American Economic Association Meeting in Boston

by philg

Bostonians:

The American Economic Association is holding its annual meeting in Boston, January 3-5, 2015. The event is very reasonably priced for non-members and is packed with interesting speakers. One of the good things about economics is that many papers are understandable by anyone with a good high school math background.

Saturday, January 3

Saturday at 0800 is going to be an exciting time. Gregory Mankiw, the Harvard professor who sometimes steps out into the popular realm (example New York Times article) leads “A Discussion of Thomas Piketty’s Capital in the 21st Century.” (Note that a 10:15 paper, by two Swedish economists looking at “socio-economic mobility across three generations in Sweden in the period 1813-2010” found that, for earnings, there was “no association at all between grandfathers and grandsons” (so Piketty is wrong about dynastic accumulation), but for social status/class there was a “clear association” (leading to genteel poor?).) Simultaneously in the Hynes Center, Room 201, Maya Rossin-Slater and Miriam Wust present “Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data” (full text). This is important because child support systems are designed under the presumption that parents’ behavior won’t be affected by writing child support checks to the person who sued them and/or that paying $50,000 per year to a plaintiff will improve the quality of parenting delivered every other weekend (embedded in a larger system of custody and divorce law that assumes people won’t follow economic incentives that are held out). Here’s how we summarized the paper in our forthcoming book:

[the authors] found that what a mother might have gained financially from child support, the child lost in terms of reduced contact with and effort from the father: “mothers, who have substantial say in custody decisions [in Denmark], have the opposite incentive to refuse to share custody and instead receive the higher payment [for child support, compared to shared custody]. … fathers may treat financial transfers as substitutes for other forms of non-pecuniary investments and contact with children, which would also lead to a negative relationship between child support obligations and father-child co-residence.” The economists found that “an increase in the father’s obligation may lead to less attachment to his existing children and more time available to invest in new offspring.” (See the “Divorce Litigation” chapter for our interviewees’ perspective on how the main opposed interests in a divorce lawsuit are the plaintiff parent and the children, not the plaintiff and adult defendant.) The researchers also found that fathers who were ordered to pay more child support were more likely to have new children, thus diluting the time and energy available to prior children, and that fathers who were ordered to pay more child support reduced their working hours due to “market distortions generated by the ‘tax-like’ nature of child support mandates.” Mothers who received more child support cash for existing children were motivated to have additional children, either with or without a live-in partner: “mothers receiving higher child support payments for current children may expect higher transfers for future children if they separate again.” Note that this research was done with data from Denmark, where child support is tax-deductible and capped at $8,000 per year. The effects that they observed would presumably be larger in the U.S. where child support payments are not tax-deductible and can be $25-100,000 per year.

The authors also question an additional building-block assumption of the U.S. child support system. The government assumes that a typical woman who has custody of a child and cannot meet all of her own expenses from child support revenue will, rather than work, turn to the various taxpayer-funded welfare programs offered to women with children. Thus a dollar of child support extracted from a custody lawsuit loser is a tax dollar of welfare saved. Rossin-Slater and Wust say that it isn’t so simple: “Our results suggest that although child support mandates may shift some of the cost of single-mother household support from welfare programs to the non-custodial fathers, they also pass part of this cost on to other government programs such as disability insurance and early retirement.” (i.e., fathers in Denmark will retire or declare themselves disabled in order to cut their child support obligation from $8,000 per year back to the “basic/minimum” $2,000 per year)

If you’re a shareholder in a public company that underperforms the S&P 500 and want to know why most of what would have been your dividend money nonetheless goes to an apparently mediocre CEO, there is a “CEO Incentives and Compensation” session at 10:15 am.

Many sessions seem to be aimed at trying to understand the Collapse of 2008 and predict the next one. Also at 10:15 am on Saturday is a session looking into why the ratings agencies turned out to be worthless. “Did Government Regulations Lower Credit Rating Quality?” by Behr, Kisgen, and Taillard, concludes that “defaults and other negative credit events are more likely for firms given the same rating if the rating was assigned after the [1974] SEC action compared to before. … the market power derived from the SEC led to ratings inflation.” Did Jack Nicholson’s sponsorship of a child in About Schmidt (awesome movie, though very different from the novel; disclosure: my cousin Harry produced it) make a difference? At 10:15 session “Developing Hope: The Impact of International Child Sponsorship on Self-Esteem and Aspirations” says “yes” (on average). History buffs will skip all of these 10:15 sessions and head to the Boston Marriott Copley for a session on “The Economy of Ancient Israel.” The “dismal science” does not shy away from looking at war. At 10:15 session on “conflict and development” includes a paper by David Yanagizawa-Drott that villages that suffered the most violence in the Rwandan genocide had the highest living standards six years later: “These results are consistent with the Malthusian hypothesis that mass killings can raise living standards by reducing the population size and redistributing productive assets from the deceased to the remaining population.” At “Health Insurance Reform” session confirms the world’s most stuffed-with-cash health care system is not going to suffer any lean years due to government tweaks. A “Competitive Bidding in Medicare” paper concludes that there is little actual competition among America’s health insurers. A session on “The Minimum Wage, Family Income and Poverty” reveals that economists have no idea whether or not a higher minimum wage reduces poverty.

Are those crazy Super Bowl ad rates justified? A paper in a 12:30 pm Digital Media Economics session concludes “yes” by looking at movie ticket sales (for movies advertised during the Super Bowl) in the cities in which Super Bowl teams are based and therefore in which more fans are watching. Why is the U.S. a more tolerant society today than it was in the 1970s? A paper by Berggren and Nilsson in the 12:30 “Economic Freedom and Minority Groups” session suggests that it might be due to the deregulation started by Gerald Ford and the tax rate reductions started by Ronald Reagan: “We suggest, as one explanation, that a greater scope for voluntary transactions and private usage of incomes and wealth creates more meetings that increase understanding for people different than oneself – or at least for the value of letting people different than oneself have their say.”

At 2:30 there is a session on “Explaining the Energy Paradox.” Why do Americans buy fuel-inefficient cars and houses? Why has no American residential developer carved out a niche in German-style double-wall houses that can be heated or cooled for almost nothing? Why did the Federal Weatherization Assistance Program not work? (“overly optimistic engineering estimates of returns to the energy efficiency investments,” say the economists; translation: Americans are stupid). “Investor Behavior,” at the same time, explores the 2012 8X increase in the value of shares of DI Corp. “because the company’s chairman and CEO is [South Korean rapper] PSY‘s father.” (translation: investors worldwide are stupid; related: MIT Gangnum Style) A 2:30 session on “Redistributive Taxation” includes “Income Inequality Influences Perceptions of Legitimate Income Differences” by Harvard’s Kris-Stella Trump. She finds that people think the system under which they live is a good one: “When income differences are (perceived to be) high, the public thinks of larger income inequality as legitimate.” She calls this “system justification motivation.” [We found this to be true when interviewing divorce litigators in different states. Generally a litigator in State X thought that State X’s system was fair and just and so did a litigator in State Y, despite the fact that State’s X and Y had completely different outcomes for the same fact patterns.] Larry Summers talks about “Secular Stagnation” in a 2:30 pm session as well. “Do Vehicle Crash Tests Save Lives? Impacts on Market Decisions and Accident Mortality” by Damien Sheehan-Connor of Wesleyan says that Americans bought safer cars in response to Insurance Institute for Highway Safety tests and manufacturers designed safer cars in response to the testing (translation: Americans are not stupid). Why do venture capital firms underperform the S&P 500? Three Harvard researchers in “The Cost of Friendship” ” find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments..” Why do hedge funds underperform the S&P 500? “Recovering Managerial Risk Taking from Daily Hedge Fund Returns: Incentives at Work?” by Kolokolova and Mattes finds that “During earlier months of a year, poorly performing funds reduce their risk. The risk reduction is stronger for funds with higher management fees, shorter notice period prior to redemption, and recently deteriorating performance, which is consistent with a managerial aversion to early fund liquidation and loss of future management fees. Towards the end of a year, poorly performing funds gamble for resurrections by increasing risk.” Why does money invested in private equity (even with geniuses such as Mitt Romney at the helm!) tend to underperform the S&P 500? Korteweg and Sorensen say that “Based on past performance alone, an investor needs to observe an excessive number of funds to identify the PE firms with top-quartile expected returns, implying low investable persistence.”

The 2:30 slot includes a “Puerto Rico and Cuba” session that would no doubt be enlivened by a panel discussion about the recent political changes. The papers already scheduled show that Puerto Rico’s government policies starting around 1940 have led to the county becoming impoverished from an income point of view: “After seven decades of government sponsored development efforts, a benign macro environment compared to the rest of Latin America, and massive transfers from the mainland, GNI per capita remains at Uruguayan or Argentinian levels.” On the other hand, presumably due to federal welfare programs, consumption per capita is quite high: “Puerto Rico has succeeded in ensuring a standard of living for its citizens largely divorced from the productivity of its workers.” For actual divorce issues, there is a 2:30 pm “Structural Models of Family Interactions” session that looks at “Welfare Effects of Divorce Legalization” in Chile and “Deadbeat Dads” (trying to answer the question of why women would get pregnant with low-wage fathers). “Unemployment Insurance and Disability Insurance in the Great Recession” calls into question the assumption that Americans go on SSDI when their unemployment insurance runs out: “Only 28% of SSDI awardees had any labor force attachment in the prior calendar year, and of those only 4% received UI income.”

Is it all about the Benjamins? A 2:30 session “Well-Being: Measurement and Policies” suggest that maybe we can move “Beyond GDP”. Weina Zhou’s study of Chinese youths “sent down” for hard manual labor actually ended up doing better as 40-55-year-old adults and “these findings are robust against a variety of family backgrounds.” (time to plant some daffodil bulbs!) A “Cycling to School” paper finds that giving girls bicycles was “much more cost effective at increasing girls’ secondary school enrollment [in India] than comparable conditional cash transfer

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Reading List

by philg

Here are a couple of books that I have enjoyed reading recently….

Dept. of Speculationis a beautifully crafted novel about a university teacher in New York City whose husband is having an affair. Some samples of the writing:

Advice from Hesiod: Choose from among the girls who live near you and check every detail, so that your bride will not be the neighborhood joke. Nothing is better for man than a good wife, and no horror matches a bad one.

The baby’s eyes were dark, almost black, and when I nursed her in the middle of the night, she’d stare at me with a stunned, shipwrecked look as if my body were the island she’d washed up on.

And that phrase—“sleeping like a baby.” Some blonde said it blithely on the subway the other day. I wanted to lie down next to her and scream for five hours in her ear.

They have finally found a house, a brownstone with four floors and a garden, perfectly maintained, on the loveliest of blocks in the least anxiety producing of school districts, but now she finds that she spends much of her day on one floor looking for something that has actually been left on another floor.

Survival in space is a challenging endeavor. As the history of modern warfare suggests, people have generally proven themselves unable to live and work together peacefully over long periods of time. Especially in isolated or stressful situations, those living in close quarters often erupt into hostility.

The Buddha named his son Rahula, which means “fetter.” The Buddha left his wife when his son was two days old. He would never have attained enlightenment if he’d stayed, scholars say.

The husband sets up their old telescope. There is almost no light pollution here. The wife looks up at the sky. There are more stars than anyone could ever need.

The renowned Margaret Atwood has given us a linked set of short stories: Stone Mattress:

Before she finally cut him off, Gwyneth was in the habit of changing the bottom sheet to signal that at long last she was about to dole him out some thin-lipped, watery, begrudging sex on a pristine surface. Then she’d change the sheet again right afterwards to reinforce the message that he, Sam, was a germ-ridden, stain-creating, flea-bitten waste of her washing machine. She’d given up faking it – no more cardboard moaning – so the act would take place in eerie silence, enclosed in a pink, sickly sweet aura of fabric softener.

Irena should have cut him some slack in view of how close they were once, but no, Irena has a heart of asphalt, harder and drier and more sun-baked every year. Money has ruined her. His money, since it’s because of him that Irena and the other two are rich enough to afford those lawyers of theirs. Top-quality lawyers too, as good as his; not that he wants to get into a snarling, snapping, rending contest among lawyers. It’s the client who’s always the cracked-bone hyena’s breakfast: they take bites out of you, they nibble away at you like a sackful of ferrets, of rats, of piranhas, until you’re reduced to a shred, a tendon, a toenail. So he’s had to ante up, decade after decade; since, as they rightfully point out, in a court case he wouldn’t stand a chance.

She’s had enough of men for a while. She’s made an inner memo to renounce flirtations and any consequences that might result from them. She doesn’t need the cash, not any more. She’s not extravagant or greedy, she tells herself: all she ever wanted was to be protected by layer upon layer of kind, soft, insulating money, so that nobody and nothing could get close enough to harm her. Surely she has at last achieved this modest goal.

But old habits die hard, and it’s not long before she’s casting an appraising eye over her fleece-clad fellow-travellers dithering with their wheely bags in the lobby of the first-night airport hotel.

She’d chosen her acceptances with an eye to the medical condition involved, and once married she’d done her best to provide value for money. Each husband had departed not only happy but grateful, if a little sooner than might have been expected. But each had died of natural causes – a lethal recurrence of the heart attack or stroke that had hit him in the first place. All she’d done was give them tacit permission to satisfy every forbidden desire: to eat artery-clogging foods, to drink as much as they liked, to return to their golf games too soon. She’d refrained from commenting on the fact that, strictly speaking, they were being too zealously medicated. She’d wondered about the dosages, she’d say later, but who was she to set her own opinion up against a doctor’s? And if a man happened to forget that he’d already taken his pills for that evening and found them neatly laid out in their usual place and took them again, wasn’t that to be expected? Blood thinners could be so hazardous, in excess. You could bleed into your own brain. Then there was sex: the terminator, the coup de grace. Verna herself had no interest in sex as such, but she knew what was likely to work. “You only live once,” she’d been in the habit of saying, lifting a champagne glass during a candlelit supper and then setting out the Viagra, a revolutionary breakthrough but so troubling to the blood pressure. It was essential to call the paramedics in promptly, though not too promptly. “He was like this when I woke up” was an acceptable thing to say. So was “I heard a strange sound in the bathroom, and then when I went to look …” She has no regrets. She did those men a favour: surely better a swift exit than a lingering decline.

The Advanced Life wing [of a retirement home] is on a more frequent schedule; twice a day, she’s heard. Ambrosia Manor isn’t cheap, and the relatives would not take kindly to ulcerating rashes on their loved ones. They want their money’s worth, or so they’ll claim. What they most likely want in truth is a rapid and blame-free finish for the old fossils. Then they can tidy up and collect the remnants of the net worth – the legacy, the leftovers, the remains – and tell themselves they deserve it.

Note that the title story appeared in New Yorker and the full text is available online.

In my car I’m listening to Cleopatra: A Life, which is great for the context it provides on everyday life in ancient Egypt. The book also provides some contrast to modern media, which tends to portray women as powerless victims (see, for example, this article from today’s New York Times on gender gaps in the tech industry (footnote: the author doesn’t mention that if a woman in the main tech centers of California or Massachusetts wanted to have the spending power of a male tech entrepreneur she would simply need to have sex with three male tech entrepreneurs and then harvest the child support); also see this article about off-campus rape).

This New Yorker article on graphene was interesting. It shows just how long it takes for ideas to go from the lab to the local Walmart and also reminds us that newspapers invert their usual fondness for bad news when it comes to science. We hear about exciting new developments but we don’t hear about the practical problems. If you’re trying to finish writing a book, this one-page piece by Column McCann should be inspirational. “Can AIDS be Cured?” explains how the HIV virus can remain dormant in the human body and why it is so tough to eradicate (maybe a lot of viruses do that also? Lyme disease?).

Finally, if you’re a photographer and a parent check out Shutterfly’s ABC book template (under “Kids”). For about $20 (and one night staying up until 2:30 am poking through your photo library looking for images that are the right orientation and content), your toddler can have a custom book. (Feel free to supplement with any of my photos that you can find through my /stock engine.) “M is for Mindy the Crippler“…

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Why are soft serve ice cream machines so expensive?

by philg

Folks:

I want to serve gourmet Latin American food at an upcoming party. By “gourmet” of course I mean Sonoran hot dogs and Toblerone McFlurry (as served in Argentina) .

1-DSC01045

 

To make the McFlurry I need soft serve ice cream. The only thing that I could find for home use was a Cuisinart that seems like an old Donvier with a motor to do the turning and a nozzle. I had hoped for a scaled-down version of what one sees in cafeterias. I poked around and discovered that those cost $6000. The question is why? How do they work? http://www.instructables.com/answers/How-do-soft-serve-icecream-machines-work/ talks about freezing, whipping, pressure, etc., which sounds complex but if the Japanese could design breadmakers to cost $200 why aren’t soft serve machines more affordable?

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Class D amplifier for home subwoofers?

by philg

I am experimenting with in-wall speakers in a new (sort of small) house. There are a couple of in-wall passive subwoofers that I need to drive with a power amp (since home theater receivers don’t include anything other than line-level subwoofer outputs, as far as I know). I might watch a movie once a week and therefore I don’t want to spend too much money and don’t want the IT closet heated up too much if the amp is left on. I’m wondering if a Class D amplifier if the solution. Here are some ridiculously cheap examples:

What’s wrong with this idea, if anything? Has anyone tried using one of these amps to drive a 10″ in-wall subwoofer or similar? I’m assuming that the power output numbers are completely fraudulent but I figure that even if I divide by four it will be enough power.

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Why is it hard for Yahoo to make more money?

by philg

The New York Times recently devoted a lot of ink to “Why Marissa Mayer is mediocre and couldn’t turn Yahoo around.” (See Thinking, Fast and Slow for “regression to the mean” and other reasons why sought-after job candidates often don’t work out that well; also see “America’s Worst CEOs: Where are they now?”)

Yahoo! has a huge audience and a very capable team of engineers. Computers and Internet applications generally don’t do what consumers want. Why is it hard for them to build the stuff that people want? For example, Yahoo Travel doesn’t seem to add anything to other travel booking sites (in fact they say it is “powered by hipmunk”), which means that it is okay for business travel (user tells server where he or she needs to go) but terrible for leisure travel (server should tell user where is best to go given date-time constraints and activities desired; see my February 2014 posting).

Yahoo Finance is the same as Google Finance (maybe because Google copied all of their features!). Why doesn’t the server ask you about your investment goals and tell you how much to invest and where to invest it? (if not specific funds then at least asset classes)

Yahoo Mail is the same as all of the other web-based email services (see this paper by Jin Choi on an RDBMS-backed email system from the late 1990s). Since Yahoo has a staff of capable managers in India, why don’t they offer a service where they’ll actually answer the email for customers? A personal assistant who can put stuff on the Yahoo calendar, delete spam that makes it through the filter, come up with a daily to-do list, organize parties from the contacts list, etc. It is a lot easier for Yahoo to hire and supervise an employee in India than it would be for an American consumer.

As a portal company Yahoo is uniquely positioned to offer something like the online community aggregation system I wrote about back in 2009. Instead they sat idly while Facebook drained users and page views away from all of the standalone online communities. But I still think it would be worth a few programmers.

Is it really the case that the superheroes at Google, Amazon, Apple, Facebook, and Uber have used up all the oxygen? It feels to me as though there is a lot of low-hanging fruit for a company with Yahoo’s resources.

What would readers do if they could push a few new products (or features for old products) out the door at Yahoo? I’ll start with a trivial one: add the ability to publish a narrated slide show from Flickr.

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Time is ripe for Cubans to become Medicare vendors

by philg

Now that the U.S. is taking steps toward normalizing relations with our cash-poor, doctor-rich neighbor to the southeast, I am hoping that the time is ripe for Medicare to begin using Cuban medical services, as proposed in a February 2013 posting. (See my health care reform proposal for some reasons why every other country can provide health care at a lower cost than us.)

As a taxpayer I am looking forward to complete normalization of ties with Cuba. Keeping Cuba around as an official enemy is a sad reminder of how little return we get on our military and CIA dollars. If we can’t make the Castro brothers do what we tell them to, why should any other political leader listen to us?

[Separately, a friend has just returned from a trip to Costa Rica where he and his wife had complicated dental surgery at a fraction of the cost quoted in Boston. How was it? Here’s how he responded to my emailed question…

I have had nothing but bad/horrendous dental care in the US (part of why I’m having to have so much work done), so the bar has not been set high. I have seen three different specialists from one practice- a cosmetic surgeon, a periodontist, and a general? dentist. They are all US-educated and teach at the university here. Their English is perfect, they are highly intelligent, articulate, and personable. Really, the best professional experience of any type I have ever had. Their office is in Escazu, which is the Weston of CR [Weston is a rich suburb of Boston]. Lots of rich CR clients, the practice is not really oriented towards foreigners, although they do that as well.

]

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Google Play Music for Classical Music Fans

by philg

Sonos replaced my dead eight-year-old player for a reasonable price (earlier post) and threw in a coupon for 60 days of unlimited Google Play Music. I decided to try out this competitor to Rhapsody, Spotify, Pandora, et al. I clicked on a classical “radio” station. Unlike any classical FM station, but like the other streaming services, this turns out to be classical tracks selected at random. So you might get the second part of a string quartet followed by the first part of a symphony composed 100 years earlier.

Is it illegal to stream complete classical albums or at least four tracks in a row so that listeners can hear a whole symphony? If not I can’t figure out why none of the streaming services offer this from their “radio” stations. (Paying Rhapsody customers can stream entire albums, so it definitely is not illegal if the user selects the music rather than the service/station.)

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Video Conversation as Online Dating Profile?

by philg

Folks:

Nearly everyone in the U.S. has Internet access. Many online dating services are inexpensive or free. Many people are single and say that they would prefer to be partnered and/or married.

From the above facts I think it is reasonable to infer that online dating services are not very effective (see my 2011 posting on the subject).

What could work better? What about a way to learn how a person interacts with other people, e.g., in a conversation? A way to hear how they talk, laugh, respond? Why not a simple video recording of a conversation on general topics? Not “What are you looking for in a partner?” or “How many children do you want to have?” but “What did you do last weekend?” or “What do you think about some recent news stories?”

As I am a documentary filmmaker (translation: “I own a video camera”), it was easy to do a test last weekend. My friend Avni, a single 35-year-old Bostonian interested in marriage, was over for dinner. I recorded about 30 minutes of conversation and edited it down to a five-minute YouTube video.

What do folks think about the result? Does it give a better sense of Avni than a standard online dating profile listing favorite books and movies?

(And finally, if you’re looking for a warm and wonderful partner in the Boston area, send me an email and I will forward it to her!)

[Please forgive some of the technical shortcomings. It was dim light and I had an f/1.8 lens mounted and what looked like sharp focus on the back of the camera doesn’t look sharp now. If you’re a camera/video nerd, the equipment used was a Canon 5D III on a tripod, an 85/1.8 lens, and, most important, an Azden wireless microphone system (one lav mic mapped to the left channel and one to the right).]

Related: a dating profile that I created for a friend a few years ago; she married a medical doctor with a passion for online communities who was a reader of my site and now they have a very lively two-year-old daughter.

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Good article for inspiring young people to learn Mandarin

by philg

New Yorker magazine carries an article (full text available to all) about a young self-made billionaire whose success was partly due to having put in the effort to learn Mandarin while in high school.

Separately, the article covers the question of whether people will benefit from being able to get blood tests more easily and cheaply, e.g., without having to first visit a physician and without having a vein opened up. A doctor friend says “Never order a test unless you know what you’re going to do with the answer.” If he is correct then generally we will not be healthier if we get more numbers more frequently. The article also covers the question of the extent to which the FDA will regulate vertically integrated blood testing labs differently than labs who buy their machines from third-party vendors.

Regarding the second question, I queried a friend in the pharma industry. Here’s what she had to say…

A couple of things struck me, the first being the powerful friends/supporters that she has on her Board.  I really do believe that this has insulated her from some rather obvious scrutiny.  The second was the FDA representatives who appear to not have a clue regarding their own regulations.
Item: Definition
If a product is labeled, promoted or used in a manner that meets the following definition in section 201(h) of the Federal Food Drug & Cosmetic (FD&C) Act it will be regulated by the Food and Drug Administration (FDA) as a medical device and is subject to premarketing and postmarketing regulatory controls.
A device is:
“an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:
  • recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them,
  • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
  • intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.”
Item:  21 CFR 820.1
This part of the CFR details the Quality System Requirements for all Medical Devices.  In the scope section it states: “(a) Applicability. (1) Current good manufacturing practice (CGMP) requirements are set forth in this quality system regulation. The requirements in this part govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of all finished devices intended for human use.”  (Theranos is utilizing these devices for the diagnoses of human ailments, so this should be applicable.)
This section of the Code of Federal Regulations discusses exemptions for diagnostic devices, and specifically states: “…must still submit a premarket notification to FDA before introducing or delivering for introduction into interstate commerce for commercial distribution the device…”  and goes on to list circumstances and applications which appear to fit the description of this application.
I think the crux of the argument here is the interstate commerce clause, however the argument could certainly be made, and I think effectively, that because this device is being utilized as a diagnostic tool in multiple states, Theranos has definitely crossed the line into interstate commerce.

Related:

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Revisiting the 21st Century Draft Horse posting

by philg

In August 2010 I wrote a posting titled “unemployed = 21st century draft horse?” that questioned the extent to which American employers were likely to want to re-hire the lowest skilled workers in the U.S. Today’s New York Times has a related article: “The Vanishing Male Worker.” The article starts off with a guy that has been fired from two jobs that don’t require especially high levels of skill. It quotes an economist:

“They’re not working, because it’s not paying them enough to work,” said Alan B. Krueger, a leading labor economist and a professor at Princeton.

The (mostly American, presumably) readers take up this idea eagerly. There are hundreds of comments supporting raising the minimum wage and other non-market approaches to getting the least-attractive-to-employers Americans into well-paid jobs.

The employers’ perspective was not sought by the New York Times.

My own casual discussions with employers reveal a picture in which anyone with a reasonable level of attention to detail already has a job. A friend is an attorney in Denver, Colorado, where the cost of living is close to the national average. She is trying to hire an administrative assistant. This job requires no legal knowledge. The worker has simply to show up on time, be able to use Web sites such as Orbitz to book travel, be organized enough to keep a calendar, etc. How much will she have to pay to get someone qualified? “At least $70,000 per year,” was her answer, and in fact she hasn’t been able to find anyone good so far.

[In response to comments, I researched the Bureau of Labor Statistics numbers on what admin assistants get paid. It seems that roughly $50,000 per year is a national median, with a range of $32,000 to $75,000 per year going from the 10th to the 90th percentile. Thus the lawyer’s expectation of  her (large) firm paying $70k/year for a high quality assistant is not unreasonable  Returning to the median $50,000 number, that’s about 3X current minimum wage for a job that requires no specialized training or degrees (i.e., a diligent high school graduate could be effective in the role). In my opinion this supports the theory that any American who can be effective in a modern workplace is already highly sought-after by employers and therefore continued economic expansion won’t result in a flood of job offers to the men featured in the New York Times article.]

So… was the 2010 posting prescient? Or will the seventh year of “recovery” somehow make American employers enthusiastic about those working-age Americans who’ve spent the past six years at home?

[Note that government regulation over the past six years has made low-skill workers less attractive to employers. Obamacare requires that more employees be provided with health insurance (a big fraction of the total cost of hiring a low-skill worker). Minimum wages are higher in some places and for some employers, e.g., those with government contracts. The Lilly Ledbetter Fair Pay Act (2009) opens up new fields of potential litigation.]

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