08.20.09

Stupid Statistics: USA Actually Has Highest Life Expectancy

Posted in All Categories at 1:06 pm by Michael Goode

In terms of the health care debate, one reason reformers use to push change is that the USA has a low life expectancy for a developed country. That may be so, but the reason has nothing to do with our health care system. Read this great letter from Professor Philip Coelho to the Financial Times today.

Medical insurance debate is not advanced by prejudice
From Prof Philip R.P. Coelho.

Sir, Philip Stephens’ article is misleading. Quoting raw data may energise argument but it is not a substitute for reasoned analysis. After adjusting for murder, suicide and other popular American forms of mayhem, Americans have the longest life expectancy of any developed nation (Robert Ohsfeldt John Schneider, 2008). It would be a surrealistic stretch to blame the American health system for our high rates of self-destruction and murder relative to other countries.

Similarly, infant mortality has to be adjusted for low birth weights and the definitions of live births. In a 2007 study June and David O’Neil found that the infant mortality rate of Canada would be above that of the US if Canada had the same incidence of low birth weight babies as the US. Low birth weight babies are much more common in teenage mothers than in older women, and teenage motherhood is very common in the US relative to Canada. Again, teenage motherhood may not be desirable, but it is not symptomatic of what is wrong with US healthcare.

Nor does Mr Stephens seem to be aware that much employer-provided healthcare is actually self-insurance by the employing company. “Insurance” companies manage the plan for employers and they are the gatekeepers that deflect criticism away from the employers and on to the “insurance” companies. Demonising insurance companies for their lack of coverage or their denial of care is misguided. If the US forces companies to provide greater health benefits to employees, this will disproportionately affect low-income workers (a mandated benefit of $2,000 per worker is a 10 per cent increase in the cost of employing a worker whose annual income is $20,000, while it is only a 2 per cent increase in the cost of employing a worker whose annual income is $100,000).

US healthcare is expensive and perhaps we should be spending less, but any critique of the system has to be based on accurate assessments, not on prejudice and “conventional wisdom”.

Philip R.P. Coelho,
Professor of Economics,
Ball State University,
Muncie, IN, US

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08.12.09

Stupid Statistics: Chevy Volt Actually Gets 50mpg

Posted in All Categories at 12:30 pm by Michael Goode

The “mileage” figure, as it’s presented, is really meaningless – because it’s being presented for a situation in which the gasoline engine almost never runs at all.

They compute it by basically saying: “If I fully charge the car battery every night, how far will I drive the car in typical city commuting conditions before it’s consumed a gallon of gas”.

What if you drive your volt around the city all day? Your mileage will drop to around 50 miles per gallon once you’ve driven more than 40 miles. If you drive your car 100 miles in a day, you’ll consume a bit over a gallon of gas. That’s very impressive. But it’s absolutely not what you’d expect after being told that it gets 230 miles per gallon.

The method that GM used to produce that mileage figure is extremely dishonest and completely uninformative. The “real” effective mileage (excluding the cost of charging the car – which will be significant!) varies depending on the length of your commute.

See the rest of the article at the Good Math Blog.

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08.05.09

Another reason not to invest in actively-managed mutual funds

Posted in All Categories at 9:25 am by Michael Goode

A new paper (False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas) up on SSRN finds evidence that mutual fund manager ‘alpha’ or skill has decreased over time. Here is the abstract:

This paper develops a simple technique that controls for “false discoveries,” or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero-alpha, and (3) skilled funds, even with dependencies in cross-fund estimated alphas. We find that 75% of funds exhibit a zero alpha (net of expenses), consistent with the Berk and Green (2004) equilibrium. Further, we find a significant proportion of skilled (positive alpha) funds prior to 1996, but almost none by 2006. We also show that controlling for false discoveries substantially improves the ability to find funds with persistent performance.

For long-term performance, the authors found 1565 funds with zero alpha (net of fees), 499 with negative alpha (net of fees), and only 12 funds with positive alpha (net of fees; data from Table 2 on page 37).

Download the full paper at SSRN.

Disclosure: Except for a small position in DODFX, all of my and my wife’s long-term stock investments are in index funds.

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