Current Table of Contents

• Are We Finally Winning the War on Cancer?
  Journal of Economic Perspectives 22(4): 3-26 Abstract President Nixon declared what came to be known as the war on cancer in 1971 in his State of the Union address. At first the war on cancer went poorly: despite a substantial increase in resources, age-adjusted cancer mortality increased by 8 percent between 1971 and 1990, twice the increase from 1950 through 1971. However, between 1990 and 2004, age-adjusted cancer mortality fell by 13 percent. This drop translates into an increase in life expectancy at birth of half a year--roughly a quarter of the two-year increase in life expectancy over this time period and a third of the increase in life expectancy at age 45. The decline brings cancer mortality to its lowest level in 60 years. In the war on cancer, optimism has replaced pessimism. In this paper, I evaluate the reasons for the reduction in cancer mortality. I highlight three factors as leading to improved survival. Most important is cancer screening: mammography for breast cancer and colonoscopy for colorectal cancer. These technologies have had the largest impact on survival, at relatively moderate cost. Second in importance are personal behaviors, especially the reduction in smoking. Tobacco-related mortality reduction is among the major factors associated with better health, likely at a cost worth paying. Third in importance, and more controversial, are treatment changes. Improvements in surgery, radiation, and chemotherapy have contributed to improved survival for a number of cancers, but at high cost. The major challenge for cancer care in the future is likely to be the balancing act between what we are able to do and what it makes sense to pay for.
• Is American Health Care Uniquely Inefficient?
  Journal of Economic Perspectives 22(4): 27-50 Abstract The U.S. health system has been described as the most competitive, heterogeneous, inefficient, fragmented, and advanced system of care in the world. In this paper, we consider two questions: First, is the U.S. healthcare system productively efficient relative to other wealthy countries, in the sense of producing better health for a given bundle of hospital beds, physicians, nurses, and other factor inputs? Second, is the United States allocatively efficient relative to other countries, in the sense of providing highly valued care to consumers? For both questions, the answer is most likely no. Although no country can claim to have eliminated inefficiency, the United States has high administrative costs, fragmented care, and stands out with regard to heterogeneity in treatment because of race, income, and geography. The U.S. healthcare system is also more likely to pay for diagnostic tests, treatments, and other forms of care before effectiveness is established and with little consideration of the value they provide. A number of proposed reforms that are designed to ameliorate shortcomings of the U.S. healthcare system, such as quality improvement initiatives and coverage expansions, are unlikely by themselves to reduce expenditures. Addressing allocative inefficiency is a far more difficult task but central to controlling costs.
• Incremental Universalism for the United States: The States Move First?
  Journal of Economic Perspectives 22(4): 51-68 Abstract The latest wave of health care proposals and laws in the United Sates has been marked by what I call incremental universalism--that is, getting to universal health insurance coverage by filling the gaps in the existing system, rather than ripping up the system and starting over. In this paper, I provide an overview of incremental universalism as an approach to healthcare reform, explore the issues it raises, and examine how these issues are being addressed at the state level, focusing primarily on the healthcare reform plan enacted by Massachusetts in April 2006. This sweeping bill altered insurance markets, subsidized insurance coverage for a large swath of the population, introduced a new health insurance purchasing mechanism (the Connector), and mandated insurance coverage for almost all citizens. The Massachusetts experience has led to similar proposals in a number of states, including a major (but ultimately failed) effort in California. I am far from an objective observer in discussing the Massachusetts law. I was one of the architects of the law and since 2006 have been a member of the board overseeing its implementation. Despite this bias and the fact that the ambitious Massachusetts plan is still in relatively early stages of implementation, I can say that some early results point to major successes for this reform.
• Providing Prescription Drug Coverage to the Elderly: America's Experiment with Medicare Part D
  Journal of Economic Perspectives 22(4): 69-92 Abstract The federal government's Medicare program did not provide general prescription drug coverage for the first 40 years of its existence. Thus, more than 30 percent of the 44 million elderly and disabled beneficiaries of the program lacked insurance coverage for prescribed medications. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a voluntary outpatient prescription drug benefit known as Medicare Part D. This program took effect in 2006 and represents the largest expansion of an entitlement program since the start of Medicare itself. The design of Part D is of particular interest to economists for at least three reasons: First, the program has the potential to affect significantly both the health and the economic well-being of the more than 44 million individuals currently enrolled in Medicare. Second, Part D has substantially increased government spending on health care despite the projections that such spending was already on an unsustainable path. Third, Part D represents an ambitious attempt to use market mechanisms in the delivery of a large-scale entitlement program. Part D has been controversial. In this paper, we aim to shed light on the various issues raised by the Part D program, including the incentives inherent in the competition among plans, the forces that affect drug prices, and the sustainability of Part D in the face of adverse selection and moral hazard. We conclude that Part D has succeeded in a number of important ways, however, substantial room for improvement remains.
• Organizational Fragmentation and Care Quality in the U.S. Healthcare System
  Journal of Economic Perspectives 22(4): 93-113 Abstract Many goods and services can be readily provided through a series of unconnected transactions, but in health care, close coordination over time and within care episodes improves both health outcomes and efficiency. Close coordination is problematic in the U.S. healthcare system because the financing and delivery of care is distributed across a variety of distinct and often competing entities, each with its own objectives, obligations, and capabilities. These fragmented organizational structures lead to disrupted relationships, poor information flows, and misaligned incentives that combine to degrade care quality and increase costs. We illustrate our argument with examples taken from the insurance and hospital industries, and discuss possible responses to the problems resulting from organizational fragmentation.
• Overlapping Generations: The First Jubilee
  Journal of Economic Perspectives 22(4): 115-134 Abstract Paul Samuelson's (1958) overlapping generations model has turned 50. Seldom has so simple a model been so influential. The paper, in spite of its ripe age, still elicits wonder. Starting from the uncontroversial observation that we live in a world where new generations are always coming along Samuelson built a model that violates the credo of the first fundamental welfare theorem with which we still inculcate undergraduates 50 years later. According to Samuelson, all is not necessarily well in the best of market economies: with overlapping generations, even absent the usual suspects such as distortions and market failures, a competitive equilibrium need not be Pareto efficient. Worst of all, this failure of the first welfare theorem in an overlapping generations model occurs in a framework that is, in many ways, more plausible and realistic than the world of agents living synchronous and finite existences in which the theorem is usually proved. Like Mona Lisa's enigmatic smile, the mysterious welfare properties of the overlapping generations model are, to a significant extent, responsible for its popularity--along with the many economic issues it has illuminated in the last half-century. I take it as my brief in this celebratory paper to provide, after a short exposition of the main results of the overlapping generations model under certainty, an explanation of why the welfare properties of the overlapping generations model differ so much from the canonical Arrow-Debreu framework and to review, in a deliberately nonencyclopedic mode, a few striking applications and extensions of Samuelson's deceptively straightforward model.
• The Economic Aftermath of Hurricane Katrina
  Journal of Economic Perspectives 22(4): 135-154 Abstract On August 29, 2005, Hurricane Katrina swept into Louisiana and New Orleans, a city built largely on land reclaimed from swamp, witnessed massive failures in its levees. Much of the city and its surrounding suburbs were inundated; those residents of the city who had not heeded warnings to flee the approaching storm were evacuated in its wake. In less than a week, the city's population declined from over 400,000 to near zero. Census Bureau estimates indicate that almost two years after the storm, by July 1, 2007, nearly half of these evacuees had yet to return. Will the future New Orleans bear any resemblance to the city that existed prior to Katrina? Most government authorities, from city officials to federal spokespersons, insist that New Orleans must--and should--be fully rebuilt. Many environmental scientists question whether such a rebuilding would be sensible, given the city's precarious geological position and the contribution of past land reclamation to the city's current vulnerability. The more basic positive question of whether the city will come back, however, is fundamentally an economic one. After Hurricane Katrina, will the city of New Orleans continue to be a preferred location for more than 400,000 residents and their employers? Or will the disaster shift the city to a new equilibrium level of employment and population?
• Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels
  Journal of Economic Perspectives 22(4): 155-180 Abstract Most advanced economies have experienced a striking decline in the volatility of aggregate economic activity since the early 1980s. Volatility reductions are evident for output and employment at the aggregate level and across most industrial sectors and expenditure categories. Inflation and inflation volatility have also declined dramatically. Previous studies offer several potential explanations for this Great Moderation. We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level. We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences. The key ingredients are declines in firm-level volatility and aggregate volatility--most dramatically in the durable goods sector. Surprisingly, this has occurred without a decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility. Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations. While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.
• Susan C. Athey: John Bates Clark Award Winner 2007
  Journal of Economic Perspectives 22(4): 181-198 Abstract Susan Carleton Athey is the 2007 recipient of the American Economic Association's John Bates Clark Medal, which is awarded biennially to that American economist under the age of forty who is adjudged to have made the most significant contribution to economic thought and knowledge. I have had the immense pleasure of being Susan's teacher, her advisor, her coauthor, and her friend. Yet I never cease to be amazed at her abilities and her accomplishments on so many dimensions. The AEA specifically cited her work in four distinct areas: monotone information models; industrial organization and particularly auctions; macroeconomics; and econometrics. Yet there is even more breadth to Susan's research contributions than this suggests, as I will show.
• Retrospectives: Guinnessometrics: The Economic Foundation of Student's t
  Journal of Economic Perspectives 22(4): 199-216 Abstract In economics and other sciences, statistical significance is by custom, habit, and education a necessary and sufficient condition for proving an empirical result. The canonical routine is to calculate what's called a t-statistic and then to compare its estimated value against a theoretically expected value of it, which is found in Student's t table. A result yielding a t-value greater than or equal to about 2.0 is said to be statistically significant at the 95 percent level. Alternatively, a regression coefficient is said to be statistically significantly different from the null, p = .05. Canonically speaking, if a coefficient clears the 95 percent hurdle, it warrants additional scientific attention. If not, not. The first presentation of Student's test of significance came a century ago in 1908, in The Probable Error of a Mean, published by an anonymous Student. The author's commercial employer required that his identity be shielded from competitors, but we have known for some decades that the article was written by William Sealy Gosset (1876-1937), whose entire career was spent at Guinness's brewery in Dublin, where Gosset was a master brewer and experimental scientist. Perhaps surprisingly, the ingenious Student did not give a hoot for a single finding of statistical significance, even at the 95 percent level of significance as established by his own tables. Beginning in 1904, Student, who was a businessman besides a scientist, took an economic approach to the logic of uncertainty, arguing finally that statistical significance is nearly valueless in itself.
• Recommendations for Further Reading
  Journal of Economic Perspectives 22(4): 217-224
• Comments
  Journal of Economic Perspectives 22(4): 225-226
• Notes
  Journal of Economic Perspectives 22(4): 227-230
• Index by Author to Volume 22
  Journal of Economic Perspectives 22(4): 231-233