.  Rafe in particular should read it because Sumner starts from one of Rafe’s favorite premisse that “laws” of nature are purely cognitive constructs.  We should measure them by their usefulness and not ascribe to them any independent existence. So Newton’s laws of motion are useful in certain contexts.  Einstein’s are useful in others.  But neither are ground truth.  Moreover, we will never find ground truth.  Just successively more accurate models.

Sumner uses this bit of philosophy to justify abolishing inflation, not, “…the phenomenon of inflation, but rather the concept of inflation.”  More specifically, price inflation. He explains why this concept is ill-defined and not only unnecessary, but confusing, for understanding the macroeconomy.  He asserts that we should expunge it from our models.  It doesn’t really exist anyway, so if models do better without it, we won’t miss it in the least.

Written by Kevin

August 3, 2009 at 10:46 am

Posted in Economics, Models

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