What is the purpose of insurance?

A friend points me to this passage:

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

I have the same problem with my other insurance policies.  My homeowner insurance doesn't cover the cost when my gutters need cleaning, and my car insurance doesn't cover the cost when I need to fill the tank with gas. Instead, the policies cover only catastrophic events, like my house burning down or a major accident. Now that the Obama administration has fixed the health insurance system, I trust they will soon move on to solve these other problems.

Swagel on Scheiber

Phill Swagel reviews Escape Artists by Noam Scheiber on President Obama's first term. 

The Economist as Advice Columnist

Ask Emily is slated to be the economist's version of Dear Abby.

The Economist as Civil Libertarian

Tyler Cowen's new column in the NY Times reminds us that the worldview of economists often extends beyond economic issues.

The Best Job Opportunity Ever

The Harvard economics department is now recruiting teaching fellows for its popular undergraduate principles course, Ec 10, for the next academic year.  If you are a Boston-area graduate student with a solid background in economics, please consider interviewing for the chance to introduce the next Andrei Shleifer, Ben Bernanke, or Marty Feldstein (all former Ec 10 students) to the power of economic thinking. 

If interested, email ec10@fas.harvard.edu for more information and to request application materials.

ERP

The Economic Report of the President was released today.

Caplan on Card

In a blog post about the minimum wage, Bryan Caplan makes note of a tension in some of David Card's research.  For those who don't know him, Card is one of the great empirical labor economists of his generation.  In some of his research, joint with Alan Krueger, Card finds that increases in the minimum wage have negligible effects on employment.  In other research, on the Mariel boatlift, Card finds that increases in the supply of unskilled workers have negligible effects on wages and employment of existing workers.

Caplan notes that these results are hard to reconcile: The former suggests that labor demand is highly inelastic, whereas the latter suggests it is highly elastic.  That is a very good point.  While I was well aware of Card's famous research on these topics, I had not put them together and recognized the tension between them.

To me, this brought to mind an econometrics class I took from Frank Fisher many years ago.  Frank used to say that the "iron law of econometrics" is that coefficients are biased toward zero.  He meant that various problems, such as measurement error and misspecification, tend to make it hard for researchers to find an effect even when one really exists.  Fisher's "law" overstates things, which was Frank's style, but his basic point is often right.