Archive for category The Intersection of Economics and Technology
“We called it the Sunny von Bülow bill. These companies that should have been dead were being put on machines and kept alive for another few years,” said Jonathan Bush, co-founder of the cloud-based firm Athenahealth and a first cousin to former President George W. Bush. “The biggest players drew this incredible huddle around the rule-makers and the rules are ridiculously favorable to these companies and ridiculously unfavorable to society.”
Part of the American Recovery and Redevelopment Act (ARRA) was incentives for the health care industry to switch to electronic medical records. A recent New York Times article (Feb. 19, 2013) looked at what went into this $19 billion pie. They concluded that the health care shift to electronics medical records led to rent-seeking behavior by the “big three” suppliers of electronic medical records. The three companies were Cerner Corp., Allscripts and Epic Systems of Verona, Wis. The three lobbied heavily to have the $19 billion included in the bill. And, of course, the requirements for suppliers were oriented toward systems produced by these three. No problem? Oh, wait, these companies are old and produce what should be legacy systems. I’ve written before about Jonathan Bush of Athenahealthcare. Here’s what he has to say about this clause in ARRA →
But if the customers are happy, who cares? Well, it turns out the customers are not all that happy. Again, from the Times article:
The records systems sold by the biggest vendors have their fans, who argue that, among other things, the systems ease prescribing medications electronically. But these systems also have many critics, who contend that they can be difficult to use, cannot share patient information with other systems and are sometimes adding hours to the time physicians spend documenting patient care.
“On a really good day, you might be able to call the system mediocre, but most of the time, it’s lousy,” said Michael Callaham, the chairman of the department of emergency medicine at the University of California, San Francisco Medical Center, which eight months ago turned on its $160 million digital records system from Epic. Michael Blum, the hospital’s chief medical information officer, said a majority of doctors there like the Epic system.
And, naturally, all that rent-seeking paid off:
Four years later, in December 2008, H. Stephen Lieber, chief executive of the group, wrote an open letter to President-elect Obama calling for a minimum government investment of $25 billion to help hospitals and physicians adopt electronic records. The industry ultimately got at least $19 billion in federal and state money.
In the months after that windfall arrived, sales climbed for leading vendors as hospitals and physicians scrambled to buy systems to meet tight timetables to collect the incentive dollars. At Allscripts, Mr. Tullman soon announced what looked like a game-changing deal: the acquisition of another records company, Eclipsys, for $1.3 billion.
“We are at the beginning of what we believe will be the fastest transformation of any industry in U.S. history,” Mr. Tullman said when the deal was announced.
Last spring, some of the Eclipsys board members left after a power struggle; Mr. Tullman left in December. He is now at a company he co-founded that focuses on solar energy — another area that, after Obama administration and Congress expanded government incentives in the 2009 stimulus bill, has been swept by a gold-rush mentality, too.
But Has It Paid Off For the Stockholders?
As a good economist, I believe that corporations should act in the best interests of their owners, the stockholders. And it appears that Cerner has done pretty well. Let’s look at stock prices and financial summaries. It happens, however, that Epic is privately owned. No financials from them. If you’re looking for information about them, their name is just Epic, not Epic Systems as they are called in the Times article. (Those who want the financial statements as Excel workbooks should click here to download a zip file containing three workbooks. Also, data and charts shown in this section are from Yahoo Finance.)
I just added the FRED widget to this site. FRED is the well-known economic database at the Federal Reserve Bank of St. Louis. I’ve been using their add-on for Excel that lets you easily search for and download data. I meant to install the widget, but only got around to it today. (The widget’s output is clearly visible at the top right of this blog.)
Disclaimer: I am not an investment adviser of any kind. Over my long career I have picked some winners and some losers. But most of my portfolio is in mutual funds with low expense ratios. The advice I’m giving here is my opinion only. If you choose to act on it, you’re on your own.
Recent technological developments have led me to wonder whether this might be the right time to sell Netflix and buy Amazon and Apple. The two technological developments I’ve seen recently are included in Apple OS X Mountain Lion and iOS 5.x. Both, however, work only with Apple TV, a small box that will set you back all of $100. Read on.
Apple OS X Mountain Lion (10.8)
Mountain Lion includes a brand new feature that lets you seamlessly and easily mirror your Mac’s screen onto your flatscreen using Apple TV. We’ve been using it to watch streaming video from Amazon.com. Get this: Amazon Prime costs $80 per year and allows unlimited streaming of many titles at a price of zero. Caveat emptor: some videos that show up as available for streaming are not free. Read carefully and make your decisions before you have that second beer.
Compare that to Netflix streaming: about $96 per year but, frankly, with a crappy title list. It looks to me like the major studios have decided Netflix is not paying them enough for content and are signing on with Amazon instead. And Amazon has struck a deal with IMDB.com (the internet movie database site) to place click-through links on IMDB when a title is available for streaming on Amazon.
So let’s spell it out. Amazon’s deal is cheaper, has higher-quality titles, offers the opportunity for pay-per-view for newer releases, and will work with any flatscreen that supports Apple TV. Which is all of them. (Our homemade home theater system is a Vizio 40 inch flatscreen, a Sony amplifier/tuner, a couple of speakers, and Apple TV. We also have an HD DVD player which we don’t use much any more.)
The second option is streaming video wirelessly from your iPhone or iPad to Apple TV via Airplay. This does not work with Amazon’s mobile streaming app. However, you can mirror pretty much anything you can put on the iPad screen onto the flatscreen. The setup can be tricky (click here for a lengthy discussion with many tips), but once it’s working, it works very well. And the cost of this option is zero — whatever video you can download and put on the iPad you can play on your flatscreen. (Disclaimer: our tests have not been exhaustive. We welcome comments about what works and what doesn’t.)
What’s Reed Hastings Up To?
With all that in mind, Netflix CEO and serial entrepreneur Reed Hastings has done something astounding. The two paragraphs below are from a Wall Street Journal article:
“Reed Hastings, chief executive of Netflix Inc. and a Facebook Inc. board member, disclosed on Thursday a purchase of roughly $1 million in Facebook stock.
In a filing with the U.S. Securities and Exchange Commission, Mr. Hastings disclosed buying 47,846 Facebook Class A shares on Wednesday at a weighted average price of $21.03 each. Facebook’s stock closed trading Wednesday at $20.72.”
Mr. Hastings is on Facebook’s board and apparently didn’t own much FB stock before this. Perhaps he was under pressure to join the other directors and make a commitment to the company. Maybe Facebook wants to buy Netflix. The only reason I can think of for a move like that is Netflix’s one viable asset: their huge inventory of DVD disks. Their pioneering video streaming technology is probably worth quite a bit, too — to the right buyer.
So maybe I’m wrong. The downside risk of selling Netflix right now is that some other company might buy them. Probably not Google because they own Youtube. But Facebook? Your guess is as good as mine.
Apple has decided to move into the textbook publishing market. The platform will, of course, be iOS devices, primarily the iPad. Students will be able to search the textbook, add notes, and use hyperlinks. Those are all nice features, but not particularly new. The pricing is low. In fact, Apple has stated that they would like a number of textbooks to carry a price of zero. Most critics have focused on the EULA which essentially says that if you sell something you’ve written through the Apple store, you give Apple the exclusive right to distribute that content. The purpose of this blog entry is to point out some potential issues not addressed by other critics.
I have a rather unique perspective on this whole situation. I’ve worked on any number of textbook projects over the years including Aplia’s online platform (now part of Cengage, Thompson, South-Western, or whatever name they’re using this year). I’ve written instructor’s manuals for several textbooks, including four consecutive editions of Principles of Economics by Karl Case, Ray Fair and Sharon Oster. I’ve written countless reviews, online study guides, and participated in focus groups. I’ve also taught information economics several times and am pretty sure I know something about information goods. And, of course, I’ve been teaching university economics for over three decades.
Here’s what I’ve learned. Writing a good textbook is a lot of work. A whole lot of work. And writing the textbook is only the first step. There are instructor’s guides, the solutions manual for the end-of-chapter questions, PowerPoint slides, test-banks, a companion web site, and inevitable comments from reviewers and editors. In some respects writing a textbook is closer to writing a screenplay than writing a book. There are so many people with the textbook equivalent of “notes” that I’m amazed the authors can keep track of it all. Anyone who thinks that writing a textbook means converting lecture notes into a book format is just plain wrong.
Which brings me to some of the most troubling parts of Apple’s proposal. The intent of the platform is to facilitate collaborative learning, allowing teachers and perhaps even students to alter the course materials to suit their style. That will work well in English, art, and other subjects in which the content is, shall we say, fluid. But in other subjects — physics, chemistry, and even economics — there is a fairly standard set of ideas that must be taught, especially at the principles level. For those subjects, collaborative learning has serious limitations.
I speak as one who tried the Socratic method when I first began teaching. It worked well, until I realized that I had only 36.67 hours of actual class time. What I could cover in an hour of lecture took two or three times as long using discussion. This is also the reason experimental learning hasn’t caught on in economics, despite the availability of some excellent materials. It just takes two darn long to complete the experiment, with no guarantee that the students are taking away the correct lessons. (Yes, I have tried economic experiments in class.)
Textbooks, especially electronic textbooks, present the usual problems of information goods. Marginal cost of distributing one more copy is virtually zero. Efficiency implies price equals marginal cost, setting the price at zero. But at a price of zero no one will write good textbooks. Existing competition, particularly CourseSmart.com, is pretty darn good. Coursesmart allows students and teachers access to electronic versions of many textbooks over the web. Pricing for a student 180 day license for a textbook is half the suggested retail price. I’ve added some screen shots so you can see what Coursesmart looks like. One further advantage: Coursesmart mobile apps are available for iPad, iPhone, Kindle Fire, and Android devices. iTextbooks are unlikely to be available for non-iOS devices any time soon.
We can see this today in the blogosphere, newspapers, and magazines. The quality of writing has deteriorated incredibly over the last ten years. To an economist, this is just a reflection of the principle of diminishing returns. As more and more people are writing, we expect marginal productivity (quality corrected) to decline precipitously. And so it is. To a certain extent, bad writing has driven out good writing simply because there is so much bad writing out there. It doesn’t help that bad writers will often do their writing at a very low price, perhaps zero. Consider, for example, the recent acquisition of the Huffington Post by AOL. Arianna Huffington walked away with $315 million, while her army of volunteer writers ended up with nothing.
Apple, of course, cannot tell authors the price to set for their work. Apple will take a 30% cut off the top and demand exclusive distribution rights. This will, of course, encourage teachers to engage in the worst form of conflict-of-interest behavior: writing material for a course, then selling that material to students. Monopoly pricing will undoubtedly occur in some cases. Where’s the efficiency gain again?
So, in a nutshell, if Apple really expects to hand out e-texts at a price of zero, they must not be expecting much in the way of good content. There are powerful incentives for monopoly pricing and badly-prepared materials. There are a number of subject areas in which excessive instructor and/or student editing of the material could be detrimental to the material that needs to be learned. And many authors of good textbooks are likely to abandon the market entirely. Is that really the future of education we want?
Well, that was excruciating. For the last week we’ve been trying to move to a new hosting company. The journey has been long and difficult, but we seem to be back online as of Dec. 22. Stay tuned for more ravings. (By the way, our piece on the New York Times magazine article on leading indicators has garnered a number of “likes” in the comments section of that article.)
From The New Yorker December 13, 2010, “The Truth Wears Off.” This is a 4.8 mb file, so be patient.
“But now all sorts of well-established, multiply confirmed findings have started to look increasingly uncertain. It’s as if our facts were losing their truth: claims that have been enshrined in textbooks are suddenly unprovable. This phenomenon doesn’t yet have an official name, but it’s occurring across a wide range of fields, from psychology to ecology.”
WP-Touch converts your site into a mobile version compatible with the iPhone, Blackberry, or Android. I just tested it with an iPhone and it works great. Highly recommended.
Speculation about PayPal’s suspension of personal money transfers into India is rife on the blogosphere. The most intriguing idea came from PC Magazine. They noted that the Reserve Bank of India has recently cracked down on money laundering. India’s central bank may be worrying that people are using PayPal for nefarious purposes. In his PayPal blog, Anuj Nayar makes the following statements:
“1. Why did you suspend local bank transfers and personal payments to and from India?
We temporarily suspended these services to respond to enquiries from the Indian regulators, specifically questions on whether personal payments constitute remittances into India.
We’re working with the regulators and our bank processing partners in India to get this resolved as quickly as we can. We realize that this is causing considerable inconvenience to our customers and I want to reassure you that this is a top priority for the leadership at PayPal
2. When will personal payments be turned back on?
The regulators recently let PayPal know about revised licensing rules that we are now actively engaged in securing. Personal payments to and from India will be suspended for at least a few months until we fully resolve the questions from the Indian regulators.”
For those who don’t want to click the link above, remittances are simply transfers of income, usually from foreign nationals working in a country to family or friends in their home country.
Again, the mystery deepens. Remittances are generally good for an economy. Why would the Indian government worry about them? Interestingly, the Economic Times (part of IndiaTimes.com) also speculates that money laundering is the real problem. Stay tuned.
TechCrunch and Moneylife report that the move has suddenly cut off the preferred payment method of thousands of Indian users, including man IT software coders working for companies in Silicon Valley and elsewhere around the world.” (Source: Silicon Valley/San Jose Business Journal.)
Here are three plausible hypotheses about the reason for this move:
- There’s a technical issue. For example, the volume of personal transfers may have been slowing the speed of commercial transactions.
- Some customers may be using personal transfers as a form of disintermediation, bypassing traditional financial intermediaries to handle foreign exchange conversions themselves.
- Arbitrage is another possibility. Paypal may have been offering lower foreign exchange transaction fees or the Paypal exchange rate may have been misaligned with market exchange rates.
I”m sure my readers will come up with other possibilities. I suspect we’ll know the actual reason by Tuesday or Wednesday (Feb. 9 – 10).