Public Policy and workforce productivity

My Performance Management course is having its last class Thursday and we are covering how public policy can have an impact on workforce performance. As an instinctive libertarian, I hesitate to recommend that government get involved in the inner activities of a company. But there are definitely places where it can make sense if the government does it correctly and minimalistically (a big and often failing assumption).

One is training credits. I don't want the government deciding what to train former manufacturing workers in when their jobs migrate overseas. But training credits can work. Companies can develop their workforce in skills that will remain in the US. And perhaps research funding can be allocated towards new training models and economy-wide resources. Especially for workers who are already employed, independent training sources can also be supported, although again I would like to see it be private organizations (perhaps professional societies) with some government financial support. I would rather spend government money on retraining than long term unemployment.

There has been research that workers who are afraid to take risks tend to stay in dead end jobs out of fear (of losing health care, pension benefits, etc). They are more afraid to take risks when there is no safety net. Companies don't want employees to stay in these dead end jobs either because the employee is usually not the most productive at that position, but maybe not bad enough to warrant firing.

What we want is to create a balance between stability and mobility. Lets find a way to get workers moving around more and always moving up the skills-ladder. We can then encourage sending lower skilled jobs overseas and bringing in immigrants to do the ones that can't move overseas. All we need is a reliable mechanism to retrain workers in the new industries that the US has been so good at developing. And with an ingrained process to do this, maybe we won't be so afraid of losing our global economic influence and success.

Then on top of this, we can fund a few great futurists to predict the 20-50 year future industries and we can start the basic research and maybe even adjust K-12 education to get our future workforce ready for it. Get rid of the standardized tests in the No Child Left Behind model and start teaching creativity, critical thinking, information literacy etc.

Maybe this is just a pipe dream, but it is MY pipe dream ;-D.

At what cost growth?

There has been some debate on my favorite economics blogs (Mankiw, econlog), about the old saw that the best way to reduce poverty is to grow the economy as fast as possible and let the rising tide lift all boats. A recent paper by Larry Summers suggests that the calculus may have changed. Lately, the benefits of the rising economy have gone disproportionately to those in the upper income brackets and those in the lower ones have stagnated or even fell.

So here is the policy issue. Conservatives/libertarians want to stick with the rising tide theory and focus only on maximizing growth. Unfortunately, without smart social policy, there are a lot of starving poor people out there who are drowning in the rising tide. Liberals are willing to sacrifice a bit of growth to protect these poor people. Unfortunately, they seem to have a knack for screwing it up and so they hurt growth more than expected and don't help as many poor people as intended.

What we need is a smart combination of economic/social policy that minimizes the limit on growth the get the maximum protection for those truly in need. The public emergency safety net needs to be efficient and effective (get some Industrial Engineers with expertise in Lean Six Sigma to implement it) and focused on those with no reasonable other options. Then put the bulk of the safety net into "teach them to fish" rather than "give them a fish" kinds of programs. Vocational training, child care subsidy, earned income tax credit, etc. And encourage the private sector to support microfinance and other programs that require selecting winners.

While I am on the subject, these are also my prescriptions for saving the health care mess, protecting the environment, and just about every other domestic policy.

government response to high gas prices

This article in Business Week really pissed me off. It lists five proposals that the US government is considering to address the high retail price of gas. They are all ridiculously naive about macroeconomics. What is wrong with our government these days? Are they really that ignorant, or are they pandering for votes - counting on the US population being ignorant? The problem with both of these, is that it encourages voters to remain ignorant, for the reasons described in earlier posts and in other places on the irrational voter.

There was also an article on North Korea that also showed the ignorance of US policy. With North Korea, there are justifiable competing objectives. We want to help their economy to prevent starvation and to encourage them to pursue an open economy. But we also don't want the hard currency to go to Kim Jong Il's nuclear weapons program or to his Swiss bank account. But the article says that South Korea has grown the Kaesong special economic development zone to provide jobs to 15000 N Korean workers but under the control of S Korean companies. This seems like a pretty good way to balance the objectives. But the US government places a 90% tariff and strict quotas on the products coming out.

immigration

The new immigration policy has many good topics for conversation. The one I want to address today is the scoring system for allowing in new people based on specific skills. This is a great idea if done correctly (i.e. without politics mucking it up). The US needs a steady influx of specialists to stay competitive. There are two good reasons for that.

1. We need the expertise. US education in science, math, engineering is falling behind. It is not that the professors are providing quality education, it is that the best students don't find these fields exciting enough. They go into law and business. Not that law and business aren't good too, but the development of new industries for lawyers and businesses to support requires new technologies.

2. We need to compete. If these experts are not coming here, they are still going to create new technologies elsewhere. The US has always drawn the best and brightest (causing "brain drains" elsewhere). After 9/11 we made it harder and tech development started growing faster elsewhere. It is a shame that not only did we lose the growth, but we gave it to our competitors. I am not a protectionist by any stretch. But all other things being equal, I would rather see great new innovations emerge here and support our own workforce and economy.

So I hope that the final immigration law that passes has strong support for bringing in those with the skills and talents to innovate. That should be a no brainer, no matter what else is in it. It is great that some of my favorite econ blogs agree with me (Becker, Mankiw, Kling).

bad bets in health care

I hope this link stays active long enough for anyone interested to read it. It makes an interesting point about public policies that are "bad bets." I just posted something about it in my human factors blog, but it also is an important public policy issue. Here is the example for those of you who don't want to navigate to the other blog:

Consider this example: There are two people who are very sick and require medical care that costs $25,000 to treat. Person A has a 50% chance of getting better with treatment. Person B has a 5% chance of getting better with treatment. You can either:
1) give Person B the treatment
2) give Person A the treatment
3) split the money and half treat them both, which reduces their chance of improving by 90% (so it would be 5% and 0.5% respectively.

Most people would select option 2. It gives the best bang for the buck. But what if there is no Person A. We can either:
1) treat person B and have a 5% chance of having an effect
2) distribute the $25,000 in medical care to other people in general, who have an average chance of improving of 50%.
3) distribute the $25,000 to the entire population to spend however they want.

Now which one should we do? Option 2) in the second situation is identical to option 2) in the first example in its effect. So if you preferred option 2) in the first example, you can't choose option 1) in the second. But the problem faced in our health care system is that when we are faced with a real Person B on one hand and a vague, unseen population on the other, we find it very hard not to treat person B and hope for the best. And the when we have a lucky 5%-er, it makes the news and makes it even harder to choose option 2) the next time.

This is why our health care system is so wasteful. We keep funding the bad bets because we can't look at a sick person and say no.

So from a public policy point of view, what is the solution? "Rationing" health care has such a bad connotation that it can make any intelligent policy a non-starter. But in fact, there is a limited number of dollars at any given time to spread around. Whatever we choose as a society to spend on health care has to distributed somehow. So rationing health care is a reality whether we call it that or not. Treating the inoperable cancer patient in a 1 in a million effort is rationing care because that is money that now can't be spent on other patients. So intelligent policy has to bite the bullet of "rationing" sound bites and create a system that efficiently and effectively allocates spending (public money as well as insurance incentives) where it has the most effect. If someone wants to spend his/her own money on the one in a million treatment, that is the great thing about a free market. But don't use my tax money or cause my risk-pooled insurance rates to go up to pay for your inefficient health care needs.

2008 Presidential Candidates

I usually rant about policies rather than people on this blog but I am going to make a brief exception today. In looking at the qualifications of the candidates from both parties, there is one that stands out as having a wide variety of offices and experiences that puts him head and shoulders above the rest. Even if you don't agree with his policies, you have to respect his expertise. And the fact that he is a moderate, with a reasonable approach to the issues, is a huge bonus.

Who is this rare individual? Bill Richardson. He has been in Congress so he knows how to work legislation. He was Secretary of Energy, so he understands one of the most influential domains in geopolitics, economics and the environment. He was US Ambassador to the UN, so he understands foreign policy and diplomacy. And now he is Governor, so he has experience as a political chief executive. The fact that he is also a Jumbo (graduate of Tufts University) is just icing on the cake (disclosure, that is where I went to school as well).

Democracy of Fools

Sorry I have been gone for several weeks, but I was swamped writing papers for the HFES conference. Anyway, I am back.

Thanks to Bryan Caplan for this post on his econlog blog. He reports (and links to evidence) that the main premise of his research is that "democracies adopt bad policies because most people are irrationally committed to systematically mistaken economic (and other) beliefs, and politicians have to heed public opinion to get elected." I am not at all surprised. What we need to do is elect politicians based on their core values rather than specific policies and then reward them when they surround themselves with brilliant experts from all perspectives to argue the positives and negatives of different policy choices and then the politician weighs these and picks the (hopefully) best one.

How can we make this happen?