Analytical Summaries of Key Stories of the Week on Economics and Public Policy
A Funding Roadblock Ahead for Clean Energy (New York Times)
Kate Galbraith of the New York Times explores the question of what will happen to efforts to finance green energy projects “once the stimulus funding runs out.”
Analysis: Obama Scores Major, Much-Needed Victory (Associated Press)
News analysis piece by AP’s Liz Sidoti on the House of Representatives passing “the first energy legislation ever designed to curb global warming.” Also explores the implications of this legislative success for President Obama’s healthcare efforts.
Betraying the Planet (New York Times)
Renowned economist Paul Krugman scolds the 212 House of Representatives members who voted against the Waxman-Markey climate change bill, characterizing them as climate-change deniers who are committing what is tantamount to “treason against the planet.”
Can Governments Till the Fields of Innovation? (New York Times)
The dicey question of whether governments can play an effective role in driving the private sector toward creating new industries in such areas as energy and healthcare to revitalize the economy and create jobs is explored in this report from Steve Lohr of the New York Times.
Confidence in Stimulus Plan Ebbs, Poll Finds (Washington Post)
A new Washington Post-ABC News Poll finds that barely half of Americans remain confident that the stimulus package will be effective in turning the economy around, according to this report by Washington Post staff writers Dan Balz and John Cohen.
Inflation – The Real Threat To Sustained Recovery (Financial Times / Tehran Times)
Former Fed Chairman Alan Greenspan cautions that failure to pare back the U.S. federal budget deficits and pubic sector debt after the economy turns around could set the stage for inflation and stifle the effectiveness of private market forces in efficiently allocating resources, in this Financial Times column reprinted in the Tehran Times.
The Debt Tsunami (Washington Post)
A Washington Post editorial characterizes the latest long-term U.S. federal budget deficit projections from the Congressional Budget Office (CBO) as “scarier than ever.”
Sphere: Related Content
Tuesday, June 30, 2009
Saturday, June 27, 2009
Do Something. Now.
I’ve touched before on the issue of what I think, ultimately, will propel us out of The Great Recession. But I’d like to expand upon it a little more now. On the one hand I agree with those economists who have acknowledged that such measures as bank bailouts and the stimulus package have been essential to preventing a crisis from becoming a calamity, as well as those who have asserted that there is already evidence that these measures have succeeded in slowing the downturn and bringing us close to a bottom -- if, in fact, we aren’t there already.
But, on the other hand, I also believe that, in the final analysis, it isn’t really going to matter all that much what government does. Government interventions may jump-start the beginning of the next up cycle, but they won’t be the primary factor or “first cause.”
All this is based on the assumption that we will remain, fundamentally, a free country with an economic system based on reasonably free enterprise. I think the likelihood is extremely high that this assumption will hold true, in spite of the efforts of some conservative commentators to incite McCarthy-esque, anti-socialist paranoia. Notwithstanding what Rush Limbaugh might say, we’re not about to turn into the next Cuba. The checks and balances built into our system are working -- we can see the congress and the administration compromising when they find the may have strayed too far beyond the public consensus.
Taxes may increase, as may regulations. And this may indeed alter the “topography,” if you will, of the business playing field. But it won’t block access to the field. As long as we remain a free people, and as long as our spirits of ambition, self-reliance, enterprise, ingenuity, and inventiveness do not for some reason become broken or stifled, we will adjust to the new topography. We’re homo sapiens, after all, and Americans. So we have the ability to adapt to a changing environment.
Business Will Adapt to the Topography of the New Playing Field
In the same way that human beings likely emerged as a species in a hot tropical environment but successfully adapted to be able to succeed in diverse settings ranging from the Sahara Desert to Iceland, we Americans should be able to adapt to and prosper in whatever environment of reasonable taxation and regulation we end up with -- through the same inventiveness, ambition, and work ethic that have served us well thus far.
This won’t be the first time our economy has experienced basic structural changes that have altered the topography of the playing field. Changes occur all the time, and businesses and the individuals who lead and work in them will adjust to the new environment, as they have in the past.
Example One: The Two-Income Household
Examples? Well, in the years following World War II until, perhaps, the late 1970s, it was very possible for an average Joe to get an average job with a compensation level that would support a family reasonably well without the need for his wife to work. But as women increasingly entered the labor force the dynamics of the labor market changed.
In the early phases of the two-income, middle-class household phenomenon, the wife’s return to work was a way to substantially increase a family’s standard of living. But as the number of two-income families increased, the labor pool grew faster than the rate of available jobs, and the market moved gradually toward an equilibrium at which the average Joe or Jane could only earn about half of what it takes to sustain a middle-class lifestyle.
I would argue that, today, perhaps with a few exceptions in certain industries and occupations, a middle-class worker needs to rise to at least middle-management level to earn compensation sufficient to support a family as the sole wage earner. So for households in which neither spouse has yet achieved that rank, the second income is not an enhancement to the standard of living but a virtual necessity to enter the middle class.
This might not be the most positive example, but it shows how business adapt when the playing field changes. The labor supply expanded, so the true cost of labor went down -- simple supply and demand.
Example Two: The Impact of Taxes
I think taxation has a similar effect. The fact that we pay income taxes is factored into the hidden “formula” that sets wage levels. Do you really think that, if the federal income tax were eliminated tomorrow, your employer would continue paying you, indefinitely, as if you were still paying taxes?
I don’t think so. While you might experience a short-term windfall, eliminating taxes would simply create a basic structural change in the cost of labor, and market forces would adjust your real compensation gradually to return you to about the same level of net purchasing power, through such means as reduced annual increases and reduced ability to negotiate higher salaries for in-house promotions or moves to other employers.
For businesses to keep nominal compensation the same if employees were no longer paying taxes would be patently irrational. This is why I believe that, in much of our political debate, taxes are little more than a rhetorical bogeyman.
The same would hold for increased taxes on businesses or on wealthy business owners, who, again, would eventually pass on their increased tax costs in the form of higher prices or, yes, even job cuts. In reaction to both of these responses to tax increases, the market would return to a new equilibrium. Increased prices, for example, would place more upward pressure on wages, while job cuts would provide other businesses with the opportunity to benefit from the talents of displaced workers.
Indeed, if market forces are as strong as those on the unconditional laissez-faire side of the equation insist that they are, one might wonder what the fuss over taxation is really all about. If the invisible hand always prevails, the system should be able to adjust to a new equilibrium no matter what government does, short of extremely draconian, fascistic restrictions on business activity or extremely high, confiscatory tax levels -- neither of which is likely in this country, at least under current conditions.
The Response to Crisis Generates Energy -- And Value
The illustrations I’ve offered here are rather lengthy, but the underlying principle of the ability of business to adapt brings me back to my basic premise. The current crisis has already changed the economic playing field in this country. And the playing field would have changed with our without the significant government intervention we have seen. Pain has been inflicted upon many in the process, both in terms of businesses and individuals.
But this pain, these challenges, can also be looked at as an infusion of energy, like an injection of strong medicine that initially causes pain to a patient from the needle prick, and perhaps some queasiness as the drug enters the bloodstream. Nevertheless, the medicine will ultimately do its good work. And those who have suffered setbacks may find themselves more motivated than ever to take actions that will improve their situation and improve their ability to withstand a future crisis.
It’s a cliché, but I’ll say it anyway: a time of crisis is a time of opportunity for those willing to say “No!” to the temptation to sit around and stew, for those willing to, instead, get off their butts and do something. Maybe it’s a career change. Maybe it’s starting a new business. Maybe it’s making painful decisions about whether to unload the McMansion at a substantially-reduced, post-bubble price and downsize to a more modest -- and perhaps more realistic and sustainable -- lifestyle.
But what all of these responses to crisis have in common is that they are all actions. And we know from physics that every action creates an equal and opposite reaction. These acts of “doing something” will create ripples of energy in the economy, and this energy will eventually show up somewhere as added value. One person’s “fire-sale” on their McMansion becomes someone else’s bargain investment that will eventually produce a return in terms of an enhanced standard of living, rental income, or a capital gain after the market turns around. One company’s layoff of a mid-level manager may mark the birth of a new entrepreneurial venture, successful freelance career, or unexpected and positively life-altering occupational change.
In the aggregate, these ripples of energy, created in the course of one “decision to do something” at a time, will have a tremendous impact. It is ultimately this energy, rather than stimulus packages or centrally planned systemic overhauls, that will drive the next up cycle.
So do something. Now. Don’t sit around and mope about multi-trillion dollar deficits or whether healthcare reform will lead to higher taxes and unfunded liabilities. Don’t focus so much on what the dueling pundits are saying. Instead, do some creative thinking about what next move might work best for you, and give it your best effort.
It won’t be easy, and there are no guarantees of immediate success. There are, after all, and however sadly, no guarantees for any of us in this journey of life. But at a minimum the effort will generate “psychic income,” as a learning experience that will leave you stronger and better prepared for whatever it is that life has in store for you next. And although it might take a while, with sustained effort you have a good chance of ending up in a place you’ll like better than where you were before. Sphere: Related Content
But, on the other hand, I also believe that, in the final analysis, it isn’t really going to matter all that much what government does. Government interventions may jump-start the beginning of the next up cycle, but they won’t be the primary factor or “first cause.”
All this is based on the assumption that we will remain, fundamentally, a free country with an economic system based on reasonably free enterprise. I think the likelihood is extremely high that this assumption will hold true, in spite of the efforts of some conservative commentators to incite McCarthy-esque, anti-socialist paranoia. Notwithstanding what Rush Limbaugh might say, we’re not about to turn into the next Cuba. The checks and balances built into our system are working -- we can see the congress and the administration compromising when they find the may have strayed too far beyond the public consensus.
Taxes may increase, as may regulations. And this may indeed alter the “topography,” if you will, of the business playing field. But it won’t block access to the field. As long as we remain a free people, and as long as our spirits of ambition, self-reliance, enterprise, ingenuity, and inventiveness do not for some reason become broken or stifled, we will adjust to the new topography. We’re homo sapiens, after all, and Americans. So we have the ability to adapt to a changing environment.
Business Will Adapt to the Topography of the New Playing Field
In the same way that human beings likely emerged as a species in a hot tropical environment but successfully adapted to be able to succeed in diverse settings ranging from the Sahara Desert to Iceland, we Americans should be able to adapt to and prosper in whatever environment of reasonable taxation and regulation we end up with -- through the same inventiveness, ambition, and work ethic that have served us well thus far.
This won’t be the first time our economy has experienced basic structural changes that have altered the topography of the playing field. Changes occur all the time, and businesses and the individuals who lead and work in them will adjust to the new environment, as they have in the past.
Example One: The Two-Income Household
Examples? Well, in the years following World War II until, perhaps, the late 1970s, it was very possible for an average Joe to get an average job with a compensation level that would support a family reasonably well without the need for his wife to work. But as women increasingly entered the labor force the dynamics of the labor market changed.
In the early phases of the two-income, middle-class household phenomenon, the wife’s return to work was a way to substantially increase a family’s standard of living. But as the number of two-income families increased, the labor pool grew faster than the rate of available jobs, and the market moved gradually toward an equilibrium at which the average Joe or Jane could only earn about half of what it takes to sustain a middle-class lifestyle.
I would argue that, today, perhaps with a few exceptions in certain industries and occupations, a middle-class worker needs to rise to at least middle-management level to earn compensation sufficient to support a family as the sole wage earner. So for households in which neither spouse has yet achieved that rank, the second income is not an enhancement to the standard of living but a virtual necessity to enter the middle class.
This might not be the most positive example, but it shows how business adapt when the playing field changes. The labor supply expanded, so the true cost of labor went down -- simple supply and demand.
Example Two: The Impact of Taxes
I think taxation has a similar effect. The fact that we pay income taxes is factored into the hidden “formula” that sets wage levels. Do you really think that, if the federal income tax were eliminated tomorrow, your employer would continue paying you, indefinitely, as if you were still paying taxes?
I don’t think so. While you might experience a short-term windfall, eliminating taxes would simply create a basic structural change in the cost of labor, and market forces would adjust your real compensation gradually to return you to about the same level of net purchasing power, through such means as reduced annual increases and reduced ability to negotiate higher salaries for in-house promotions or moves to other employers.
For businesses to keep nominal compensation the same if employees were no longer paying taxes would be patently irrational. This is why I believe that, in much of our political debate, taxes are little more than a rhetorical bogeyman.
The same would hold for increased taxes on businesses or on wealthy business owners, who, again, would eventually pass on their increased tax costs in the form of higher prices or, yes, even job cuts. In reaction to both of these responses to tax increases, the market would return to a new equilibrium. Increased prices, for example, would place more upward pressure on wages, while job cuts would provide other businesses with the opportunity to benefit from the talents of displaced workers.
Indeed, if market forces are as strong as those on the unconditional laissez-faire side of the equation insist that they are, one might wonder what the fuss over taxation is really all about. If the invisible hand always prevails, the system should be able to adjust to a new equilibrium no matter what government does, short of extremely draconian, fascistic restrictions on business activity or extremely high, confiscatory tax levels -- neither of which is likely in this country, at least under current conditions.
The Response to Crisis Generates Energy -- And Value
The illustrations I’ve offered here are rather lengthy, but the underlying principle of the ability of business to adapt brings me back to my basic premise. The current crisis has already changed the economic playing field in this country. And the playing field would have changed with our without the significant government intervention we have seen. Pain has been inflicted upon many in the process, both in terms of businesses and individuals.
But this pain, these challenges, can also be looked at as an infusion of energy, like an injection of strong medicine that initially causes pain to a patient from the needle prick, and perhaps some queasiness as the drug enters the bloodstream. Nevertheless, the medicine will ultimately do its good work. And those who have suffered setbacks may find themselves more motivated than ever to take actions that will improve their situation and improve their ability to withstand a future crisis.
It’s a cliché, but I’ll say it anyway: a time of crisis is a time of opportunity for those willing to say “No!” to the temptation to sit around and stew, for those willing to, instead, get off their butts and do something. Maybe it’s a career change. Maybe it’s starting a new business. Maybe it’s making painful decisions about whether to unload the McMansion at a substantially-reduced, post-bubble price and downsize to a more modest -- and perhaps more realistic and sustainable -- lifestyle.
But what all of these responses to crisis have in common is that they are all actions. And we know from physics that every action creates an equal and opposite reaction. These acts of “doing something” will create ripples of energy in the economy, and this energy will eventually show up somewhere as added value. One person’s “fire-sale” on their McMansion becomes someone else’s bargain investment that will eventually produce a return in terms of an enhanced standard of living, rental income, or a capital gain after the market turns around. One company’s layoff of a mid-level manager may mark the birth of a new entrepreneurial venture, successful freelance career, or unexpected and positively life-altering occupational change.
In the aggregate, these ripples of energy, created in the course of one “decision to do something” at a time, will have a tremendous impact. It is ultimately this energy, rather than stimulus packages or centrally planned systemic overhauls, that will drive the next up cycle.
So do something. Now. Don’t sit around and mope about multi-trillion dollar deficits or whether healthcare reform will lead to higher taxes and unfunded liabilities. Don’t focus so much on what the dueling pundits are saying. Instead, do some creative thinking about what next move might work best for you, and give it your best effort.
It won’t be easy, and there are no guarantees of immediate success. There are, after all, and however sadly, no guarantees for any of us in this journey of life. But at a minimum the effort will generate “psychic income,” as a learning experience that will leave you stronger and better prepared for whatever it is that life has in store for you next. And although it might take a while, with sustained effort you have a good chance of ending up in a place you’ll like better than where you were before. Sphere: Related Content
Friday, June 26, 2009
“That’s Crazy Talk!”: The Very Special Subfield of Schizonomics
Schizonomics is neither an original term that I can take credit for coining nor, on the other hand, a term that has any particular established meaning. A Google search on the word today produced a little over 200 hits, with usages spanning a variety of contexts and meanings.
As I use it, it’s a term that popped into my mind as being especially descriptive of a particular category of lay economic theories — one could perhaps describe them as “folk theories — that lie outside the accepted mainstream of basic beliefs about how the world’s systems of money, banking, finance, and business work, and that involve some form of conspiratorial, paranoid, or otherwise fringy thinking.
Schizonomics, in other words, could be used to describe theories such as the one that holds that the U.S. Federal Reserve system is controlled by and acts in the interests of a secretive group of unimaginably rich private financiers, or that the economies of the world’s nations are driven by some mysterious international cabal who have sinister agendas and perhaps even bow down before the powers and principalities of darkness.
The biggest sticking-point about such theories is that they are virtually impossible to prove or disprove by any conventional, empirically acceptable means that would be based on authoritative evidence or logical principles. Conclusively debunking such theories essentially imposes on the observer the burden of “proving a negative.” In other words, if you ask me to prove that winged purple elephants with pink polka dots do not exist, I would never be able to do so. And I am no more able to prove that the Federal Reserve and other bodies of the global financial and economic system are not controlled by evil, conspiratorial cabals.
Scientists and philosophers are fond of labeling such propositions as “null questions.” This on the one hand is useful for framing what is productive for discussion versus what is not. However, I believe that labeling some propositions as null is sometimes also used for purposes of convenience, face saving, or political gain, as a means of evading questions that may pose challenges and threats to basic scientific or epistemological assumptions that may have in fact not been proven beyond all doubt yet are fundamental to a given field of inquiry.
What brought me recently to the subject of schizonomics was an odd conversation that I had the other day with a fellow in a store. The conversation started innocently enough, centering on different types of smart-phones and handheld devices. But somehow the subject crept in the direction of business and politics.
To make a long story short, it ended with the gentleman asserting that a little known fact is that there are individuals in this world who are worth not only multiple billions, but multiple trillions and quadrillions, and that it is those in that group who are steering current economic events and controlling major institutions like the Fed. He said that Bill Gates is a peasant compared to this mysterious group of the super wealthy.
An important qualifier here is that I cannot recall, for certain, that he was referring to billions and quadrillions of U.S. dollars. There are certainly trillionaires and quadrillionaries in certain hyperinflated foreign countries, but some of those same countries have minimum wage levels in the billons while the average worker doesn’t earn enough in a month to buy a loaf of bread.
But in the context of the discussion, it seems likely that he was referring to wealth in U.S. dollars. And the proposition that there are individual secret trillionaires and quadrillionaires with fortunes in U.S. dollars is one of those questions we might label as null due to its virtual impossibility of proof or disproof.
The gentleman also talked about interest rates on the U.S. national debt, claiming, for example, that the Reagan administration paid 24 percent interest on federal budget deficits. This may in fact have, at least at some point, been true, given the extraordinarily high interest rates in the U.S. during the late 1970s and early 1980s. But interest rates returned to much lower levels, and rates on bonds issued by governments can fluctuate substantially. This is normal and is no secret.
He then went on to talk about truths he’d discovered recently about how individual investors can generate wealth at surprising rates by taking advantage of “the magic of compound interest” and lending to governments. This leads to the likely conclusion that he was involved in or trying to sell a government bond arbitrage scheme, with some cultish, paranoid background elements thrown in for marketing purposes.
Is it possible to get rich quick through such means as bond arbitrage schemes? Maybe. For any given system, there is almost always a way to game it. That’s exactly what happened with subprime mortgages and credit default swaps and, for that matter, with Internet stocks.
But the problem is that when too many people, with or without a schizonomical element, start gaming a system, the system eventually collapses. Someone ends up being the last to enter the pyramid scheme and loses their shirt.
So was this dude in the store a Very Special schizoeconomist, or just a sharp operator with a clever way to sell some slick investment scheme? Or did he perhaps even have some kind of legitimate and profitable investment strategy to promote?
My answer is that I don’t think I even want to go there. To me, those questions are in the same category as asking me to prove that the Fed isn’t run by a conspiratorial cabal. Sphere: Related Content
As I use it, it’s a term that popped into my mind as being especially descriptive of a particular category of lay economic theories — one could perhaps describe them as “folk theories — that lie outside the accepted mainstream of basic beliefs about how the world’s systems of money, banking, finance, and business work, and that involve some form of conspiratorial, paranoid, or otherwise fringy thinking.
Schizonomics, in other words, could be used to describe theories such as the one that holds that the U.S. Federal Reserve system is controlled by and acts in the interests of a secretive group of unimaginably rich private financiers, or that the economies of the world’s nations are driven by some mysterious international cabal who have sinister agendas and perhaps even bow down before the powers and principalities of darkness.
The biggest sticking-point about such theories is that they are virtually impossible to prove or disprove by any conventional, empirically acceptable means that would be based on authoritative evidence or logical principles. Conclusively debunking such theories essentially imposes on the observer the burden of “proving a negative.” In other words, if you ask me to prove that winged purple elephants with pink polka dots do not exist, I would never be able to do so. And I am no more able to prove that the Federal Reserve and other bodies of the global financial and economic system are not controlled by evil, conspiratorial cabals.
Scientists and philosophers are fond of labeling such propositions as “null questions.” This on the one hand is useful for framing what is productive for discussion versus what is not. However, I believe that labeling some propositions as null is sometimes also used for purposes of convenience, face saving, or political gain, as a means of evading questions that may pose challenges and threats to basic scientific or epistemological assumptions that may have in fact not been proven beyond all doubt yet are fundamental to a given field of inquiry.
What brought me recently to the subject of schizonomics was an odd conversation that I had the other day with a fellow in a store. The conversation started innocently enough, centering on different types of smart-phones and handheld devices. But somehow the subject crept in the direction of business and politics.
To make a long story short, it ended with the gentleman asserting that a little known fact is that there are individuals in this world who are worth not only multiple billions, but multiple trillions and quadrillions, and that it is those in that group who are steering current economic events and controlling major institutions like the Fed. He said that Bill Gates is a peasant compared to this mysterious group of the super wealthy.
An important qualifier here is that I cannot recall, for certain, that he was referring to billions and quadrillions of U.S. dollars. There are certainly trillionaires and quadrillionaries in certain hyperinflated foreign countries, but some of those same countries have minimum wage levels in the billons while the average worker doesn’t earn enough in a month to buy a loaf of bread.
But in the context of the discussion, it seems likely that he was referring to wealth in U.S. dollars. And the proposition that there are individual secret trillionaires and quadrillionaires with fortunes in U.S. dollars is one of those questions we might label as null due to its virtual impossibility of proof or disproof.
The gentleman also talked about interest rates on the U.S. national debt, claiming, for example, that the Reagan administration paid 24 percent interest on federal budget deficits. This may in fact have, at least at some point, been true, given the extraordinarily high interest rates in the U.S. during the late 1970s and early 1980s. But interest rates returned to much lower levels, and rates on bonds issued by governments can fluctuate substantially. This is normal and is no secret.
He then went on to talk about truths he’d discovered recently about how individual investors can generate wealth at surprising rates by taking advantage of “the magic of compound interest” and lending to governments. This leads to the likely conclusion that he was involved in or trying to sell a government bond arbitrage scheme, with some cultish, paranoid background elements thrown in for marketing purposes.
Is it possible to get rich quick through such means as bond arbitrage schemes? Maybe. For any given system, there is almost always a way to game it. That’s exactly what happened with subprime mortgages and credit default swaps and, for that matter, with Internet stocks.
But the problem is that when too many people, with or without a schizonomical element, start gaming a system, the system eventually collapses. Someone ends up being the last to enter the pyramid scheme and loses their shirt.
So was this dude in the store a Very Special schizoeconomist, or just a sharp operator with a clever way to sell some slick investment scheme? Or did he perhaps even have some kind of legitimate and profitable investment strategy to promote?
My answer is that I don’t think I even want to go there. To me, those questions are in the same category as asking me to prove that the Fed isn’t run by a conspiratorial cabal. Sphere: Related Content
Wednesday, June 24, 2009
The Undismal Weekly Wrap-Up -- June 14-20, 2009
Analytical Summaries of Key Stories of the Week on Economics and Public Policy
As U.S. Takes Tumble, Growing Cries For Policy (Reuters)
Nick Carey reports that, in the wake of the current economic crisis, not only the general public, but now even corporate leaders are beginning to embrace the concept of an increased role of government in formulating financial, economic, and industrial policies and regulations.
Green Economy Investments Bring 300 Percent More Jobs, Reports Find (Reuters)
Analysis by Matthew Wheeland of reports from Green for All, the Natural Resources Defense Council, and the University of Massachusetts at Amherst's Political Economy Research Institute (PERI) indicates that moving toward a low-carbon, energy efficient economy could create 1.7 million new jobs.
How is Money Created? Debunking Some Myths About Recent Policies to Stabilize the Financial System and the Economy (FindLaw)
Neil H. Buchanan addresses popular misconceptions about current monetary policies in response to the recession, such as the misguided belief that the Fed’s actions are tantamount to “printing money” and pose the threat of hyperinflation.
Public Starting to Question Obama Economic Policies (ABC News)
In a review of several recent polls, Jake Tapper reports on indications of increasing unease among the general public about President Obama’s fiscal policies, in spite of his enduring personal popularity.
South Korean PM Says Threats From Climate Change, Economic Crisis Not Mutually Exclusive (Associated Press)
AP journalist Kelly Olsen reports on comments by Prime Minister Han Seung-soo of South Korea about the threats climate change poses to Asia and the danger of separating this situation from the global economic crisis.
Twin Threat: Jobless Rate, Deficit (Wall Street Journal)
Jonathan Weisman explores the quandary the Obama administration faces in attempting to deal with the often-conflicting goals of stemming the tide of unemployment while also trying to restrain runaway budget deficits.
US FED: Warsh Warns Against Singular Focus On 'Stability Experiment' (Forbes)
Federal Reserve Governor Kevin Warsh has cautioned that policy efforts that overemphasize economic stability could stifle future economic growth, according to this report from Reuters. Sphere: Related Content
As U.S. Takes Tumble, Growing Cries For Policy (Reuters)
Nick Carey reports that, in the wake of the current economic crisis, not only the general public, but now even corporate leaders are beginning to embrace the concept of an increased role of government in formulating financial, economic, and industrial policies and regulations.
Green Economy Investments Bring 300 Percent More Jobs, Reports Find (Reuters)
Analysis by Matthew Wheeland of reports from Green for All, the Natural Resources Defense Council, and the University of Massachusetts at Amherst's Political Economy Research Institute (PERI) indicates that moving toward a low-carbon, energy efficient economy could create 1.7 million new jobs.
How is Money Created? Debunking Some Myths About Recent Policies to Stabilize the Financial System and the Economy (FindLaw)
Neil H. Buchanan addresses popular misconceptions about current monetary policies in response to the recession, such as the misguided belief that the Fed’s actions are tantamount to “printing money” and pose the threat of hyperinflation.
Public Starting to Question Obama Economic Policies (ABC News)
In a review of several recent polls, Jake Tapper reports on indications of increasing unease among the general public about President Obama’s fiscal policies, in spite of his enduring personal popularity.
South Korean PM Says Threats From Climate Change, Economic Crisis Not Mutually Exclusive (Associated Press)
AP journalist Kelly Olsen reports on comments by Prime Minister Han Seung-soo of South Korea about the threats climate change poses to Asia and the danger of separating this situation from the global economic crisis.
Twin Threat: Jobless Rate, Deficit (Wall Street Journal)
Jonathan Weisman explores the quandary the Obama administration faces in attempting to deal with the often-conflicting goals of stemming the tide of unemployment while also trying to restrain runaway budget deficits.
US FED: Warsh Warns Against Singular Focus On 'Stability Experiment' (Forbes)
Federal Reserve Governor Kevin Warsh has cautioned that policy efforts that overemphasize economic stability could stifle future economic growth, according to this report from Reuters. Sphere: Related Content
Saturday, June 20, 2009
Always Looking for Guest Contributions
If you’re a writer with some knowledge about the basic subject matter of this blog -- economics and public policy -- we would be pleased to consider your guest posts. We’ll consider anything ranging from briefs of around 150 words to feature-length pieces of 1,500 words plus. And we encourage submissions from any political perspective. Anyone who has read this blog has surely figured out that we have our own perspective on the issues, but this blog was founded to spur a constructive dialogue from a full range of perspectives. So, if you’d like to contribute, please contact the editor at haywardwc@gmail.com.
Sphere: Related Content
Friday, June 19, 2009
Insisting on a Better Way
It is surely no coincidence that, during the past several weeks, when the healthcare reform effort has been reaching a critical point, the voices of opposition against the Obama administration's economic policies have grown increasingly shrill.
On the other hand, it is a pleasant coincidence that, as we near Father's Day, some of my primary illustrations of the theme of this post come from a couple of stories my father told me long ago.
The first story was about how my grandfather reacted when the first motion pictures with sound ever came out. People called them "Talkies," at least in the small New Hampshire town where Dad was born and raised, to distinguish them from the silent movies of the day. My grandfather, according to Dad, characterized Talkies as a fad that would never last.
Far be it from me to poke fun at my late grandfather for this. He was a man of his times. And a man of his environment.
That environment is illustrated vividly by the second of my father's stories that came to mind as I formulated this post. The town that was home to my father and grandfather was the same place where, at a town hall meeting, when the topic of improving the literacy of local students was being discussed, an elderly citizen stood up and said "I don't believe in readin'. Readin' rots the mind." This is of course a very narrow view by a more contemporary and cosmopolitan standard, but it was a view that represented a pattern of thinking that has not been uncommon in certain places and times.
Let's be grateful that there have always been people who, even if they're usually in the minority, have been more open and imaginative in their thinking -- people, in other words, who insisted that there must be a better way. What would cinema be today if everyone had shared my grandfather's opinion of Talkies? And what would our entire society, let alone our educational system, look like if everyone shared the opinion of the elderly gentleman at the town hall meeting?
How does this relate to the healthcare reform debate? Well, it hit home for me during the first hour of All Things Considered on NPR today. I heard a teaser on a story that, as I write, may not yet have even aired. It featured interviews with physicians from Howard County, Maryland, on the subject of healthcare costs.
In a brief sound bite, one of the docs was talking in plaintive tones about the countless hours that are wasted on such bureaucratic processes as filling out forms, verifying insurance coverage, and so on, implying that costs could be reduced drastically if only we could make better use of all the modern technologies and resources at our disposal to make the process of managing healthcare more efficient.
So far, our wonderful, privately managed, competitive healthcare system hasn't accomplished that efficiency.
The real question, when you cut through all the partisan rhetoric, and through the squeals of interest groups who feel that the government is about to take away the fat slice chocolate cake they've grown used to having after every meal, is "how can we find away to do this better?"
If we engage in "readin' rots the mind" or "Talkies are a fad" thinking, we get to the kind of rhetoric we're hearing now -- "ObamaCare will bankrupt the country and destroy the best healthcare system in the world"; or "the system is so hopelessly broken that there's no fixing it"; or "government is incapable of making anything better and more efficient"; or "we'll end up with the nightmare scenarios of endless waiting lists for surgeries, rationing, and denials of treatment that you see in Canada and the UK."
Behind all that rhetoric, basically, is the kind of "it can't be done" thinking that hinders progress. It's like saying, before television, that "it's impossible to send pictures through the air." And it also reminds me of something that was said by an old-school mainframe programmer who worked for an organization where I used to work. His opinion in the early stages of an effort to migrate our content management system from mainframes to PCs was that "it can't be done."
The destructiveness of this kind of thinking is self-evident. And perhaps, unfortunately, there may even be a trace of it in the approach of compromise that Congress and the administration feel they have had to adopt in conceding that single-payer is off the table. The administration, in other words, should perhaps be doing a better job at articulating the message of "there must be a better way" to deliver healthcare to U.S. citizens, and the message that, even though our current, flawed system may indeed be the best in the world, at least in terms of creating innovative treatments, it doesn't mean that it can't be made better.
There must be a better way. That's the message that President Kennedy so successfully conveyed to the people in rallying support for the effort to land a man on the moon. And perhaps that's the message that President Obama should be articulating on healthcare reform. What if there's a way to still allow doctors, health insurers, and other healthcare professionals to be reasonably compensated, and to insure all Americans and give them fair and equal access to the best available treatments, without the need to put the private healthcare industry out of business?
The simplistic rhetoric we're hearing is all of the "either, or" variety -- public OR private; capitalist OR socialist; free market OR government-run. But those who are squealing loudest are likely to be those who have the most to lose. It's the same pattern that occurs in the "not in my backyard" reaction to certain public service projects, or the "don't cut my pork-barrel project" reaction to government budget cuts.
But the real issues aren't about any of that. It's all about finding a better way, about insisting that there is a better way. We need "we're going to put a man on the moon in 10 years" thinking here, not "reading rots the mind" or "Talkies are a fad" thinking.
Are Congress and the administration compromising too much, or not thinking boldly enough? Perhaps at this stage the best we can hope for in the near term is a baby step of progress. But if that's the case, let's not take our eyes off the long-term aspiration for a better way.
I'm glad that my father, in spite of a tendency in his home town to look at things from a rather narrow perspective, was someone who realized that there must be a better way to live, and got himself an education and allowed his life to take on broader horizons, both geographically and intellectually, enabling me to have a life much richer in possibilities.
Let's take a lesson from that model and from everyone else who understands the value of insisting on a better way, and apply it to our thinking and decision making on healthcare reform, and to the feedback and criticism we provide to the elected officials who are currently engaging in the debate.
And Happy Father's Day, Dad. Sphere: Related Content
On the other hand, it is a pleasant coincidence that, as we near Father's Day, some of my primary illustrations of the theme of this post come from a couple of stories my father told me long ago.
The first story was about how my grandfather reacted when the first motion pictures with sound ever came out. People called them "Talkies," at least in the small New Hampshire town where Dad was born and raised, to distinguish them from the silent movies of the day. My grandfather, according to Dad, characterized Talkies as a fad that would never last.
Far be it from me to poke fun at my late grandfather for this. He was a man of his times. And a man of his environment.
That environment is illustrated vividly by the second of my father's stories that came to mind as I formulated this post. The town that was home to my father and grandfather was the same place where, at a town hall meeting, when the topic of improving the literacy of local students was being discussed, an elderly citizen stood up and said "I don't believe in readin'. Readin' rots the mind." This is of course a very narrow view by a more contemporary and cosmopolitan standard, but it was a view that represented a pattern of thinking that has not been uncommon in certain places and times.
Let's be grateful that there have always been people who, even if they're usually in the minority, have been more open and imaginative in their thinking -- people, in other words, who insisted that there must be a better way. What would cinema be today if everyone had shared my grandfather's opinion of Talkies? And what would our entire society, let alone our educational system, look like if everyone shared the opinion of the elderly gentleman at the town hall meeting?
How does this relate to the healthcare reform debate? Well, it hit home for me during the first hour of All Things Considered on NPR today. I heard a teaser on a story that, as I write, may not yet have even aired. It featured interviews with physicians from Howard County, Maryland, on the subject of healthcare costs.
In a brief sound bite, one of the docs was talking in plaintive tones about the countless hours that are wasted on such bureaucratic processes as filling out forms, verifying insurance coverage, and so on, implying that costs could be reduced drastically if only we could make better use of all the modern technologies and resources at our disposal to make the process of managing healthcare more efficient.
So far, our wonderful, privately managed, competitive healthcare system hasn't accomplished that efficiency.
The real question, when you cut through all the partisan rhetoric, and through the squeals of interest groups who feel that the government is about to take away the fat slice chocolate cake they've grown used to having after every meal, is "how can we find away to do this better?"
If we engage in "readin' rots the mind" or "Talkies are a fad" thinking, we get to the kind of rhetoric we're hearing now -- "ObamaCare will bankrupt the country and destroy the best healthcare system in the world"; or "the system is so hopelessly broken that there's no fixing it"; or "government is incapable of making anything better and more efficient"; or "we'll end up with the nightmare scenarios of endless waiting lists for surgeries, rationing, and denials of treatment that you see in Canada and the UK."
Behind all that rhetoric, basically, is the kind of "it can't be done" thinking that hinders progress. It's like saying, before television, that "it's impossible to send pictures through the air." And it also reminds me of something that was said by an old-school mainframe programmer who worked for an organization where I used to work. His opinion in the early stages of an effort to migrate our content management system from mainframes to PCs was that "it can't be done."
The destructiveness of this kind of thinking is self-evident. And perhaps, unfortunately, there may even be a trace of it in the approach of compromise that Congress and the administration feel they have had to adopt in conceding that single-payer is off the table. The administration, in other words, should perhaps be doing a better job at articulating the message of "there must be a better way" to deliver healthcare to U.S. citizens, and the message that, even though our current, flawed system may indeed be the best in the world, at least in terms of creating innovative treatments, it doesn't mean that it can't be made better.
There must be a better way. That's the message that President Kennedy so successfully conveyed to the people in rallying support for the effort to land a man on the moon. And perhaps that's the message that President Obama should be articulating on healthcare reform. What if there's a way to still allow doctors, health insurers, and other healthcare professionals to be reasonably compensated, and to insure all Americans and give them fair and equal access to the best available treatments, without the need to put the private healthcare industry out of business?
The simplistic rhetoric we're hearing is all of the "either, or" variety -- public OR private; capitalist OR socialist; free market OR government-run. But those who are squealing loudest are likely to be those who have the most to lose. It's the same pattern that occurs in the "not in my backyard" reaction to certain public service projects, or the "don't cut my pork-barrel project" reaction to government budget cuts.
But the real issues aren't about any of that. It's all about finding a better way, about insisting that there is a better way. We need "we're going to put a man on the moon in 10 years" thinking here, not "reading rots the mind" or "Talkies are a fad" thinking.
Are Congress and the administration compromising too much, or not thinking boldly enough? Perhaps at this stage the best we can hope for in the near term is a baby step of progress. But if that's the case, let's not take our eyes off the long-term aspiration for a better way.
I'm glad that my father, in spite of a tendency in his home town to look at things from a rather narrow perspective, was someone who realized that there must be a better way to live, and got himself an education and allowed his life to take on broader horizons, both geographically and intellectually, enabling me to have a life much richer in possibilities.
Let's take a lesson from that model and from everyone else who understands the value of insisting on a better way, and apply it to our thinking and decision making on healthcare reform, and to the feedback and criticism we provide to the elected officials who are currently engaging in the debate.
And Happy Father's Day, Dad. Sphere: Related Content
Wednesday, June 17, 2009
The Undismal Weekly Wrap-Up -- June 7-13, 2009
Analytical Summaries of Key Stories of the Week on Economics and Public Policy
National Summit Arrives Amid Economic Trouble (Associated Press)
AP’s Jeff Karoub reports on a National Economic Summit being held under markedly different circumstances than those at the time it was originally planned, describing the climate as scaled back but no less determined to lead to tangible action.
G8 Finance Mins Start to Plan for End of Crisis (Wall Street Journal)
Luca Di Leo and Paul Hannon report from the G8 meeting in Lecce, Italy, on discussions focused on how to ramp down the pace of stimulus funding that member nations have infused into their economies in hopes of accelerating recovery.
Obama’s Spending Plans May Pose Political Risks (Washington Post)
Polling data and concerns among administration insiders indicate that President Obama may risk losing political capital if efforts toward reducing the pace of spending increases are not demonstrated soon, according to a story by Scott Wilson of the Washington Post.
2010 Vote Shift Could Bring Fed Policy Showdown (Reuters)
A standard rotation procedure scheduled for January will lead to changes in which members of the Fed’s Open Market committee will have voting authority, possibly leading to shifts based on such issues as differing viewpoints on the risk of inflation under the current policies.
Following the Money in the Healthcare Debate (New York Times)
Some $2.5 trillion and daunting issues about how it will be reduced and divided among numerous interest groups are at stake in the healthcare reform debate. Reed Abelson of the New York Times explores the complexities in an in-depth report.
Geithner Says 'Too Soon' for G-8 to Pull Back on Economic Aid (Bloomberg)
The U.S. Treasury Secretary cautions that G8 member nations need to stay the course on current stimulus efforts, focusing for now on restoring growth rather than reducing deficits, as reported by Bloomberg’s Rebecca Christie.
Lawrence Summers Defends Obama Policy (United Press International)
UPI reports on a speech to the Council on Foreign Relations by Nobel Laureate and top Obama economic guru Larry Summers, attempting to allay perceptions that the administration may have taken excessive measures to involve government in managing major segments of the financial, medical, and industrial sectors.
The Politics of Jump-Starting (Huffington Post)
Charles D. Ellison poses the question of just how well the tireless optimism and energetic initiatives of the Obama administration, such as the new 100-day effort to accelerate the pace of recovery, are actually resonating with the American public. Sphere: Related Content
National Summit Arrives Amid Economic Trouble (Associated Press)
AP’s Jeff Karoub reports on a National Economic Summit being held under markedly different circumstances than those at the time it was originally planned, describing the climate as scaled back but no less determined to lead to tangible action.
G8 Finance Mins Start to Plan for End of Crisis (Wall Street Journal)
Luca Di Leo and Paul Hannon report from the G8 meeting in Lecce, Italy, on discussions focused on how to ramp down the pace of stimulus funding that member nations have infused into their economies in hopes of accelerating recovery.
Obama’s Spending Plans May Pose Political Risks (Washington Post)
Polling data and concerns among administration insiders indicate that President Obama may risk losing political capital if efforts toward reducing the pace of spending increases are not demonstrated soon, according to a story by Scott Wilson of the Washington Post.
2010 Vote Shift Could Bring Fed Policy Showdown (Reuters)
A standard rotation procedure scheduled for January will lead to changes in which members of the Fed’s Open Market committee will have voting authority, possibly leading to shifts based on such issues as differing viewpoints on the risk of inflation under the current policies.
Following the Money in the Healthcare Debate (New York Times)
Some $2.5 trillion and daunting issues about how it will be reduced and divided among numerous interest groups are at stake in the healthcare reform debate. Reed Abelson of the New York Times explores the complexities in an in-depth report.
Geithner Says 'Too Soon' for G-8 to Pull Back on Economic Aid (Bloomberg)
The U.S. Treasury Secretary cautions that G8 member nations need to stay the course on current stimulus efforts, focusing for now on restoring growth rather than reducing deficits, as reported by Bloomberg’s Rebecca Christie.
Lawrence Summers Defends Obama Policy (United Press International)
UPI reports on a speech to the Council on Foreign Relations by Nobel Laureate and top Obama economic guru Larry Summers, attempting to allay perceptions that the administration may have taken excessive measures to involve government in managing major segments of the financial, medical, and industrial sectors.
The Politics of Jump-Starting (Huffington Post)
Charles D. Ellison poses the question of just how well the tireless optimism and energetic initiatives of the Obama administration, such as the new 100-day effort to accelerate the pace of recovery, are actually resonating with the American public. Sphere: Related Content
Sunday, June 14, 2009
Washington D.C., Eventually, Got Baseball Back -- So Maybe There’s Hope for Universal Healthcare, Too
The healthcare reform issue reminds me a bit of the extended saga of efforts to bring major-league baseball back to Washington D.C. after the Senators left in the early 1970s.
The acquisition of the Montreal Expos to become the Washington Nationals came together rather quickly. But before that, fans in the Washington Metro area waited decades to once again have their own team, suffering through several episodes of having their hopes built up only to be dashed, through such failures as attempts to move the San Diego Padres to D.C. During these years many fans gave up hope of ever having a true home team to root for.
And as the lines between the Washington and Baltimore metropolitan areas began to blur, with many residents having come to think of the two regions as one combined metropolis, the Orioles became so much of an adopted home team among Washingtonians that many fans and sports commentators came to feel that there was no longer a need for D.C. to have its own franchise.
The quest for universal healthcare in the United States is similar in many ways, in terms of its chronology and of a series of raised and dashed hopes. Washington lost the Senators in the 1970s, the same decade that Sen. Edward Kennedy (D-MA) emerged as the highest-profile advocate for national health insurance. But Kennedy’s efforts in the 70s came to naught, as did the efforts during the same decade get the Padres.
During the Reagan 80s, with the ascendancy of HMOs and other managed care models, the nation seemed to collectively buy into the notion that the private sector was best equipped to provide healthcare. Meanwhile the Orioles during the 80s succeeded in adding more and more Washingtonians to their fan base, and baseball fans in the D.C. area became increasingly complacent about the issue.
And as Washington dragged on through the next decade without a baseball team, a Democratic administration suffered perhaps its second biggest political embarrassment, with the failure of the healthcare reform effort delegated to Hillary Clinton by her husband. I don’t think I need to mention what the first biggest embarrassment of that administration was, but I’ll offer a hint for the clueless that it had something to do with a sartorial item, blue in color, and cigars.
Yet just when so many Washingtonians had become comfortable thinking of the Orioles as their team, and had come to view Waiting for Baseball in Washington as being just as absurd as Waiting for Godot, suddenly the Montreal Expos were the Washington Nationals. And just as the solution to the D.C. baseball problem came from north of the border, President Obama has suggested that, if we were starting a healthcare system from scratch, the best solution just might look like the kind of government operated, single-payer system we see in Canada and most other modern, industrialized nations.
But the practical reality is that we’re not starting from scratch. With a system, flawed as it may be, of private insurers and managed care organizations so firmly entrenched, it’s hard not to be just as much of a cynic about universal healthcare as one might once have been about Washington baseball, especially when confronted with indications of just how much money and power seem to be weighing the political and legislative processes toward the status quo.
President Obama has already said that the single-payer option is not on the table, and if one is to believe a caller to NPR’s Diane Rehm show on June 12, Sen. Max Baucus (D-MT), who chairs the Senate Finance Committee, has been making every effort to keep the voice of the single-payer advocate out of the dialogue.
Identifying himself as a physician, the caller claimed to be among the single-payer advocates whose requests to participate in the Finance Committee’s roundtable sessions on healthcare reform were refused, and who were arrested on order of Sen. Baucus for disrupting two of the sessions. The caller also claimed that the effort to silence the voice of single-payer advocates stems from a heavy influence on Baucus and other lawmakers of powerful and well-funded lobbies in the healthcare industry with an interest in thwarting efforts to establish a government-operated program.
Baucus’s side of the story is represented in a report from NPR’s Julie Rovner, aired May 22 on Morning Edition. In Rovner’s report, Baucus comes across very much as a realist and pragmatist, making an effort to get something passed that will be at least a step toward positive change.
"It just can't pass, not today," Baucus said of the single-payer issue, adding that "we can't squander this opportunity. We can't waste capital on something that's impossible."
Regardless of the veracity of the caller’s allegations about Baucus’s ties to the industry, Baucus, in practical terms, is probably correct. For those of us who accept the premise that corporations such as GM and AIG were too big to fail, it would seem difficult to argue that the private healthcare industry is not too big to demolish for the sake of starting from scratch.
And, as has been pointed out frequently in the ongoing dialogue on healthcare reform, it is true that a significant proportion of Americans do have coverage that they are satisfied with. So it would be unfair to pull that coverage out from under them.
This argument almost certainly still holds true even though the number of Americans in that category has probably diminished somewhat over the past year. For example, 55-year-olds who, after having successfully clawed their way into what they thought were comfortable and secure middle management gigs with good benefits, only to now find themselves with neither jobs nor healthcare, may be far less inclined to display “Have You Hugged Your HMO Today?” bumper stickers than they would have 25 years ago as thirtysomething yuppies during the Reagan 80s.
Nevertheless, it does seem, for now, that even though Washington D.C. was ready for the Expos to swoop down from Canada and become the Nationals, it looks like political Washington -- arguably for good reason -- isn’t yet ready to bring the Canadian “Medicare for All” model down to be the national healthcare solution.
But there appears to be hope that we are no longer going through the exercise in absurdity of Waiting for Godot. We can’t afford to go back to the drawing board, but it looks like there’s a good chance of getting a decent level of coverage for the uninsured and creating some viable and affordable alternatives for those who lack or are not satisfied with coverage at work.
And accomplishing that, sports fans, might not be a home run, but it would be at least a solid base hit. Sphere: Related Content
The acquisition of the Montreal Expos to become the Washington Nationals came together rather quickly. But before that, fans in the Washington Metro area waited decades to once again have their own team, suffering through several episodes of having their hopes built up only to be dashed, through such failures as attempts to move the San Diego Padres to D.C. During these years many fans gave up hope of ever having a true home team to root for.
And as the lines between the Washington and Baltimore metropolitan areas began to blur, with many residents having come to think of the two regions as one combined metropolis, the Orioles became so much of an adopted home team among Washingtonians that many fans and sports commentators came to feel that there was no longer a need for D.C. to have its own franchise.
The quest for universal healthcare in the United States is similar in many ways, in terms of its chronology and of a series of raised and dashed hopes. Washington lost the Senators in the 1970s, the same decade that Sen. Edward Kennedy (D-MA) emerged as the highest-profile advocate for national health insurance. But Kennedy’s efforts in the 70s came to naught, as did the efforts during the same decade get the Padres.
During the Reagan 80s, with the ascendancy of HMOs and other managed care models, the nation seemed to collectively buy into the notion that the private sector was best equipped to provide healthcare. Meanwhile the Orioles during the 80s succeeded in adding more and more Washingtonians to their fan base, and baseball fans in the D.C. area became increasingly complacent about the issue.
And as Washington dragged on through the next decade without a baseball team, a Democratic administration suffered perhaps its second biggest political embarrassment, with the failure of the healthcare reform effort delegated to Hillary Clinton by her husband. I don’t think I need to mention what the first biggest embarrassment of that administration was, but I’ll offer a hint for the clueless that it had something to do with a sartorial item, blue in color, and cigars.
Yet just when so many Washingtonians had become comfortable thinking of the Orioles as their team, and had come to view Waiting for Baseball in Washington as being just as absurd as Waiting for Godot, suddenly the Montreal Expos were the Washington Nationals. And just as the solution to the D.C. baseball problem came from north of the border, President Obama has suggested that, if we were starting a healthcare system from scratch, the best solution just might look like the kind of government operated, single-payer system we see in Canada and most other modern, industrialized nations.
But the practical reality is that we’re not starting from scratch. With a system, flawed as it may be, of private insurers and managed care organizations so firmly entrenched, it’s hard not to be just as much of a cynic about universal healthcare as one might once have been about Washington baseball, especially when confronted with indications of just how much money and power seem to be weighing the political and legislative processes toward the status quo.
President Obama has already said that the single-payer option is not on the table, and if one is to believe a caller to NPR’s Diane Rehm show on June 12, Sen. Max Baucus (D-MT), who chairs the Senate Finance Committee, has been making every effort to keep the voice of the single-payer advocate out of the dialogue.
Identifying himself as a physician, the caller claimed to be among the single-payer advocates whose requests to participate in the Finance Committee’s roundtable sessions on healthcare reform were refused, and who were arrested on order of Sen. Baucus for disrupting two of the sessions. The caller also claimed that the effort to silence the voice of single-payer advocates stems from a heavy influence on Baucus and other lawmakers of powerful and well-funded lobbies in the healthcare industry with an interest in thwarting efforts to establish a government-operated program.
Baucus’s side of the story is represented in a report from NPR’s Julie Rovner, aired May 22 on Morning Edition. In Rovner’s report, Baucus comes across very much as a realist and pragmatist, making an effort to get something passed that will be at least a step toward positive change.
"It just can't pass, not today," Baucus said of the single-payer issue, adding that "we can't squander this opportunity. We can't waste capital on something that's impossible."
Regardless of the veracity of the caller’s allegations about Baucus’s ties to the industry, Baucus, in practical terms, is probably correct. For those of us who accept the premise that corporations such as GM and AIG were too big to fail, it would seem difficult to argue that the private healthcare industry is not too big to demolish for the sake of starting from scratch.
And, as has been pointed out frequently in the ongoing dialogue on healthcare reform, it is true that a significant proportion of Americans do have coverage that they are satisfied with. So it would be unfair to pull that coverage out from under them.
This argument almost certainly still holds true even though the number of Americans in that category has probably diminished somewhat over the past year. For example, 55-year-olds who, after having successfully clawed their way into what they thought were comfortable and secure middle management gigs with good benefits, only to now find themselves with neither jobs nor healthcare, may be far less inclined to display “Have You Hugged Your HMO Today?” bumper stickers than they would have 25 years ago as thirtysomething yuppies during the Reagan 80s.
Nevertheless, it does seem, for now, that even though Washington D.C. was ready for the Expos to swoop down from Canada and become the Nationals, it looks like political Washington -- arguably for good reason -- isn’t yet ready to bring the Canadian “Medicare for All” model down to be the national healthcare solution.
But there appears to be hope that we are no longer going through the exercise in absurdity of Waiting for Godot. We can’t afford to go back to the drawing board, but it looks like there’s a good chance of getting a decent level of coverage for the uninsured and creating some viable and affordable alternatives for those who lack or are not satisfied with coverage at work.
And accomplishing that, sports fans, might not be a home run, but it would be at least a solid base hit. Sphere: Related Content
Wednesday, June 10, 2009
Some Facts Behind the Anti-Union Rhetoric Surrounding the GM Bankruptcy Issue
Some commentators, particularly those on conservative talk radio, are taking the GM bankruptcy issue as an opportunity for bashing unions. Their argument is that the UAW imposed disproportionate labor costs on GM, leaving the automaker at a disadvantage relative to foreign competitors.
However, those arguments don’t line up well with points raised in a June 3 analysis and opinion posting by Ross Eisenbrey, Vice President of the Economic Policy Institute, who points out that many foreign automakers are unionized, and others offer pay scales comparable to that of unionized workers in the U.S.
“Auto workers around the developed world are generally unionized and paid wages as high, or higher, than UAW wages,” he said, “yet French, German, and Italian automakers are in much better financial shape than GM. Toyota and many other foreign companies operating in the United States have set their U.S. wages close to UAW-negotiated levels as a way to attract good workers and deter unionization.”
Debunking another frequent element of anti-union rhetoric, Eisenbrey also cites an independent Harbour Report that found that the 10 most productive assembly plants in the United States. Sphere: Related Content
However, those arguments don’t line up well with points raised in a June 3 analysis and opinion posting by Ross Eisenbrey, Vice President of the Economic Policy Institute, who points out that many foreign automakers are unionized, and others offer pay scales comparable to that of unionized workers in the U.S.
“Auto workers around the developed world are generally unionized and paid wages as high, or higher, than UAW wages,” he said, “yet French, German, and Italian automakers are in much better financial shape than GM. Toyota and many other foreign companies operating in the United States have set their U.S. wages close to UAW-negotiated levels as a way to attract good workers and deter unionization.”
Debunking another frequent element of anti-union rhetoric, Eisenbrey also cites an independent Harbour Report that found that the 10 most productive assembly plants in the United States. Sphere: Related Content
Tuesday, June 9, 2009
The Undismal Weekly Wrap-Up -- May 31-June 6, 2009
Analytical Summaries of Key Stories of the Week on Economics and Public Policy
Central Bank, Government Policy May Have Ended Slump, BIS Says
A “green shoots” story in which Jennifer Ryan of Bloomberg reports on comments in the new quarterly report from the Bank for International Settlements (BIS) on improved investor sentiments, driven by such policies as interest rate cuts and purchases of assets by central banks, indicating that the “global recession may be past its worst.”
Chk It Out: Execs Use Twitter for Biz
Once the current tweetal-wave of hype begins to fade, will Twitter prove to be an ephemeral fad, or will it remain popular, useful and effective for the long haul as a business and marketing tool? A story in the News & Observer (Raleigh-Durham-Chapel Hill, NC) reports on insights from executives who are taking their tweets very seriously.
Economists React: “Why Would Companies Hire?”
Remarks from economists, in the Wall Street Journal’s Real Time Economics blog, on the “smaller than expected decline in nonfarm payrolls and increase in the unemployment rate.” Commentators include Heidi Shierholz, Economic Policy Institute; Ian Shepherdson, High Frequency Economics; Guy LeBas, Janney Montgomery Scott; Joshua Shapiro, MFR Inc.; Steven Ricchiuto, Mizuho Securities; Richard F. Moody, Forward Capital; Millan L. B. Mulraine, TD Securities; David Greenlaw, Morgan Stanley; and Scott A. Anderson, Wells Fargo.
Is GM Really Too Big to Fail?
Howard Wial, Director of the Brookings Institution’s Metropolitan Economy Initiative, and Daniel J. Ikenson, Associate Director of the Cato Institute’s Center for Trade Policy Studies, face off in the Los Angeles Times, in a “point/counter-point” format, on whether a complete failure of General Motors would have put more stress on the auto industry. Wial argues in favor of government intervention but urges more of an eye on strategically positioning the automaker for what is likely to happen in the market after the recession is over, while Ikenson argues adamantly for the laissez-faire approach, adding that government involvement with GM adversely affects the competitive playing field for other, healthier automakers.
The Facts About the Health Insurance Industry
In a blog post on The Daily Kos, a practicing family physician argues, after providing a scathing contextual background about the profit-driven motivations and heavy lobbying clout of the private health insurance industry, that “The only cure for our problem is a single payer, national, universal, health financing program like Medicare for All.”
Why This Crisis May Be Our Best Chance to Build a New Economy
Though some might describe his economic visions as new-agey, fancifully Utopian, kumbaya-ish, and reflecting a concept of human nature that may not hold true in practical reality, David Korten always makes for engaging, thought-provoking reading. His vision of an economy that serves people rather than the reverse, while also respecting the environment, was formed during his years abroad as an international development professional. In this article, Korten argues that the current crisis hit at an opportune time, “before the worst of global warming or peak oil,” and has shaped public opinion in a direction that creates an unprecedented opportunity to “build a powerful popular political movement demanding a new economy designed to serve our children, families, communities, and nature.”
The Real Roots of the Auto Crisis
Detroit Free Press columnist Carol Cain reports on her interview with David Cole, chairman of the Center for Automotive Research in Ann Arbor, who argues passionately that a misinformed national media in the U.S. have driven the public to the conclusion -- erroneous, in Cole’s view -- that the crisis of the automobile industry is the result of a failure of management. The crisis is attributable entirely to “the massive collapse of financial markets” according to Cole, who adds that automakers throughout the world have been the beneficiaries of government support during the global crisis, with the U.S. being a late entrant with efforts to aid its manufacturers. Sphere: Related Content
Central Bank, Government Policy May Have Ended Slump, BIS Says
A “green shoots” story in which Jennifer Ryan of Bloomberg reports on comments in the new quarterly report from the Bank for International Settlements (BIS) on improved investor sentiments, driven by such policies as interest rate cuts and purchases of assets by central banks, indicating that the “global recession may be past its worst.”
Chk It Out: Execs Use Twitter for Biz
Once the current tweetal-wave of hype begins to fade, will Twitter prove to be an ephemeral fad, or will it remain popular, useful and effective for the long haul as a business and marketing tool? A story in the News & Observer (Raleigh-Durham-Chapel Hill, NC) reports on insights from executives who are taking their tweets very seriously.
Economists React: “Why Would Companies Hire?”
Remarks from economists, in the Wall Street Journal’s Real Time Economics blog, on the “smaller than expected decline in nonfarm payrolls and increase in the unemployment rate.” Commentators include Heidi Shierholz, Economic Policy Institute; Ian Shepherdson, High Frequency Economics; Guy LeBas, Janney Montgomery Scott; Joshua Shapiro, MFR Inc.; Steven Ricchiuto, Mizuho Securities; Richard F. Moody, Forward Capital; Millan L. B. Mulraine, TD Securities; David Greenlaw, Morgan Stanley; and Scott A. Anderson, Wells Fargo.
Is GM Really Too Big to Fail?
Howard Wial, Director of the Brookings Institution’s Metropolitan Economy Initiative, and Daniel J. Ikenson, Associate Director of the Cato Institute’s Center for Trade Policy Studies, face off in the Los Angeles Times, in a “point/counter-point” format, on whether a complete failure of General Motors would have put more stress on the auto industry. Wial argues in favor of government intervention but urges more of an eye on strategically positioning the automaker for what is likely to happen in the market after the recession is over, while Ikenson argues adamantly for the laissez-faire approach, adding that government involvement with GM adversely affects the competitive playing field for other, healthier automakers.
The Facts About the Health Insurance Industry
In a blog post on The Daily Kos, a practicing family physician argues, after providing a scathing contextual background about the profit-driven motivations and heavy lobbying clout of the private health insurance industry, that “The only cure for our problem is a single payer, national, universal, health financing program like Medicare for All.”
Why This Crisis May Be Our Best Chance to Build a New Economy
Though some might describe his economic visions as new-agey, fancifully Utopian, kumbaya-ish, and reflecting a concept of human nature that may not hold true in practical reality, David Korten always makes for engaging, thought-provoking reading. His vision of an economy that serves people rather than the reverse, while also respecting the environment, was formed during his years abroad as an international development professional. In this article, Korten argues that the current crisis hit at an opportune time, “before the worst of global warming or peak oil,” and has shaped public opinion in a direction that creates an unprecedented opportunity to “build a powerful popular political movement demanding a new economy designed to serve our children, families, communities, and nature.”
The Real Roots of the Auto Crisis
Detroit Free Press columnist Carol Cain reports on her interview with David Cole, chairman of the Center for Automotive Research in Ann Arbor, who argues passionately that a misinformed national media in the U.S. have driven the public to the conclusion -- erroneous, in Cole’s view -- that the crisis of the automobile industry is the result of a failure of management. The crisis is attributable entirely to “the massive collapse of financial markets” according to Cole, who adds that automakers throughout the world have been the beneficiaries of government support during the global crisis, with the U.S. being a late entrant with efforts to aid its manufacturers. Sphere: Related Content
Saturday, June 6, 2009
The Parable of the Mini-Cow: The Limits of the Market’s Ability to Price Accurately and the Less vs. More Government Question
To give some context to what I am about to say here, let me first clarify that I cannot rightfully claim to be a tree-hugger, nor a cow-hugger. I was a vegetarian for many years, and it is surely no coincidence that I was more fit and healthy during those years than ever before or since. But as the transition from young to middle adulthood brought more responsibilities my way, there were certain things that the natural force toward equilibrium inevitably moved aside. One of them, unfortunately, was my once-healthy diet and general level of attention to what I put in my mouth.
So, it is in that context, as someone who has nothing in particular against meat-eating, in theory, creed, or practice, that I’ll say that it was while I was listening to some commentary on the economics of meat that some fundamental insights on the market’s ability to accurately price became clearer to me.
I was listening to Talk of the Nation on NPR, and the guest was an author who had recently published a book on the role of food in the development of societies. I tuned in mid-way through his appearance on the program, at the moment that he happened to be discussing with a caller the tradeoffs that are involved when someone eats a steak.
By eating a single steak, a consumer is eating part of a cow (or bull, of course) that may, before its slaughter, have eaten many meals that included grain that could, theoretically, have been fed to human beings instead of livestock -- especially human beings in parts of the developing world where both cattle and grain are scarce and expensive commodities. So one could argue that, for every cow that humans consume for meat, many more meals worth of grain have been made unavailable for human consumption.
The discussion about steak was actually prompted by a caller’s question, and it didn’t venture deeply into the implications of the example of grain for humans vs. grain for cows for the question of how accurate the market is in factoring this tradeoff into the cost of a steak. But the author, interestingly, segued from the steak discussion into an analogy with the cap-and-trade debate, implying that cap-and-trade is nothing more than an attempt to recapture an environmental cost of carbon emissions that is not priced in by an unregulated market.
Producers and consumers of fuel, in other words, are not by nature inclined to think about the external side-effects of carbon emissions when they negotiate a price based on immediate issues of supply and demand. They, and by extension the entire market of producers and consumers, are blind to this hidden cost, because it does not affect their transaction directly. It’s the same phenomenon that explains, for example, why no automobile owner would voluntarily stop by the local department of highways and drop a few pennies on the counter to cover his daily share of wear-and-tear on the roads.
This was an “ah-hah” moment that helped me better contextualize the dogmatic debate on cap-and-trade that’s going on. But it also provided some basic insights into the limitations of markets in setting prices.
To illustrate, let’s take a brief look at a simple model. Imagine two islands. Island 1 is populated by people who don’t have the capacity to grow their own crops or raise their own livestock, so they are dependent for their food supply on importing food from elsewhere.
Island 2 is populated by three types of people: (1) farmers of Magic Sprouts that are nutritious for either human beings or livestock; (2) farmers of Mini-Cows that take about one year each to mature to slaughtering age, are well nourished by the Magic Sprouts, and are of a size that provides a single meal of beef for one person; and (3) Meat Lovers who eat one meal of Mini-Cow beef every day and do not eat Magic Sprouts.
The Magic Sprout farmers have two choices: they can sell to the distant inhabitants of Island 1, or to the Mini-Cow farmers, who are their neighbors on Island 2. Let’s assume, first, that the daily nutritional requirement for one human being or one Mini-Cow is met by the same amount of magic sprouts, that each inhabitant of the Island 1 is able to pay $5.00 (including freight) for a day’s supply of Magic Sprouts, and that the Mini-Cow farmers are also able to pay $5.00 for a day’s supply of Magic Sprouts for each of their Mini-Cows. All other things being equal (more on that later), the first choice of the Magic Sprout farmers will be to sell to the Mini-Cow farmers on their own island, since the cost of delivery will be much lower than the shipping cost of exporting to Island 1.
So each meal a Mini-Cow eats, in theory, makes a meal of Magic Sprouts unavailable to an inhabitant of the Island 1. And since it takes a year for a Mini-Cow to mature, the Mini-Cow requires 365 meals to provide one meal to one of the Meat Lovers on Island 2, meaning that an inhabitant of Island 1 loses 365 potential meals whenever a Meat Lover on Island 2 eats a Mini-Cow. This trade-off, in addition to being an inherently inefficient way to feed the Meat Lovers, also imposes a formidable cost on the inhabitants of the Island 1. Yet this cost is unlikely to be factored into the price that the local Mini-Cow farmers and Magic Sprout farmers negotiate (at least in the short term). But it undoubtedly will be incurred in some form by the inhabitants of Island 1, taking many possible forms, including:
If this is beginning to bear some resemblance to some of the international economic and foreign policy issues now facing the United States, perhaps it is no coincidence.
As a side note, this model points to some possible inherent inefficiencies in a society whose diet centers on meat from domesticated livestock. Livestock farming creates entire populations and even subspecies of animals that otherwise would not exist -- and quite likely could not survive -- in nature, and that must, before they are slaughtered, consume numerous meals that may consist at least in part of foodstuffs that could provide meals to humans. It seems, then, that a vegetarian-centered diet is the more efficient solution to the need to feed humanity. Beef cattle, in other words, are very inefficient and expensive “middlemen” in the food chain. So factors that have little to do with efficiency must underlie the focus of the food market in the U.S. toward meat as the primary staple.
But more important to my main argument is that we see in this model a compelling illustration of how a given transaction can create external or longer-term costs that may not be fully factored into the short-term price that buyer and seller negotiate. This is one limitation on the market’s ability to accurately price. Markets price accurately only within the context of information that is available to and cared about by the buyer and seller at the time of the negotiation. That is why economists are so fond of the “other things being equal” disclaimer. Factors that are external, unknown, or not cared about by either party do not affect the negotiation.
The Mini-Cow model is simple, and from an imaginary world; but one doesn’t have to look far for real-world examples that fit at least partially. For example, the adverse health costs of cigarette smoking were not known for a long time. And even after they were known, the tobacco industry and smokers either didn’t understand well enough or care enough about the health effects to price them into the cost of the product. Health factors were not priced in until the situation reached a critical point at which regulation, taxation, and litigation forced the prices to be adjusted. And even now, after significant price increases, it seems impossible to make the case that the cost of a pack recoups the staggering human cost of premature deaths and debilitating illnesses among smokers. What is the life of a nicotine-addicted lung cancer victim worth to him or herself and to his or her family? Would a tax of $10,000 a pack be high enough?
The issue of costs that are hidden, external, or disregarded in transactions negotiated between buyers and sellers in the free market is precisely why we must have governments, taxes, and regulations, however much we may viscerally dislike them. Taxes and government budgets can be looked at, in part, as blunt instruments that enable us to make allowances, however imprecise, for such unknowns.
We often, and perhaps most of the time, don’t get it quite right, but it’s a must. Someone has to pay for the roads and bridges we break down with our cars and trucks. No one will make these payments voluntarily, and the sort of decentralized, privatized system some have called for of numerous local providers of road construction and maintenance seems laughably inefficient on the face of it. And someone has to fund the military of Island 2 to prepare for the possibility that the citizens of Island 1, eventually, may begin to feel that that they are being treated unfairly and get very, very angry.
Or, to bring the argument even closer to home, someone has to fund a social safety net that’s sufficient to prevent state unemployment insurance funds from going broke and tent cities from emerging when the economy tanks. Oops. Those things are happening now, aren't they. I guess someone hasn’t been paying enough taxes.
Again, the measures available to governments to compensate for the shortcomings of markets are blunt instruments, whose flaws can sometimes only be identified when there are failures in certain areas, the kinds of failures we see now. If financial practices were permitted that ended up undermining our entire financial system and putting out of work and homes a disproportionate number of honest, hard-working people who had always played by the rules, then there must have been a failure of regulation. The fact that there aren’t sufficient funds available to the federal government to carry the nation through our current crisis without incurring significant additional debt suggests that sufficient revenue, for an “economic insurance policy,” of sorts, was never being collected in the first place.
Even if you buy the argument that safety nets should be funded not by government but by individuals through personal savings, the insufficiency of personal savings to carry affected families through the crisis suggests that savings were not adequately incentivized, a phenomenon that involves a complex interplay among the governmental, commercial, educational, cultural, and familial domains.
As much as dogmatists on the right may continue to spout the old, Reaganite “government isn’t the solution, it’s the problem” clichés, the present indicators seem to suggest that it’s more government that we’ve needed over the past 30 years, not less. So, after a marked rightward swing of the pendulum 30 years go, we are now making an adjustment and swinging back in the other direction. There is, of course, a possibility that we’ll swing too far; and if that’s the case, we’ll just have to adjust again.
But my hope, and belief, is that with each swing, we are also making improvements to the complexly intermeshed gears and springs that drive the pendulum, putting what we have learned with each swing into adjusting the underlying technology of the clock so that the entire system continues to progress in how intelligently and effectively it operates.
We learned some good things from the swing 30 years ago that are unlikely to be lost, especially in terms of reaffirming fundamental values of entrepreneurship, work ethic, and self reliance. And no matter where the pendulum ends up stopping in its current arc, we’re sure to learn some good things again, this time around, that will also be retained for the long run, leaving us stronger still. Sphere: Related Content
So, it is in that context, as someone who has nothing in particular against meat-eating, in theory, creed, or practice, that I’ll say that it was while I was listening to some commentary on the economics of meat that some fundamental insights on the market’s ability to accurately price became clearer to me.
I was listening to Talk of the Nation on NPR, and the guest was an author who had recently published a book on the role of food in the development of societies. I tuned in mid-way through his appearance on the program, at the moment that he happened to be discussing with a caller the tradeoffs that are involved when someone eats a steak.
By eating a single steak, a consumer is eating part of a cow (or bull, of course) that may, before its slaughter, have eaten many meals that included grain that could, theoretically, have been fed to human beings instead of livestock -- especially human beings in parts of the developing world where both cattle and grain are scarce and expensive commodities. So one could argue that, for every cow that humans consume for meat, many more meals worth of grain have been made unavailable for human consumption.
The discussion about steak was actually prompted by a caller’s question, and it didn’t venture deeply into the implications of the example of grain for humans vs. grain for cows for the question of how accurate the market is in factoring this tradeoff into the cost of a steak. But the author, interestingly, segued from the steak discussion into an analogy with the cap-and-trade debate, implying that cap-and-trade is nothing more than an attempt to recapture an environmental cost of carbon emissions that is not priced in by an unregulated market.
Producers and consumers of fuel, in other words, are not by nature inclined to think about the external side-effects of carbon emissions when they negotiate a price based on immediate issues of supply and demand. They, and by extension the entire market of producers and consumers, are blind to this hidden cost, because it does not affect their transaction directly. It’s the same phenomenon that explains, for example, why no automobile owner would voluntarily stop by the local department of highways and drop a few pennies on the counter to cover his daily share of wear-and-tear on the roads.
This was an “ah-hah” moment that helped me better contextualize the dogmatic debate on cap-and-trade that’s going on. But it also provided some basic insights into the limitations of markets in setting prices.
To illustrate, let’s take a brief look at a simple model. Imagine two islands. Island 1 is populated by people who don’t have the capacity to grow their own crops or raise their own livestock, so they are dependent for their food supply on importing food from elsewhere.
Island 2 is populated by three types of people: (1) farmers of Magic Sprouts that are nutritious for either human beings or livestock; (2) farmers of Mini-Cows that take about one year each to mature to slaughtering age, are well nourished by the Magic Sprouts, and are of a size that provides a single meal of beef for one person; and (3) Meat Lovers who eat one meal of Mini-Cow beef every day and do not eat Magic Sprouts.
The Magic Sprout farmers have two choices: they can sell to the distant inhabitants of Island 1, or to the Mini-Cow farmers, who are their neighbors on Island 2. Let’s assume, first, that the daily nutritional requirement for one human being or one Mini-Cow is met by the same amount of magic sprouts, that each inhabitant of the Island 1 is able to pay $5.00 (including freight) for a day’s supply of Magic Sprouts, and that the Mini-Cow farmers are also able to pay $5.00 for a day’s supply of Magic Sprouts for each of their Mini-Cows. All other things being equal (more on that later), the first choice of the Magic Sprout farmers will be to sell to the Mini-Cow farmers on their own island, since the cost of delivery will be much lower than the shipping cost of exporting to Island 1.
So each meal a Mini-Cow eats, in theory, makes a meal of Magic Sprouts unavailable to an inhabitant of the Island 1. And since it takes a year for a Mini-Cow to mature, the Mini-Cow requires 365 meals to provide one meal to one of the Meat Lovers on Island 2, meaning that an inhabitant of Island 1 loses 365 potential meals whenever a Meat Lover on Island 2 eats a Mini-Cow. This trade-off, in addition to being an inherently inefficient way to feed the Meat Lovers, also imposes a formidable cost on the inhabitants of the Island 1. Yet this cost is unlikely to be factored into the price that the local Mini-Cow farmers and Magic Sprout farmers negotiate (at least in the short term). But it undoubtedly will be incurred in some form by the inhabitants of Island 1, taking many possible forms, including:
- Suffering and ill health effects from hunger and malnutrition
- Higher prices needed to motivate the Magic Sprout farmers to increase their exports
- The cost of finding alternative food sources
- The cost of developing other goods that would appeal to Island 2 and whose exports would provide additional money that could be used to purchase more Magic Sprouts.
- An eventual war between the islands
- Trade warfare in which the inhabitants of the Island 1 may withhold or exorbitantly raise the price of goods or services that Island 2 may need
- Foreign aid extended by the Island 2 to help feed and appease the hungry, angry inhabitants of Island 2
If this is beginning to bear some resemblance to some of the international economic and foreign policy issues now facing the United States, perhaps it is no coincidence.
As a side note, this model points to some possible inherent inefficiencies in a society whose diet centers on meat from domesticated livestock. Livestock farming creates entire populations and even subspecies of animals that otherwise would not exist -- and quite likely could not survive -- in nature, and that must, before they are slaughtered, consume numerous meals that may consist at least in part of foodstuffs that could provide meals to humans. It seems, then, that a vegetarian-centered diet is the more efficient solution to the need to feed humanity. Beef cattle, in other words, are very inefficient and expensive “middlemen” in the food chain. So factors that have little to do with efficiency must underlie the focus of the food market in the U.S. toward meat as the primary staple.
But more important to my main argument is that we see in this model a compelling illustration of how a given transaction can create external or longer-term costs that may not be fully factored into the short-term price that buyer and seller negotiate. This is one limitation on the market’s ability to accurately price. Markets price accurately only within the context of information that is available to and cared about by the buyer and seller at the time of the negotiation. That is why economists are so fond of the “other things being equal” disclaimer. Factors that are external, unknown, or not cared about by either party do not affect the negotiation.
The Mini-Cow model is simple, and from an imaginary world; but one doesn’t have to look far for real-world examples that fit at least partially. For example, the adverse health costs of cigarette smoking were not known for a long time. And even after they were known, the tobacco industry and smokers either didn’t understand well enough or care enough about the health effects to price them into the cost of the product. Health factors were not priced in until the situation reached a critical point at which regulation, taxation, and litigation forced the prices to be adjusted. And even now, after significant price increases, it seems impossible to make the case that the cost of a pack recoups the staggering human cost of premature deaths and debilitating illnesses among smokers. What is the life of a nicotine-addicted lung cancer victim worth to him or herself and to his or her family? Would a tax of $10,000 a pack be high enough?
The issue of costs that are hidden, external, or disregarded in transactions negotiated between buyers and sellers in the free market is precisely why we must have governments, taxes, and regulations, however much we may viscerally dislike them. Taxes and government budgets can be looked at, in part, as blunt instruments that enable us to make allowances, however imprecise, for such unknowns.
We often, and perhaps most of the time, don’t get it quite right, but it’s a must. Someone has to pay for the roads and bridges we break down with our cars and trucks. No one will make these payments voluntarily, and the sort of decentralized, privatized system some have called for of numerous local providers of road construction and maintenance seems laughably inefficient on the face of it. And someone has to fund the military of Island 2 to prepare for the possibility that the citizens of Island 1, eventually, may begin to feel that that they are being treated unfairly and get very, very angry.
Or, to bring the argument even closer to home, someone has to fund a social safety net that’s sufficient to prevent state unemployment insurance funds from going broke and tent cities from emerging when the economy tanks. Oops. Those things are happening now, aren't they. I guess someone hasn’t been paying enough taxes.
Again, the measures available to governments to compensate for the shortcomings of markets are blunt instruments, whose flaws can sometimes only be identified when there are failures in certain areas, the kinds of failures we see now. If financial practices were permitted that ended up undermining our entire financial system and putting out of work and homes a disproportionate number of honest, hard-working people who had always played by the rules, then there must have been a failure of regulation. The fact that there aren’t sufficient funds available to the federal government to carry the nation through our current crisis without incurring significant additional debt suggests that sufficient revenue, for an “economic insurance policy,” of sorts, was never being collected in the first place.
Even if you buy the argument that safety nets should be funded not by government but by individuals through personal savings, the insufficiency of personal savings to carry affected families through the crisis suggests that savings were not adequately incentivized, a phenomenon that involves a complex interplay among the governmental, commercial, educational, cultural, and familial domains.
As much as dogmatists on the right may continue to spout the old, Reaganite “government isn’t the solution, it’s the problem” clichés, the present indicators seem to suggest that it’s more government that we’ve needed over the past 30 years, not less. So, after a marked rightward swing of the pendulum 30 years go, we are now making an adjustment and swinging back in the other direction. There is, of course, a possibility that we’ll swing too far; and if that’s the case, we’ll just have to adjust again.
But my hope, and belief, is that with each swing, we are also making improvements to the complexly intermeshed gears and springs that drive the pendulum, putting what we have learned with each swing into adjusting the underlying technology of the clock so that the entire system continues to progress in how intelligently and effectively it operates.
We learned some good things from the swing 30 years ago that are unlikely to be lost, especially in terms of reaffirming fundamental values of entrepreneurship, work ethic, and self reliance. And no matter where the pendulum ends up stopping in its current arc, we’re sure to learn some good things again, this time around, that will also be retained for the long run, leaving us stronger still. Sphere: Related Content
Thursday, June 4, 2009
Does Technology, Paradoxically, Promote Sloppy Financial Habits?
I used to be very meticulous in my financial recordkeeping, but now I have technology.
I came to that realization this morning as I was writing one of the few actual paper checks I write nowadays. It's a bit embarrassing to admit, but I don't even bother with a checkbook wallet or ledger anymore. For some reason I still maintain the habit of ordering the carbonless duplicate checks, perhaps because that gives me some sort of misplaced comfort of knowing I'm leaving behind at least some form of written transaction record. But I never look at the copies, and when I need to write a check I just pull the current lot of 25 out of the box and write one, and then put the rest of the blanks back in the box.
Thinking about all this today created a thought snowball that made me contemplate all of my day-to-day financial habits. About 15 years ago I was still writing a lot of checks and making ledger entries, but now online bill payments and automated debits checks all but entirely unnecessary.
And then there are debit cards. They are touted as a way of adding the discipline and limits of a checking account to the convenience of credit cards, but this is deceptive. With debit cards, even if you are keeping rough mental track of your balance, it's still a lot easier to spend money without thinking very much about what you're doing. And you're still slapping down a piece of plastic, which is several levels removed from the reality of physical cash or writing out amounts by hand and entering them into a ledger.
Ledger? I wonder if anyone uses them anymore. In the earlier days of ATMs and debit cards, I actually used to save my ATM slips and debit card transaction receipts in my wallet, and enter the transactions in my checkbook ledger whenever I had a spare moment. But Web banking put an end to all that. Why keep written records when most transactions show up online the same day, and you can check your balance with just a few clicks of the mouse? I can fling my debit card around cavalierly with an approximate sense of what my balance is so that I don't get it down below zero, and all the details I need are there when I need them.
And that confident feeling that the information is "there when I need it" is the crux of the potential problems that technology-centered personal finance can pose. The fact that the information is stored and easily accessible doesn't mean that I engage with it all that much or think much about how and where I'm spending my money, which creates issues with spending out of a checking account that are very similar to those associated with careless use of credit cards.
The old methods forced us to put more effort into spending money and more thought into how we were managing it. We had to reconcile our checkbook every month. The jargon of finance, like that of most disciplines, is highly metaphorical. and I think that its inclusion of a concept as rich in larger meaning as reconciliation is no coincidence. While reconciling my checkbook every month, I had to reconcile myself with how I spent my money, to confront myself with the question of whether I spent it wisely or not. But who does a monthly reconciliation anymore?
So I wonder just how much these resources that have supposedly given us so much more information about and control over our finances have really contributed, and whether the across-the-board ease of spending without thinking played a role in the dwindling saving rates and over-use of credit that caught so many Americans with their financial pants down when the current crisis hit.
And I wonder what the ramifications might be if you extend the same line of thought into the technology of financial management of businesses. Accountants, managers, CFOs, and executives have more access then ever to broader and deeper levels of financial information, both in big picture and detailed terms. And there are more permutations and combinations of the ways they can view and manipulate that information which, again, is "there when they need it."
But how deeply to they engage with the information, and do they make use of and analyze it in the right ways? Executive today can have as much detail on their desk each morning as they care to deal with. How were sales yesterday? Great! How are our expense-cutting measures working out this month? Excellent! Are we on target to hit earnings this quarter? Absolutely! Any inordinate issues with collections? None apparent.
A business can easily see which customers are its strongest, which are its weakest. Which products lines are taking off, which are stagnating. It's when you get into the trickier questions, like which customers have a profile that might indicate they could be more prone to default if the economy tanks or if credit gets tighter, that things get more difficult and require more of the kind of analysis that can't be automated as readily.
The automation of financial and managerial processes in business has on one hand raised the level of output per worker tremendously, but it follows from there that it has decreased the number of workers necessary to run those operations. Fewer workers mean fewer brains. And if fewer brains are engaging on a regular basis with financial data, crunching numbers and thinking about the nuts and bolts, perhaps the potential to spot a problem and intervene before it becomes a crisis is diminished.
And if we take this line of thinking, which started at the level of an individual and moved on to the level of a company, and extend it to the level of an entire economy, perhaps it can teach us something about some of the factors that got us where we are today. Sphere: Related Content
I came to that realization this morning as I was writing one of the few actual paper checks I write nowadays. It's a bit embarrassing to admit, but I don't even bother with a checkbook wallet or ledger anymore. For some reason I still maintain the habit of ordering the carbonless duplicate checks, perhaps because that gives me some sort of misplaced comfort of knowing I'm leaving behind at least some form of written transaction record. But I never look at the copies, and when I need to write a check I just pull the current lot of 25 out of the box and write one, and then put the rest of the blanks back in the box.
Thinking about all this today created a thought snowball that made me contemplate all of my day-to-day financial habits. About 15 years ago I was still writing a lot of checks and making ledger entries, but now online bill payments and automated debits checks all but entirely unnecessary.
And then there are debit cards. They are touted as a way of adding the discipline and limits of a checking account to the convenience of credit cards, but this is deceptive. With debit cards, even if you are keeping rough mental track of your balance, it's still a lot easier to spend money without thinking very much about what you're doing. And you're still slapping down a piece of plastic, which is several levels removed from the reality of physical cash or writing out amounts by hand and entering them into a ledger.
Ledger? I wonder if anyone uses them anymore. In the earlier days of ATMs and debit cards, I actually used to save my ATM slips and debit card transaction receipts in my wallet, and enter the transactions in my checkbook ledger whenever I had a spare moment. But Web banking put an end to all that. Why keep written records when most transactions show up online the same day, and you can check your balance with just a few clicks of the mouse? I can fling my debit card around cavalierly with an approximate sense of what my balance is so that I don't get it down below zero, and all the details I need are there when I need them.
And that confident feeling that the information is "there when I need it" is the crux of the potential problems that technology-centered personal finance can pose. The fact that the information is stored and easily accessible doesn't mean that I engage with it all that much or think much about how and where I'm spending my money, which creates issues with spending out of a checking account that are very similar to those associated with careless use of credit cards.
The old methods forced us to put more effort into spending money and more thought into how we were managing it. We had to reconcile our checkbook every month. The jargon of finance, like that of most disciplines, is highly metaphorical. and I think that its inclusion of a concept as rich in larger meaning as reconciliation is no coincidence. While reconciling my checkbook every month, I had to reconcile myself with how I spent my money, to confront myself with the question of whether I spent it wisely or not. But who does a monthly reconciliation anymore?
So I wonder just how much these resources that have supposedly given us so much more information about and control over our finances have really contributed, and whether the across-the-board ease of spending without thinking played a role in the dwindling saving rates and over-use of credit that caught so many Americans with their financial pants down when the current crisis hit.
And I wonder what the ramifications might be if you extend the same line of thought into the technology of financial management of businesses. Accountants, managers, CFOs, and executives have more access then ever to broader and deeper levels of financial information, both in big picture and detailed terms. And there are more permutations and combinations of the ways they can view and manipulate that information which, again, is "there when they need it."
But how deeply to they engage with the information, and do they make use of and analyze it in the right ways? Executive today can have as much detail on their desk each morning as they care to deal with. How were sales yesterday? Great! How are our expense-cutting measures working out this month? Excellent! Are we on target to hit earnings this quarter? Absolutely! Any inordinate issues with collections? None apparent.
A business can easily see which customers are its strongest, which are its weakest. Which products lines are taking off, which are stagnating. It's when you get into the trickier questions, like which customers have a profile that might indicate they could be more prone to default if the economy tanks or if credit gets tighter, that things get more difficult and require more of the kind of analysis that can't be automated as readily.
The automation of financial and managerial processes in business has on one hand raised the level of output per worker tremendously, but it follows from there that it has decreased the number of workers necessary to run those operations. Fewer workers mean fewer brains. And if fewer brains are engaging on a regular basis with financial data, crunching numbers and thinking about the nuts and bolts, perhaps the potential to spot a problem and intervene before it becomes a crisis is diminished.
And if we take this line of thinking, which started at the level of an individual and moved on to the level of a company, and extend it to the level of an entire economy, perhaps it can teach us something about some of the factors that got us where we are today. Sphere: Related Content
Monday, June 1, 2009
The Undismal Weekly Wrap-Up -- May 24-30, 2009
Analytical Summaries of Key Stories of the Week on Economics and Public Policy
Fed’s Trouble with Bubbles
In the Wall Street Journal’s Real Time Economics blog, Michael S. Derby reports that the Fed’s views are evolving beyond their historic reluctance, based on doubts about their ability to detect them accurately, to target interventions at preventing or mitigating price bubbles.
Geithner Goes to Beijing to Manage Bad Marriage: Relationship, Smooth During Recession, May Get Stormy
With the U.S. highly dependent on China, which now holds $1.55 trillion in dollar assets, to purchase U.S. debt, Greg Robb of Marketwatch describes the relationship as “a marriage of convenience” that may have new strains on the horizon.
How Economists Can Misunderstand the Crisis
In an article reprinted from the Financial Times, Harvard University Professor Laurence A Tisch counters many economists by arguing that current U.S. fiscal policy of heavy deficit spending financed by massive issuance of new bonds is likely to lead to inflation and upward pressure on long-term interest rates.
Marginal Workers, Underemployed Push Economic Fringe to Limit
Citing sources from the Center on Budget and Policy Priorities, the Economic Policy Institute, the National Jobs for All Coalition, and the Employee Benefit Research Institute, Martha C. White reports in the Colorado Independent on the plight of the underemployed, “a diffuse, often poorly tracked cross section of citizens … living on the economic fringes” and who, when added to the more widely reported circumstances of the outright jobless, paint a much bigger picture of economic strain in the U.S.
Millionaires Go Missing: Maryland's Fleeced Taxpayers Fight Back
Are millionaires in Maryland pulling a John Galt and disappearing? A column in the Wall Street Journal’s Opinion Journal reports that “nearly one-third of the millionaires have disappeared from Maryland tax roles” since the creation by the state legislature of “a millionaire tax bracket” that raises the state’s top marginal income rate.
Public Health Care and Health Insurance Reform — Varied Preferences, Varied Options
Taking the perspective that healthcare reform is inevitable, with only details in question, Mark V. Pauly, Ph.D., argues in the New England Journal of Medicine in favor of a menu of health insurance plans, available to all population groups, managed by both public and private organizations, to meet highly variable preferences of consumers. Sphere: Related Content
Fed’s Trouble with Bubbles
In the Wall Street Journal’s Real Time Economics blog, Michael S. Derby reports that the Fed’s views are evolving beyond their historic reluctance, based on doubts about their ability to detect them accurately, to target interventions at preventing or mitigating price bubbles.
Geithner Goes to Beijing to Manage Bad Marriage: Relationship, Smooth During Recession, May Get Stormy
With the U.S. highly dependent on China, which now holds $1.55 trillion in dollar assets, to purchase U.S. debt, Greg Robb of Marketwatch describes the relationship as “a marriage of convenience” that may have new strains on the horizon.
How Economists Can Misunderstand the Crisis
In an article reprinted from the Financial Times, Harvard University Professor Laurence A Tisch counters many economists by arguing that current U.S. fiscal policy of heavy deficit spending financed by massive issuance of new bonds is likely to lead to inflation and upward pressure on long-term interest rates.
Marginal Workers, Underemployed Push Economic Fringe to Limit
Citing sources from the Center on Budget and Policy Priorities, the Economic Policy Institute, the National Jobs for All Coalition, and the Employee Benefit Research Institute, Martha C. White reports in the Colorado Independent on the plight of the underemployed, “a diffuse, often poorly tracked cross section of citizens … living on the economic fringes” and who, when added to the more widely reported circumstances of the outright jobless, paint a much bigger picture of economic strain in the U.S.
Millionaires Go Missing: Maryland's Fleeced Taxpayers Fight Back
Are millionaires in Maryland pulling a John Galt and disappearing? A column in the Wall Street Journal’s Opinion Journal reports that “nearly one-third of the millionaires have disappeared from Maryland tax roles” since the creation by the state legislature of “a millionaire tax bracket” that raises the state’s top marginal income rate.
Public Health Care and Health Insurance Reform — Varied Preferences, Varied Options
Taking the perspective that healthcare reform is inevitable, with only details in question, Mark V. Pauly, Ph.D., argues in the New England Journal of Medicine in favor of a menu of health insurance plans, available to all population groups, managed by both public and private organizations, to meet highly variable preferences of consumers. Sphere: Related Content
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