TW: Atul Gawande reports on health care for New Yorker and has put together excellent stuff which we have highlighted before. He is out with a new piece focused on the cost containment measures in the proposed health care reform pending in Congress. The fundamental point is the bill attempts a plethora of approaches integrating cutting edge thinking on the topic. As I have said repeatedly, one person's health care cost is another's revenue. One person's frivolous test is another's reassuring procedure. Containing costs is complex at least the bill attempts to address the issue unlike those who merely sit back demagogue merrily along towards their next election.
From Atul Gawande at New Yorker as summarized by Ezra Klein:
"Pick up the Senate health-care bill -- yes, all 2,074 pages -- and leaf through it. Almost half of it is devoted to programs that would test various ways to curb costs and increase quality. The bill is a hodgepodge. And it should be.
The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by health-care workers. Still another would test a system of penalties and rewards scaled to the quality of home health and rehabilitation care.
Other experiments try moving medicine away from fee-for-service payment altogether. A bundled-payment provision would pay medical teams just one thirty-day fee for all the outpatient and inpatient services related to, say, an operation. This would give clinicians an incentive to work together to smooth care and reduce complications. One pilot would go even further, encouraging clinicians to band together into “Accountable Care Organizations” that take responsibility for all their patients’ needs, including prevention -- so that fewer patients need operations in the first place. These groups would be permitted to keep part of the savings they generate, as long as they meet quality and service thresholds.
...Which of these programs will work? We can’t know. That’s why the Congressional Budget Office doesn’t credit any of them with substantial savings. The package relies on taxes and short-term payment cuts to providers in order to pay for subsidies. But, in the end, it contains a test of almost every approach that leading health-care experts have suggested. (The only one missing is malpractice reform. This is where the Republicans could be helpful.) None of this is as satisfying as a master plan. But there can’t be a master plan."
http://www.newyorker.com/reporting/2009/12/14/091214fa_fact_gawande?currentPage=all#ixzz0ZlZtZebl
Showing posts with label Pundits Economics. Show all posts
Showing posts with label Pundits Economics. Show all posts
Thursday, December 17, 2009
Wednesday, December 2, 2009
Cutting the Deficit...So Easy To Say So Hard To Enact
TW: Frankel is a progressive economist (Harvard) but he identifies ten steps to address the deficit. They are almost amusing in their utter unliklihood of actually being enacted even though I would agree with most of them. Again defining the choices are so easy, getting the public to support them a different story.
From Jeff Frankel's blog:
First, auction off most greenhouse gas emission permits, rather than giving them away to firms (which would confer windfall profits). This is what President Obama originally proposed last February, but it is not in the congressional legislation.
Second, raise the gas tax. Among the benefits, besides raising revenue, would be reducing traffic congestion, accidents, pollution, dependence on Mideastern oil, and the trade deficit.
Third, cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency. This is another measure that Obama proposed when he first took office, but that was voted down.
Fourth, continue to cut expensive weapons systems that the military doesn’t want, but are kept only because the suppliers are in the districts of influential congressmen. President Obama and Secretary Gates amazingly managed to do this with the F22 (the first administration to succeed at such a thing, or even to try, so far as I know).
Fifth, end manned space exploration. We don’t need it. Spend half the money on useful science instead, including research on energy and medicine (and unmanned space exploration).
Sixth, let the George W. Bush tax cuts for the rich expire as under current law. Of course the Bush plan to eliminate the estate tax completely in 2010 and have it bounce back to its 2001 level thereafter is nonsense. Level the taxable threshold out at some reasonable estate size, a few million dollars, something high enough to de-legitimize the hysterical stories about inheritors supposedly being forced to sell their small farms or small businesses to pay the tax. (Use some of the revenue in these proposals to fix the AMT once and for all. And, in the meantime, continue Obama’s return to honesty in budget accounting regarding the costs of AMT, wars in Iraq and Afghanistan, tax cuts, etc. Bush’s habitual trick of purposely understating such costs in future budgets allowed him to pretend that we could afford his profligate fiscal policies, which in turn added far more to the national debt than the current recession measures are adding .)
Seventh, encourage hospitals to standardize around national best-practice medicine – to avoiding unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices. This is another part of the Obama plan. (Don’t follow the logic of radio show propaganda that labells even modest government involvement in health care “socialism,” because that would certainly require dismantling veteran’s hospitals, which provide good medical care relatively efficiently, even before it would require dismantling Medicare.)
Eighth, limit or eliminate the tax-exemption for employer-paid health insurance (proposed by Senator McCain), at least the cadillac plans which are very expensive but don’t even pay off in health results (proposed by Senator Kerry).
Ninth, ideally, eliminate the tax deductibility of mortgage interest too. But proposing this would be political suicide. Congress and the public are still virtually unanimous in wanting to tilt the playing field in favor of owner-occupied housing and against rental housing and the rest of the capital stock, notwithstanding that such policies contributed to the housing bubble and crash.
Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation, rather than to wage inflation (just a little)."
http://baselinescenario.com/2009/12/01/feudal-lords-of-finance/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29
From Jeff Frankel's blog:
First, auction off most greenhouse gas emission permits, rather than giving them away to firms (which would confer windfall profits). This is what President Obama originally proposed last February, but it is not in the congressional legislation.
Second, raise the gas tax. Among the benefits, besides raising revenue, would be reducing traffic congestion, accidents, pollution, dependence on Mideastern oil, and the trade deficit.
Third, cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency. This is another measure that Obama proposed when he first took office, but that was voted down.
Fourth, continue to cut expensive weapons systems that the military doesn’t want, but are kept only because the suppliers are in the districts of influential congressmen. President Obama and Secretary Gates amazingly managed to do this with the F22 (the first administration to succeed at such a thing, or even to try, so far as I know).
Fifth, end manned space exploration. We don’t need it. Spend half the money on useful science instead, including research on energy and medicine (and unmanned space exploration).
Sixth, let the George W. Bush tax cuts for the rich expire as under current law. Of course the Bush plan to eliminate the estate tax completely in 2010 and have it bounce back to its 2001 level thereafter is nonsense. Level the taxable threshold out at some reasonable estate size, a few million dollars, something high enough to de-legitimize the hysterical stories about inheritors supposedly being forced to sell their small farms or small businesses to pay the tax. (Use some of the revenue in these proposals to fix the AMT once and for all. And, in the meantime, continue Obama’s return to honesty in budget accounting regarding the costs of AMT, wars in Iraq and Afghanistan, tax cuts, etc. Bush’s habitual trick of purposely understating such costs in future budgets allowed him to pretend that we could afford his profligate fiscal policies, which in turn added far more to the national debt than the current recession measures are adding .)
Seventh, encourage hospitals to standardize around national best-practice medicine – to avoiding unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices. This is another part of the Obama plan. (Don’t follow the logic of radio show propaganda that labells even modest government involvement in health care “socialism,” because that would certainly require dismantling veteran’s hospitals, which provide good medical care relatively efficiently, even before it would require dismantling Medicare.)
Eighth, limit or eliminate the tax-exemption for employer-paid health insurance (proposed by Senator McCain), at least the cadillac plans which are very expensive but don’t even pay off in health results (proposed by Senator Kerry).
Ninth, ideally, eliminate the tax deductibility of mortgage interest too. But proposing this would be political suicide. Congress and the public are still virtually unanimous in wanting to tilt the playing field in favor of owner-occupied housing and against rental housing and the rest of the capital stock, notwithstanding that such policies contributed to the housing bubble and crash.
Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation, rather than to wage inflation (just a little)."
http://baselinescenario.com/2009/12/01/feudal-lords-of-finance/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29
Tuesday, October 27, 2009
Becker and Pethkoukis Missing the Point
TW: Pethkoukis entitles his post the "Exec. Comp. the Great Distraction". The piece to which he refers by conservative economist Becker asserts the Great Recession/Credit Implosion is not attributable to obscene executive/Wall Street compensation. He may be right. But obscene compensation is a symptom of the disease within our economy not a primary cause.
The outrage over compensation is not because folks attribute the crash to the compensation but because it appears unearned, inequitable and based upon power structures which benefit those at the top of the pyramid. Because the compensation structures did not "cause" the Crash is no reason not to address the compensation structures.
From Gary Becker via Jim Pethokoukis"
"I have not seen convincing evidence that either the level or structure of the pay of top financial executives were important causes of this worldwide financial crash. These executives bought large quantities of mortgage-backed securities and other securitized assets because they expected this to increase the average return on their assets without taking on much additional risk through the better risk management offered by derivatives, credit default swaps, and other newer types of securities. They turned out to be badly wrong, but so too were the many financial economists who had no sizable financial stake in these assets, but supported this approach to risk management.
The experience of other financial crashes also does not indicate that either the level or form of compensation of top financial executives were major factors in precipitating these crashes. Thousands of banks failed during the Great Depression, as did hundreds of American savings and loans institutions during the 1980s, without heads of these institutions in either case getting particularly high pay, or pay that was mainly in the form of bonuses and stock options. My impression is that this same conclusion applies to the Mexican bank crisis of the mid 1990s, and the Asian financial crisis at the end of the 1990s.
The generous bonuses and stock options received by financial executives may often have been unwarranted, but they are being used as a scapegoat for other more crucial factors. Financial institutions underrated the systemic risks of the more exotic assets, and apparently so too did the Fed and other regulators of financial institutions. In addition, large financial institutions may have recognized that they were “too big to fail”, and that they would be rescued by taxpayer monies if they were on the verge of bankruptcy because they took on excessively risky assets."
The outrage over compensation is not because folks attribute the crash to the compensation but because it appears unearned, inequitable and based upon power structures which benefit those at the top of the pyramid. Because the compensation structures did not "cause" the Crash is no reason not to address the compensation structures.
From Gary Becker via Jim Pethokoukis"
"I have not seen convincing evidence that either the level or structure of the pay of top financial executives were important causes of this worldwide financial crash. These executives bought large quantities of mortgage-backed securities and other securitized assets because they expected this to increase the average return on their assets without taking on much additional risk through the better risk management offered by derivatives, credit default swaps, and other newer types of securities. They turned out to be badly wrong, but so too were the many financial economists who had no sizable financial stake in these assets, but supported this approach to risk management.
The experience of other financial crashes also does not indicate that either the level or form of compensation of top financial executives were major factors in precipitating these crashes. Thousands of banks failed during the Great Depression, as did hundreds of American savings and loans institutions during the 1980s, without heads of these institutions in either case getting particularly high pay, or pay that was mainly in the form of bonuses and stock options. My impression is that this same conclusion applies to the Mexican bank crisis of the mid 1990s, and the Asian financial crisis at the end of the 1990s.
The generous bonuses and stock options received by financial executives may often have been unwarranted, but they are being used as a scapegoat for other more crucial factors. Financial institutions underrated the systemic risks of the more exotic assets, and apparently so too did the Fed and other regulators of financial institutions. In addition, large financial institutions may have recognized that they were “too big to fail”, and that they would be rescued by taxpayer monies if they were on the verge of bankruptcy because they took on excessively risky assets."
Sunday, October 25, 2009
Media As PR Flacks For Power
TW: This piece on media comes from the angle of a financial blogger but the themes are familiar to this blog: echo chambers, media submissiveness and manipulation. Except this time instead of focusing on partisan politics Smith examines the battle over Wall Street compensation and ultimately how elites continue (this did not just start recently) to centralize their own power and economic well-being.
From Yves Smith at Naked Capitalism:
"I’m of two minds about taking up this theme, since stating what ought to be obvious but is nevertheless unpleasant and inconvenient is apt to get one branded as lunatic fringe.
Access journalism has created what is in many respects a controlled press. And that matters because people are far more suggestible than most of us wants to admit to ourselves.
...The press has been on a downslope for at least a decade, as a result of strained budgets and vastly more effective government and business spin control...I met a reporter who had been overseas for six years, opening an important foreign office for the Wall Street Journal. He was stunned when he came back in 1999 to see how much reporting had changed in his absence. He said it was impossible to get to the bottom of most stories in a normal news cycle because companies had become very sophisticated in controlling their message and access.
I couldn’t tell immediately, but one of my friends remarked in 2000 that the reporting was increasingly reminiscent of what she had grown up with in communist Poland. The state of the US media became evident to me when I lived in Australia during the run-up and the first two years of the Gulf War. I would regularly e-mail people in the States about stories I thought were important and I suspected might not be getting much play in the US. My correspondents were media junkies. 85% of the time, a story that had gotten widespread coverage in Australia appeared not to have been released in the US. And the other 15%, it didn’t get much attention (for instance, buried in the middle of the first section of the New York Times). And remember, Australia was an ally and sent troops to the Iraq.
...Back to the main theme: the media dares not say anything too negative about financial services firms or their government operatives lest they lose access. The private sector has learned the lesson of the Bush Administration, that the threat of freezing a reporter out is a powerful weapon. I have had some well connected readers tell of story ideas that they served up in some detail that the media would not touch out of fear of alienating their sources. This is the sort of thing that one associates with banana republics, but we have been operating on that level for quite some time.
...So what do we have? A media that predominantly bases its stories on what it is fed because it has to. Ever-leaner staffing, compressed news cycles, and access journalism all conspire to drive reporters to focus on the “must cover” news, which is to a large degree influenced by the parties that initiate the story. And that means they are increasingly in an echo chamber, spending so much time with the influential sources they feel they must cover that they start to be swayed by them. It is less intense, but not dissimilar to the effect achieved when reporters are embedded in military units. The journalists often wind up adopting the views of the people they associate with frequently...
...the Wall Street Journal said of bonus outrage: “That’s so last March.”
Maybe taxpayers have simply given up on Washington’s efforts to corral Wall Street.
Now why is this sort of thing (and the media was full of more subtle versions, of happy talk re Dow 10,000 and Goldman earnings) more pernicious than it might appear?
The message, quite overly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program. Now I saw the polar opposite today. There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefitting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.
...Now America does not have a tradition of taking to the streets; demonstrations and rallies historically are working class affairs. But the middle class is on a path of downward mobility while the elites continue to take the cream. The widening gap might waken some impulses that have been dormant in the American psyche."
http://www.nakedcapitalism.com/2009/10/msm-reporting-as-propaganda-no-one-minds-our-new-financial-lords-and-masters-edition.html
From Yves Smith at Naked Capitalism:
"I’m of two minds about taking up this theme, since stating what ought to be obvious but is nevertheless unpleasant and inconvenient is apt to get one branded as lunatic fringe.
Access journalism has created what is in many respects a controlled press. And that matters because people are far more suggestible than most of us wants to admit to ourselves.
...The press has been on a downslope for at least a decade, as a result of strained budgets and vastly more effective government and business spin control...I met a reporter who had been overseas for six years, opening an important foreign office for the Wall Street Journal. He was stunned when he came back in 1999 to see how much reporting had changed in his absence. He said it was impossible to get to the bottom of most stories in a normal news cycle because companies had become very sophisticated in controlling their message and access.
I couldn’t tell immediately, but one of my friends remarked in 2000 that the reporting was increasingly reminiscent of what she had grown up with in communist Poland. The state of the US media became evident to me when I lived in Australia during the run-up and the first two years of the Gulf War. I would regularly e-mail people in the States about stories I thought were important and I suspected might not be getting much play in the US. My correspondents were media junkies. 85% of the time, a story that had gotten widespread coverage in Australia appeared not to have been released in the US. And the other 15%, it didn’t get much attention (for instance, buried in the middle of the first section of the New York Times). And remember, Australia was an ally and sent troops to the Iraq.
...Back to the main theme: the media dares not say anything too negative about financial services firms or their government operatives lest they lose access. The private sector has learned the lesson of the Bush Administration, that the threat of freezing a reporter out is a powerful weapon. I have had some well connected readers tell of story ideas that they served up in some detail that the media would not touch out of fear of alienating their sources. This is the sort of thing that one associates with banana republics, but we have been operating on that level for quite some time.
...So what do we have? A media that predominantly bases its stories on what it is fed because it has to. Ever-leaner staffing, compressed news cycles, and access journalism all conspire to drive reporters to focus on the “must cover” news, which is to a large degree influenced by the parties that initiate the story. And that means they are increasingly in an echo chamber, spending so much time with the influential sources they feel they must cover that they start to be swayed by them. It is less intense, but not dissimilar to the effect achieved when reporters are embedded in military units. The journalists often wind up adopting the views of the people they associate with frequently...
...the Wall Street Journal said of bonus outrage: “That’s so last March.”
Maybe taxpayers have simply given up on Washington’s efforts to corral Wall Street.
Now why is this sort of thing (and the media was full of more subtle versions, of happy talk re Dow 10,000 and Goldman earnings) more pernicious than it might appear?
The message, quite overly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program. Now I saw the polar opposite today. There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefitting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.
...Now America does not have a tradition of taking to the streets; demonstrations and rallies historically are working class affairs. But the middle class is on a path of downward mobility while the elites continue to take the cream. The widening gap might waken some impulses that have been dormant in the American psyche."
http://www.nakedcapitalism.com/2009/10/msm-reporting-as-propaganda-no-one-minds-our-new-financial-lords-and-masters-edition.html
Friday, October 9, 2009
Some Economic Compromises
TW: As I have said before I consider myself a Rockefeller Republican which translates to a moderate Democrat given the current day political spectrum. There are a few stragglers within the Republican party, Bruce Bartlett amongst them. Here is some ground for compromise. Or from my partisan view issues where the smart Dems (inc. hopefully our POTUS) could co-opt some good ideas and secure electoral supremacy for years whilst combining these economic policies with progressive social policies and a little libertarianism thrown in for good measure.
I am not saying I would agree literally with all of below but none of it makes me retch (unlike say supply side tax cuts for wealthy) and Obama et al. could almost as easily adopt some of the below as the "Republican Bill Clinton" mentioned below. The fact folks are talking about a "Republican Clinton" instead of the Dems talking about a "Democratic Reagan" etc. is in itself huge progress.
From Matt Bandyk at US News and World Report:
"Economist Bruce Bartlett's new book attempts to create the platform for a Republican Bill Clinton--a compromiser who can bring GOP policies out of the fringe and into workable solutions.
...Bartlett identifies three policy stances for such a candidate:
1) deemphasizing tax cuts
2) slowing or shrinking entitlement programs
3) a value-added tax to help close the deficit.
Derek Thompson of the Atlantic adds a fourth suggestion: 4) a modest tax on carbon.
Let me add five more possibilities (on economics):
1. Guest worker compromise on immigration: Any "third way" Republican candidate will need to do something about the Hispanic vote, which most of the GOP has seemed determined to lose over the last few years. Bush tried to find a compromise on immigration, and failed. A Republican Bill Clinton could perhaps improve on Bush's attempt by focusing on just one simplistic proposal: new "smart" cards that would tie temporary workers to jobs in the US. This is the "Red Card" solution as advocated by some.
2. Lessen the bailout culture: It's clear that, for better or worse, it's not politically possible for any serious politician to declare that he or she won't bail out large financial institutions when they screw up. But a Republican Bill Clinton could at least recognize the moral hazard that comes with that inevitability, and take some steps to lessen the incentives for the big financial giants to create too much risk. For example, the FDIC required big banks to pay more in premiums. More actions like that would please people on the right and the left who are sick of all the money we've spent on bailouts.
3. VAT as a replacement, not an add-on. Any politician pushing for tax increases is making a hard sell. It's even more difficult for a Republican. A "third way" Republican could make a VAT easier for his or her base to swallow by stressing that it won't just be a whole new tax on top of the existing system. Instead, couple the VAT proposal with reductions in inefficient taxes like the corporate or estate taxes, and also simplify the income tax.
4. Retake the innovation debate. Obama has talked a big game about spending billions on new technologies to reaffirm America's position as an innovation leader. As long as the innovation debate is framed in terms of number of dollars spent, Republicans can't say much. So a Republican Bill Clinton would need to change the debate and start talking about how to boost innovation by removing barriers to American entrepreneurship. Here are some starting ideas: Cut taxes for startups in their early years, and reform Sarbanes Oxley to make it less burdensome for small companies so there's an incentive for more IPOs.
5. End the tax exemption for employer-based healthcare. McCain tried to advocate this, but not in a bipartisan way. But sign onto something like the proposal in the Wyden-Bennett bill already endorsed by many Democrats (and Republicans), and the partisan arguments won't stick."
http://www.usnews.com/money/blogs/capital-commerce/2009/10/7/what-would-a-republican-bill-clinton-support.html
I am not saying I would agree literally with all of below but none of it makes me retch (unlike say supply side tax cuts for wealthy) and Obama et al. could almost as easily adopt some of the below as the "Republican Bill Clinton" mentioned below. The fact folks are talking about a "Republican Clinton" instead of the Dems talking about a "Democratic Reagan" etc. is in itself huge progress.
From Matt Bandyk at US News and World Report:
"Economist Bruce Bartlett's new book attempts to create the platform for a Republican Bill Clinton--a compromiser who can bring GOP policies out of the fringe and into workable solutions.
...Bartlett identifies three policy stances for such a candidate:
1) deemphasizing tax cuts
2) slowing or shrinking entitlement programs
3) a value-added tax to help close the deficit.
Derek Thompson of the Atlantic adds a fourth suggestion: 4) a modest tax on carbon.
Let me add five more possibilities (on economics):
1. Guest worker compromise on immigration: Any "third way" Republican candidate will need to do something about the Hispanic vote, which most of the GOP has seemed determined to lose over the last few years. Bush tried to find a compromise on immigration, and failed. A Republican Bill Clinton could perhaps improve on Bush's attempt by focusing on just one simplistic proposal: new "smart" cards that would tie temporary workers to jobs in the US. This is the "Red Card" solution as advocated by some.
2. Lessen the bailout culture: It's clear that, for better or worse, it's not politically possible for any serious politician to declare that he or she won't bail out large financial institutions when they screw up. But a Republican Bill Clinton could at least recognize the moral hazard that comes with that inevitability, and take some steps to lessen the incentives for the big financial giants to create too much risk. For example, the FDIC required big banks to pay more in premiums. More actions like that would please people on the right and the left who are sick of all the money we've spent on bailouts.
3. VAT as a replacement, not an add-on. Any politician pushing for tax increases is making a hard sell. It's even more difficult for a Republican. A "third way" Republican could make a VAT easier for his or her base to swallow by stressing that it won't just be a whole new tax on top of the existing system. Instead, couple the VAT proposal with reductions in inefficient taxes like the corporate or estate taxes, and also simplify the income tax.
4. Retake the innovation debate. Obama has talked a big game about spending billions on new technologies to reaffirm America's position as an innovation leader. As long as the innovation debate is framed in terms of number of dollars spent, Republicans can't say much. So a Republican Bill Clinton would need to change the debate and start talking about how to boost innovation by removing barriers to American entrepreneurship. Here are some starting ideas: Cut taxes for startups in their early years, and reform Sarbanes Oxley to make it less burdensome for small companies so there's an incentive for more IPOs.
5. End the tax exemption for employer-based healthcare. McCain tried to advocate this, but not in a bipartisan way. But sign onto something like the proposal in the Wyden-Bennett bill already endorsed by many Democrats (and Republicans), and the partisan arguments won't stick."
http://www.usnews.com/money/blogs/capital-commerce/2009/10/7/what-would-a-republican-bill-clinton-support.html
Friday, September 18, 2009
Our Fiscal Dilemma
TW: Former Reagan and HW Bush economics advisor Bartlett gets some aggravation off his chest relative to our fiscal situation (I mean if I call folks "nitwits" I am accused of limo liberal snobbery!!). He covers ground we have covered mostly before here but it is always useful to hear an economist from the other side validate one's concerns. His fundamental point: folks have a very convoluted and inaccurate view of how the federal government spends money and how challenging efforts to bend the spending curve truly are given the political realities.
I have asked rhetorically many times on the blog: so what do YOU want to do? Raise taxes? Cut spending, if so where? Have yet to get a response.
From Bruce Bartlett at Capital Gains and Games and Forbes:
"Every time I try to explain why our fiscal problems are so deep that higher revenues must be considered, some nitwit always says to me, “Why don’t we just cut spending?” It’s as if the choice between raising taxes and cutting spending is no more difficult than the choice to buy melon or cantaloupe for breakfast. What these nitwits implicitly assume is that we live in some kind of dictatorship where Ron Paul has Stalin-like power and spending can be cut with the wave of a hand, where no one has to worry about getting the votes in Congress for politically painful legislation, where the budget largely consists entirely of foreign aid, where there are no entitlement programs or interest on the debt to pay, and where the primary beneficiaries of spending (the elderly) aren’t the largest and fastest growing voting bloc in America. In my Forbes column this week I try to explain some of the difficulties of cutting spending. I will have to revisit the topic because I only touched the surface. I expect the nitwits who think our fiscal problems can be solved solely and exclusively on the spending side to ignore me and continue to live in their dream world."
http://www.forbes.com/2009/09/17/federal-budget-spending-opinions-columnists-bruce-bartlett.html
I have asked rhetorically many times on the blog: so what do YOU want to do? Raise taxes? Cut spending, if so where? Have yet to get a response.
From Bruce Bartlett at Capital Gains and Games and Forbes:
"Every time I try to explain why our fiscal problems are so deep that higher revenues must be considered, some nitwit always says to me, “Why don’t we just cut spending?” It’s as if the choice between raising taxes and cutting spending is no more difficult than the choice to buy melon or cantaloupe for breakfast. What these nitwits implicitly assume is that we live in some kind of dictatorship where Ron Paul has Stalin-like power and spending can be cut with the wave of a hand, where no one has to worry about getting the votes in Congress for politically painful legislation, where the budget largely consists entirely of foreign aid, where there are no entitlement programs or interest on the debt to pay, and where the primary beneficiaries of spending (the elderly) aren’t the largest and fastest growing voting bloc in America. In my Forbes column this week I try to explain some of the difficulties of cutting spending. I will have to revisit the topic because I only touched the surface. I expect the nitwits who think our fiscal problems can be solved solely and exclusively on the spending side to ignore me and continue to live in their dream world."
http://www.forbes.com/2009/09/17/federal-budget-spending-opinions-columnists-bruce-bartlett.html
Saturday, August 22, 2009
Subsidizing the Wealthy
TW: This piece frames how current employee based health care for better or worse treats any health care programs as tax deductible expenses. There are no caps on the tax shelter hence the tax deductions are flat and not graduated to reflect the personal wealth of the employees or the extravagance of the individual health plan.
McCain proposed eliminating or greatly reducing the tax deductions within employee based plans. Dems oppose this approach because relatively speaking unionized workers have strong employee based care and would not be interested in having them taxed. One sees almost no Republicans pushing the concept either because well it would be an implied tax increase and there really is no constituency for tax increases on the working poor and middle-class.
There are proposals within the current health care reform though to cap the deductions for the more extravagant employee health care programs, thereby introducing some measure of graduation.
Personally I would make health care (and mortgage interest) expenses no more deductible than any other expense which is to say not deductible.
From Matt Taibbi's blog:
" 'The debate over the merits of taxing high-cost, excessively generous insurance plans has highlighted Goldman Sachs’s plan as an example. Goldman’s 400 managing directors reportedly receive an average of $40,543 in employer-provided health insurance annually. What has received less attention is how much of the cost the federal government pays. This compensation is provided tax-free. The same result would occur if the compensation were included as income and the government sent each Goldman managing director a check for $14,777 each year.'
This is from a report by the Center on Budget and Policy Priorities. It’s an interesting take on the health-care bill. I’m not sure about taxing insurance plans — I’ve seen research that argues somewhat convincingly that it’s a bad idea — but this is also worth pointing out.
The report goes on:
'For comparison, consider an illustrative family of three in which the father earns $30,000 as an independent contractor for a small plumbing company and the mother earns $25,000 from a small retailer. Neither small business provides health benefits. The couple has a daughter in second grade at the local public school and pays $100 a week for child care after school and during the summer. The family lives in a modest home and pays $1,000 a month in rent and $250 in utilities. It owes $2,312 in federal income taxes, $6,502 in Social Security and Medicare taxes, and $1,350 in state income taxes. It has two cars with payments of $300 a month each, and pays $2,000 a year in car insurance and $1,000 a year for gasoline. It spends $150 a week on groceries. The couple has avoided accruing any credit card debt, but they have no saving for retirement and no life insurance…
Right now, the federal government pays $14,777 to provide health insurance for each of Goldman Sachs’s managing directors and pays nothing to provide health insurance for this middle-income family. The Administration and Congress face a clear choice: can we modestly reduce the extremely generous government subsidies provided to the Goldman bankers and others similarly situated to help pay for a subsidy worth a fraction of that amount to families of modest means?'..."
McCain proposed eliminating or greatly reducing the tax deductions within employee based plans. Dems oppose this approach because relatively speaking unionized workers have strong employee based care and would not be interested in having them taxed. One sees almost no Republicans pushing the concept either because well it would be an implied tax increase and there really is no constituency for tax increases on the working poor and middle-class.
There are proposals within the current health care reform though to cap the deductions for the more extravagant employee health care programs, thereby introducing some measure of graduation.
Personally I would make health care (and mortgage interest) expenses no more deductible than any other expense which is to say not deductible.
From Matt Taibbi's blog:
" 'The debate over the merits of taxing high-cost, excessively generous insurance plans has highlighted Goldman Sachs’s plan as an example. Goldman’s 400 managing directors reportedly receive an average of $40,543 in employer-provided health insurance annually. What has received less attention is how much of the cost the federal government pays. This compensation is provided tax-free. The same result would occur if the compensation were included as income and the government sent each Goldman managing director a check for $14,777 each year.'
This is from a report by the Center on Budget and Policy Priorities. It’s an interesting take on the health-care bill. I’m not sure about taxing insurance plans — I’ve seen research that argues somewhat convincingly that it’s a bad idea — but this is also worth pointing out.
The report goes on:
'For comparison, consider an illustrative family of three in which the father earns $30,000 as an independent contractor for a small plumbing company and the mother earns $25,000 from a small retailer. Neither small business provides health benefits. The couple has a daughter in second grade at the local public school and pays $100 a week for child care after school and during the summer. The family lives in a modest home and pays $1,000 a month in rent and $250 in utilities. It owes $2,312 in federal income taxes, $6,502 in Social Security and Medicare taxes, and $1,350 in state income taxes. It has two cars with payments of $300 a month each, and pays $2,000 a year in car insurance and $1,000 a year for gasoline. It spends $150 a week on groceries. The couple has avoided accruing any credit card debt, but they have no saving for retirement and no life insurance…
Right now, the federal government pays $14,777 to provide health insurance for each of Goldman Sachs’s managing directors and pays nothing to provide health insurance for this middle-income family. The Administration and Congress face a clear choice: can we modestly reduce the extremely generous government subsidies provided to the Goldman bankers and others similarly situated to help pay for a subsidy worth a fraction of that amount to families of modest means?'..."
Thursday, July 16, 2009
We Get the Governance We Want- Which Is To Say Bad Governance
TW: I come back to this theme repeatedly and will do so until and unless some headway is made against the irresponsible governance we the American people demand. We are unwilling to face up to fiscal challenges much less address glaring threats such as climate change and health care. California's fiscal problems are increasingly well-known but in reality they are not that much worse relatively than dozens of other states only more important due to the size of CA. They are a metaphor for the U.S. as a whole.
Our country has always had demagogues, rogues and incompetents mixed with the wise and qualified politicians. Our political systems have always been somewhat creaky. But now we face secular and systematic challenges- an aging population and declining relative American power. This is a profound shift, a shift which cannot be ignored.
Huge constituencies of the American public including but not limited to: pensioners, public employees, the wealthy, the culturally strident etc. are refusing to compromise in the pursuit of rational, least worst solutions.
America figured out how to govern during times of improving demographics and growing relative world power, can it figure out how to govern when those dynamics shift. This shift is not the end of the world, Europe has been living through a similar shift for 100 years. Their quality of life on many metrics is superior to the U.S. We can chase the past or figure out the future.
From Wim Buiter at Financial Times:
"...The similarity between California’s state government budget deficit and the Federal deficit lies not so much in their magnitudes as in the political and institutional dysfunctionality that created and sustains both of them.
Like the country as a whole, California has become increasingly polarised politically. There is no common ground, no willingness to engage in serious negotiation and compromise. The state’s social capital, like that of the nation as a whole, has been thoroughly depleted. The willingness and capacity to strive for let alone achieve a new consensus appears absent, despite the presence of two rather unifying personalities at the head of both the federal and the state executive branches of government. Unfortunately, both president Obama and governor Schwarzenegger appear out of step with the mindless majority of their compatriots.
In the federal Congress, there is no majority either for the future steep tax increases or the future large cuts in public spending that will be required to restore federal fiscal sustainability. In a nutshell, the Republicans will scupper any future tax rise and the Democrats will veto any future cut in public spending...Both the President of the USA and the Governor of California are significantly more sensible and moderate than their parties, and less beholden to narrow special interests, but neither has the political clout to compel the least painful restoration of fiscal-financial sustainability.
...So what is to be done? For the fiscal plight of the US as a whole, prayer is all I can recommend..."
http://blogs.ft.com/maverecon/2009/07/from-direct-democracy-to-direct-federal-financial-rule-in-california/
Our country has always had demagogues, rogues and incompetents mixed with the wise and qualified politicians. Our political systems have always been somewhat creaky. But now we face secular and systematic challenges- an aging population and declining relative American power. This is a profound shift, a shift which cannot be ignored.
Huge constituencies of the American public including but not limited to: pensioners, public employees, the wealthy, the culturally strident etc. are refusing to compromise in the pursuit of rational, least worst solutions.
America figured out how to govern during times of improving demographics and growing relative world power, can it figure out how to govern when those dynamics shift. This shift is not the end of the world, Europe has been living through a similar shift for 100 years. Their quality of life on many metrics is superior to the U.S. We can chase the past or figure out the future.
From Wim Buiter at Financial Times:
"...The similarity between California’s state government budget deficit and the Federal deficit lies not so much in their magnitudes as in the political and institutional dysfunctionality that created and sustains both of them.
Like the country as a whole, California has become increasingly polarised politically. There is no common ground, no willingness to engage in serious negotiation and compromise. The state’s social capital, like that of the nation as a whole, has been thoroughly depleted. The willingness and capacity to strive for let alone achieve a new consensus appears absent, despite the presence of two rather unifying personalities at the head of both the federal and the state executive branches of government. Unfortunately, both president Obama and governor Schwarzenegger appear out of step with the mindless majority of their compatriots.
In the federal Congress, there is no majority either for the future steep tax increases or the future large cuts in public spending that will be required to restore federal fiscal sustainability. In a nutshell, the Republicans will scupper any future tax rise and the Democrats will veto any future cut in public spending...Both the President of the USA and the Governor of California are significantly more sensible and moderate than their parties, and less beholden to narrow special interests, but neither has the political clout to compel the least painful restoration of fiscal-financial sustainability.
...So what is to be done? For the fiscal plight of the US as a whole, prayer is all I can recommend..."
http://blogs.ft.com/maverecon/2009/07/from-direct-democracy-to-direct-federal-financial-rule-in-california/
Tuesday, July 14, 2009
Genomics Will Transform Health Care Insurance Regardless Of the Latest Reforms
TW: Buiter makes a fairly simple point but one that has tremendous implications. As technology makes it increasingly feasible to forecast an individual's future health, the entire concept of health insurance will be turned on its head. Through genomics a person will no longer be a 25 year old who smokes but rather a 25 year old with DNA or other attributes that make her pre-disposed, in fact likely to suffer from, leukemia or breast cancer or heart disease or none of the above.
The reasons insuring a large group of folks rather than an individual has always been driven by the need to spread risk. Healthy folks who pay insurance inherently subsidize those less healthy or lucky folks. But as the ability to forecast who will be one or the other increases the insurance market will be transformed.
From Wim Buiter at Financial Times:
"Private insurance only works if there is risk. If the risk is eliminated, profitable insurance is impossible...When risk vanishes, insurance turns into redistribution. That’s a task for the state, whether through the tax payer or by mandated pooling in quasi-private insurance schemes of individuals with known heterogeneous health profiles.
The rise of genomics - the branch of genetics that studies organisms in terms of their full DNA sequences or genomes - will in the not too distant future kill off most private health insurance. That’s probably a good thing, for two reasons. First, because of asymmetric information, when there is risk and uncertainty about a person’s future health, health insurance markets are badly affected by adverse selection and moral hazard. Second, because the private health insurance industry is a monument to inefficiency everywhere and, especially in the US, a rent-seeking Leviathan whose ruthless lobbying efforts corrupt all it touches.
When it becomes possible early in life to map out a person’s future infirmities, illnesses, disabilities and eventual cause(s) of death (other than those due to accidents or violence), it becomes impossible to have health insurance based on market principles and the profit motive. With profitable health insurance impossible because you cannot insure a sure thing, there are but two options left. Either you leave those with poor health prospects to their own devices (the ‘tough luck’ approach) or you turn health insurance into interpersonal redistribution of income, that is, you socialise health care funding. This redistribution is from those with above-average health prospects to those with below-average health prospects.
Such a redistribution policy can either use general tax revenues (the way the British National Health Service is financed) or can involve subsidised health ‘insurance’ in a world with mandatory health insurance where those with below-average health prospects are pooled with the rest of the population and where individual health insurance premia do not reflect an individual’s health prospects - like the assigned-risk pool for car insurance in the US. Under either system there would be a minimum guaranteed quality of health care that everyone is entitled to, regardless of ability to pay, and that would be paid for either out of general tax revenues or out of the premia contributed by those with above-average health prospects.
I start from the proposition that health care, up to a collectively decided minimum standard, should be available to everyone. That is, it should be universal and mandatory.
...If health care is to be universal, it should be de-coupled from employment completely. The availability of health care should be a function of the condition of being alive, not of the condition of being employed. Here too, Obama’s health care plans, which retain tax advantages for employer-provided health insurance, fall down badly.
...Note that nothing I have said sheds any light on the best way to provide medical care - on whether health services should be supplied privately, cooperatively, by the state, with or without regulation etc. It only concerns who pays, and there the answer is clear: you and I as tax payers or you and I as mandated providers of subsidies in large assigned-risk pools."
http://blogs.ft.com/maverecon/2009/07/the-inevitable-socialisation-of-health-care-financing/
The reasons insuring a large group of folks rather than an individual has always been driven by the need to spread risk. Healthy folks who pay insurance inherently subsidize those less healthy or lucky folks. But as the ability to forecast who will be one or the other increases the insurance market will be transformed.
From Wim Buiter at Financial Times:
"Private insurance only works if there is risk. If the risk is eliminated, profitable insurance is impossible...When risk vanishes, insurance turns into redistribution. That’s a task for the state, whether through the tax payer or by mandated pooling in quasi-private insurance schemes of individuals with known heterogeneous health profiles.
The rise of genomics - the branch of genetics that studies organisms in terms of their full DNA sequences or genomes - will in the not too distant future kill off most private health insurance. That’s probably a good thing, for two reasons. First, because of asymmetric information, when there is risk and uncertainty about a person’s future health, health insurance markets are badly affected by adverse selection and moral hazard. Second, because the private health insurance industry is a monument to inefficiency everywhere and, especially in the US, a rent-seeking Leviathan whose ruthless lobbying efforts corrupt all it touches.
When it becomes possible early in life to map out a person’s future infirmities, illnesses, disabilities and eventual cause(s) of death (other than those due to accidents or violence), it becomes impossible to have health insurance based on market principles and the profit motive. With profitable health insurance impossible because you cannot insure a sure thing, there are but two options left. Either you leave those with poor health prospects to their own devices (the ‘tough luck’ approach) or you turn health insurance into interpersonal redistribution of income, that is, you socialise health care funding. This redistribution is from those with above-average health prospects to those with below-average health prospects.
Such a redistribution policy can either use general tax revenues (the way the British National Health Service is financed) or can involve subsidised health ‘insurance’ in a world with mandatory health insurance where those with below-average health prospects are pooled with the rest of the population and where individual health insurance premia do not reflect an individual’s health prospects - like the assigned-risk pool for car insurance in the US. Under either system there would be a minimum guaranteed quality of health care that everyone is entitled to, regardless of ability to pay, and that would be paid for either out of general tax revenues or out of the premia contributed by those with above-average health prospects.
I start from the proposition that health care, up to a collectively decided minimum standard, should be available to everyone. That is, it should be universal and mandatory.
...If health care is to be universal, it should be de-coupled from employment completely. The availability of health care should be a function of the condition of being alive, not of the condition of being employed. Here too, Obama’s health care plans, which retain tax advantages for employer-provided health insurance, fall down badly.
...Note that nothing I have said sheds any light on the best way to provide medical care - on whether health services should be supplied privately, cooperatively, by the state, with or without regulation etc. It only concerns who pays, and there the answer is clear: you and I as tax payers or you and I as mandated providers of subsidies in large assigned-risk pools."
http://blogs.ft.com/maverecon/2009/07/the-inevitable-socialisation-of-health-care-financing/
Wednesday, July 8, 2009
Why Not Congestion Tolls?
TW: Wanna spend more time with your kids, reduce pollution, reduce your blood pressure and perhaps even reduce taxes? Think about a little road congestion pricing (i.e. floating tolls based on time of day, day of week etc.). Congestion tolls have been tried and proven effective in numerous places yet have not been widely adopted in the U.S. Time "wasted" in jams and taxes spent building and maintaining highways are real costs. Congestion tolls are a classic micro-economic device to charge those who benefit most from a good for that value.
From Ryan Avent's Bellows blog:
"The Texas Transportation Institute’s latest urban mobility report is out, and the news isn’t very good. Sure, congestion has fallen in recent months in much of the country; recession will do that for you. But the annual bill for traffic congestion now sits at $87 billion. That’s lost time and wasted gas.
It takes a lot of dumb decision making to get congestion that bad. An example: here in the Washington metropolitan area — one of the few places where congestion has increased through the recession — Maryland is going to spend nearly $4 billion widening an exurban stretch of highway. So far as long-term results are concerned, they may as well be setting the money on fire. If they’re absolutely determined to spend more money on capacity, they could significantly improve regional rail lines along the corridor and build a local service light rail line for far less than $4 billion.
But the best way to understand the $87 billion we lose annually to congestion is as a political failure. Tolling highways would eliminate congestion. It would eliminate the perceived need to spend billions on general revenues on new highway capacity. And it would raise billions which could be used to keep highways in a good state of repair and provide effective public transportation for those unable or unwilling to pay for access to tolled highways. It would save gobs of money, time, lives, and emissions...but the prospects for wide-scale adoption of congestion tolling seems bleak."
From Ryan Avent's Bellows blog:
"The Texas Transportation Institute’s latest urban mobility report is out, and the news isn’t very good. Sure, congestion has fallen in recent months in much of the country; recession will do that for you. But the annual bill for traffic congestion now sits at $87 billion. That’s lost time and wasted gas.
It takes a lot of dumb decision making to get congestion that bad. An example: here in the Washington metropolitan area — one of the few places where congestion has increased through the recession — Maryland is going to spend nearly $4 billion widening an exurban stretch of highway. So far as long-term results are concerned, they may as well be setting the money on fire. If they’re absolutely determined to spend more money on capacity, they could significantly improve regional rail lines along the corridor and build a local service light rail line for far less than $4 billion.
But the best way to understand the $87 billion we lose annually to congestion is as a political failure. Tolling highways would eliminate congestion. It would eliminate the perceived need to spend billions on general revenues on new highway capacity. And it would raise billions which could be used to keep highways in a good state of repair and provide effective public transportation for those unable or unwilling to pay for access to tolled highways. It would save gobs of money, time, lives, and emissions...but the prospects for wide-scale adoption of congestion tolling seems bleak."
Wednesday, July 1, 2009
Some Insight From Paul Samuelson
TW: Paul Samuelson is a liberal economist, Nobel Prize winner in economics and still dishing it out at age 94.
From Paul Kedrosky:
"A few more quotable quotes from that new interview:
On Greg Mankiw and Ben Bernanke
The 1980s trained macroeconomics -- like Greg Mankiw and Ben Bernanke and so forth -- became a very complacent group, very ill adapted to meet with a completely unpredictable and new situation, such as we've had.
On Robert Lucas and his acolytes (TW: Lucas is also a Nobel winner from U. of Chicago, a conservative)
Those guys were useless at Federal Reserve meetings.
On Alan Greenspan
But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy.
On Milton Friedman
He was a libertarian to the point of nuttiness.
On bubbles
And I'm not sure most of the people that get caught up in the middle of a bubble can be described as irrational. It seems pretty rational to buy a house and flip it in the next few weeks at a profit when that's been happening for along time. It works both ways.
On the dollar:
I think it's almost inevitable that, with a billion people in China wide awake for the first time, and a billion people in India, there's going to be some kind of a terrible run against the dollar. And I doubt it can stay orderly, because all of our own hedge funds will be right in the vanguard of the operation.
On economic history: what would you say to someone starting graduate study in economics?
Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. "
From Paul Kedrosky:
"A few more quotable quotes from that new interview:
On Greg Mankiw and Ben Bernanke
The 1980s trained macroeconomics -- like Greg Mankiw and Ben Bernanke and so forth -- became a very complacent group, very ill adapted to meet with a completely unpredictable and new situation, such as we've had.
On Robert Lucas and his acolytes (TW: Lucas is also a Nobel winner from U. of Chicago, a conservative)
Those guys were useless at Federal Reserve meetings.
On Alan Greenspan
But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy.
On Milton Friedman
He was a libertarian to the point of nuttiness.
On bubbles
And I'm not sure most of the people that get caught up in the middle of a bubble can be described as irrational. It seems pretty rational to buy a house and flip it in the next few weeks at a profit when that's been happening for along time. It works both ways.
On the dollar:
I think it's almost inevitable that, with a billion people in China wide awake for the first time, and a billion people in India, there's going to be some kind of a terrible run against the dollar. And I doubt it can stay orderly, because all of our own hedge funds will be right in the vanguard of the operation.
On economic history: what would you say to someone starting graduate study in economics?
Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. "
Friday, May 22, 2009
Boo Hoo
TW: To me these columns are risible. Colvin "educates" us with the profound notion that Wall Street bonuses are forward looking and since Wall Street will recover before the general economy that bonuses will become appropriate for Wall Street bankers shepherding those forward looking markets. I agree markets are in fact forward looking.
But one question if Wall Street bonuses are so damn forward looking why were they being paid out hand over fist in 2005, 2006, 2007 and even early 2008 into the face of the worst Wall Street performance in 60 years.
This is the tails I win, heads you lose proposition that continues to perplex and infuriate folks outside Wall Street. Now that some semblance (although certainly tenuous) of normalcy is returning to the financial markets. The usual suspects are berating TARP, "guvmint" and any sort of regulatory reform. In other words thanks for bailing our asses out of the fire, don't let the door hit you in the ass.
From Geoff Colvin at Fortune:
"...before we institute public floggings for bankers, let's take a closer look at who or what is really to blame.
At the root of the public's anger is a timing issue: In recessions the stock market tends to anticipate the recovery by six to nine months. That means that business at Wall Street firms, including those that accepted TARP money, will pick up while most of the country is still suffering. So Wall Street employees who are paid in part through bonuses will see those bonuses rise from last year's deeply depressed levels.
At the same time, overall unemployment generally does not improve until the end of a recession or even later. So for many months to come, maybe a year or more, Americans will be jobless in growing numbers while Wall Street firms will be hiring and paying more - with taxpayers' dollars - and Washington will be caught in the middle.
That means we'll see many days when headlines carry bad news for workers and good news for bankers...
Why shouldn't Wall Street be punished? Because it would be bad for the country. Now that all of us taxpayers own a piece of the banks, thanks to the Bush and Obama administrations' bailouts, we need our investments to pay off. It's in the immediate interests of taxpayers, and in the longer-term interests of the economy, for Bank of America (BAC, Fortune 500), Citigroup, Goldman Sachs (GS, Fortune 500), and the rest to do well financially. The more money they make, the sooner they can pay back the Treasury and focus fully on their necessary roles in the economy.
Restoring profitability to the banks will require paying bonuses. The only way these firms succeed is with superior human capital, and the way they get it is by paying for it. Plenty of global financial firms did not take TARP funds, and they can pay what they like. Analyze the first-quarter results of Credit Suisse (CS), Deutsche Bank (DB), CIBC, and others that compete with TARP recipients, and you'll find that they, too, are paying their people more.
The results are just what you'd expect. "Citi is hemorrhaging people, and the government restrictions are making it worse," says Alan Johnson, a compensation consultant whose clients include many Wall Street firms. "I have clients who are not TARP recipients and who are giddy that they can now steal people like they never could before..."
http://money.cnn.com/2009/05/12/news/economy/colvin_wallstreet.fortune/index.htm
But one question if Wall Street bonuses are so damn forward looking why were they being paid out hand over fist in 2005, 2006, 2007 and even early 2008 into the face of the worst Wall Street performance in 60 years.
This is the tails I win, heads you lose proposition that continues to perplex and infuriate folks outside Wall Street. Now that some semblance (although certainly tenuous) of normalcy is returning to the financial markets. The usual suspects are berating TARP, "guvmint" and any sort of regulatory reform. In other words thanks for bailing our asses out of the fire, don't let the door hit you in the ass.
From Geoff Colvin at Fortune:
"...before we institute public floggings for bankers, let's take a closer look at who or what is really to blame.
At the root of the public's anger is a timing issue: In recessions the stock market tends to anticipate the recovery by six to nine months. That means that business at Wall Street firms, including those that accepted TARP money, will pick up while most of the country is still suffering. So Wall Street employees who are paid in part through bonuses will see those bonuses rise from last year's deeply depressed levels.
At the same time, overall unemployment generally does not improve until the end of a recession or even later. So for many months to come, maybe a year or more, Americans will be jobless in growing numbers while Wall Street firms will be hiring and paying more - with taxpayers' dollars - and Washington will be caught in the middle.
That means we'll see many days when headlines carry bad news for workers and good news for bankers...
Why shouldn't Wall Street be punished? Because it would be bad for the country. Now that all of us taxpayers own a piece of the banks, thanks to the Bush and Obama administrations' bailouts, we need our investments to pay off. It's in the immediate interests of taxpayers, and in the longer-term interests of the economy, for Bank of America (BAC, Fortune 500), Citigroup, Goldman Sachs (GS, Fortune 500), and the rest to do well financially. The more money they make, the sooner they can pay back the Treasury and focus fully on their necessary roles in the economy.
Restoring profitability to the banks will require paying bonuses. The only way these firms succeed is with superior human capital, and the way they get it is by paying for it. Plenty of global financial firms did not take TARP funds, and they can pay what they like. Analyze the first-quarter results of Credit Suisse (CS), Deutsche Bank (DB), CIBC, and others that compete with TARP recipients, and you'll find that they, too, are paying their people more.
The results are just what you'd expect. "Citi is hemorrhaging people, and the government restrictions are making it worse," says Alan Johnson, a compensation consultant whose clients include many Wall Street firms. "I have clients who are not TARP recipients and who are giddy that they can now steal people like they never could before..."
http://money.cnn.com/2009/05/12/news/economy/colvin_wallstreet.fortune/index.htm
Sunday, May 17, 2009
Do Not Listen To These Folks!!
TW: This video is priceless, it is from May 14, 2008. The "expert" forecasting is shockingly bad enough. But the manner in which they deliver their ignorance is the true joy. Patronizing, smug, testosterony and almost 100% wrong. Kudlow starts with how Obama was headed toward defeat, then most of them proceed to gang up on the one guy predicting a recession. Treating him like a pathetic pariah while they all make ridiculously pompous forecasts of how the economy was NOT in recession and would not go into a recession etc.
The point is these guys not only have not been laughed off TV they are still on TV, regularly. Generally they are the ones bitching about Obama, touting supply-side economics and whining about how Wall Street is being humped by the "government". They were frightfully wrong in May 2008. Why would you possibly listen to them in May 2009.
Keep an eye out for this Don Luskin guy, his pomposity and inaccuracy exceeded all others. Not surprisingly as you will see on tomorrow's installment when they shifted their focus to politics his hitting streak continued.
Friday, May 15, 2009
Reason #67 Why Cap n'Trade Will Fail
TW: Or at least why it probably should fail. Only a quarter of Americans can even identify the cap and trade concept as related to the environment. Cap and trade is a difficult to understand concept, if it is enacted it will be due to powerful interest groups pushing it through not a clear consensus of Americans favoring the approach. Industry in collusion with politicians will co-opt cap and trade so fast that it will give environmental policy a bad name for decades, meanwhile we will continue to expend blood and treasure chasing oil whilst pouring carbon into the atmosphere.
We need a decent energy policy, cap and trade just is not the answer. More later.
From Ryan Avent's blog:
"...Americans have no idea what cap-and-trade is. They don’t even know to what major public policy problem it is generally suggested as a solution:
Given a choice of three options, just 24 percent of voters can correctly identify the cap-and-trade proposal as something that deals with environmental issues. A slightly higher number (29 percent) believe the proposal has something to do with regulating Wall Street while 17 percent think the term applies to health care reform. A plurality (30 percent) have no idea.
... will readily admit that I have no idea whether Americans know much more about a carbon tax or whether more knowledge would be a help or a hindrance. It does seem to me, however, that the most relevant factor is whether the folks playing interest politics understand the difference (they do) and how that knowledge influences their preference (results vary, but crucially, those who seem to want or expect a pricing bill to pass this year are mainly joining team cap-and-trade)..."
We need a decent energy policy, cap and trade just is not the answer. More later.
From Ryan Avent's blog:
"...Americans have no idea what cap-and-trade is. They don’t even know to what major public policy problem it is generally suggested as a solution:
Given a choice of three options, just 24 percent of voters can correctly identify the cap-and-trade proposal as something that deals with environmental issues. A slightly higher number (29 percent) believe the proposal has something to do with regulating Wall Street while 17 percent think the term applies to health care reform. A plurality (30 percent) have no idea.
... will readily admit that I have no idea whether Americans know much more about a carbon tax or whether more knowledge would be a help or a hindrance. It does seem to me, however, that the most relevant factor is whether the folks playing interest politics understand the difference (they do) and how that knowledge influences their preference (results vary, but crucially, those who seem to want or expect a pricing bill to pass this year are mainly joining team cap-and-trade)..."
Why Health Insurance Is Different Than Others
TW: Kwak frames some of the numerous challenges with health care policy. Not all insurance is created equally, health care provides inherent challenges which make coverage difficult. People either due to their particular health situation or age or other factors just are not created equally, unlike a house or car. Insuring people whose expected liabilities differ so greatly and whose probabilities of those liabilities are visible becomes challenging. There are good reasons why large groups of folks especially younger folks pay lower premiums. Not rocket science but important to make sure one understands.
From Jim Kwak at WaPo:
"...part of the confusion is over the terms "health care" and "health insurance." People who think there is a problem with the current system usually say that everyone should have "health insurance," and leave it at that. If pressed, they would probably say that this "insurance" should be provided by private-sector insurers (this is America, after all). I know something about insurance (I co-founded a company that makes software for property and casualty insurers), and I don't think this is makes sense.
The basic idea of insurance is that risks are shared across a pool of people so that each person is protected against unlikely events. In a free-market homeowner's insurance system, insurers charge premiums to each homeowner, and only make payments to the ones who have their houses burn down. (I'm simplifying for ease of exposition.) For this system to work, though, the insurer has to charge each person the expected cost of providing the insurance - that is, the value of his house times the likelihood of his house burning down. Most people would agree that this system is fair to homeowners, and usually affordable - if you can't afford the premium, don't buy such a big house.
The analog in health insurance, however, quickly becomes unsupportable. Unfortunately, sick people (and, to a lesser extent, old people) have much higher expected health care costs than young, healthy people. In an actuarially fair health care system, their annual premiums should equal their expected annual health care costs. For someone with a serious illness, those expected costs would easily dwarf his expected income. There is no way to "buy a smaller house." So in an actuarially fair, free market system, he would be unable to get health insurance, would be unable to afford health care, and would . . . die.
Put another way, from the perspective of the insurer, the rational thing to do is charge people more than their expected health care costs, and the efficient outcome is to not insure very sick people. When we say that anyone should be able to get health insurance, we are saying that someone should be forced to lose money insuring sick people.
Things are not quite so bleak in this country, yet, because we do not actually have a free-market health insurance system. We have government programs to step in and cover some people who cannot afford insurance. Large employers play an important role, because they have the bargaining power to force insurers to cover all of their employees at flat rates (rates based on the average health of those employees, not the health of each individual employee and his family); small businesses have no such luck, because if you have five employees and one becomes seriously ill, that will drive up premiums for all five. And we have emergency rooms at not-for-profit hospitals. But these are all band-aids that are becoming weaker and weaker, either because the government cannot afford its health care expenditures at their projected growth rates, or because the free market is chipping away at employer health insurance.
Actuarially fair health insurance is something that only works for healthy people. There are various ways to try to patch the system, such as making coverage portable and forcing insurers to ignore preexisting conditions when calculating premiums. Taken to its logical conclusion, though, that implies that you only have to get medically underwritten (evaluated by the insurer for healthiness) once - when you start working - and then you are safe for the rest of your life, because any illnesses you get will be covered as preexisting conditions. If that's the case, then, insurers will have to boost premiums for everyone since they can't charge differential premiums (unless they start evaluating your DNA when you are young, but let's ignore that problem for now), and then no one is ever paying premiums based on his health - and we have something very close to social insurance.
I can't foresee what the solution will be, because this is a fundamentally political problem. But the basic presumption that health care should be paid for via a health insurance system, in which insurers make money by charging premiums that exceed expected losses - and that's how insurers make money - is part of the problem."
http://voices.washingtonpost.com/hearing/2009/05/health_care_debate_warms_up.html
From Jim Kwak at WaPo:
"...part of the confusion is over the terms "health care" and "health insurance." People who think there is a problem with the current system usually say that everyone should have "health insurance," and leave it at that. If pressed, they would probably say that this "insurance" should be provided by private-sector insurers (this is America, after all). I know something about insurance (I co-founded a company that makes software for property and casualty insurers), and I don't think this is makes sense.
The basic idea of insurance is that risks are shared across a pool of people so that each person is protected against unlikely events. In a free-market homeowner's insurance system, insurers charge premiums to each homeowner, and only make payments to the ones who have their houses burn down. (I'm simplifying for ease of exposition.) For this system to work, though, the insurer has to charge each person the expected cost of providing the insurance - that is, the value of his house times the likelihood of his house burning down. Most people would agree that this system is fair to homeowners, and usually affordable - if you can't afford the premium, don't buy such a big house.
The analog in health insurance, however, quickly becomes unsupportable. Unfortunately, sick people (and, to a lesser extent, old people) have much higher expected health care costs than young, healthy people. In an actuarially fair health care system, their annual premiums should equal their expected annual health care costs. For someone with a serious illness, those expected costs would easily dwarf his expected income. There is no way to "buy a smaller house." So in an actuarially fair, free market system, he would be unable to get health insurance, would be unable to afford health care, and would . . . die.
Put another way, from the perspective of the insurer, the rational thing to do is charge people more than their expected health care costs, and the efficient outcome is to not insure very sick people. When we say that anyone should be able to get health insurance, we are saying that someone should be forced to lose money insuring sick people.
Things are not quite so bleak in this country, yet, because we do not actually have a free-market health insurance system. We have government programs to step in and cover some people who cannot afford insurance. Large employers play an important role, because they have the bargaining power to force insurers to cover all of their employees at flat rates (rates based on the average health of those employees, not the health of each individual employee and his family); small businesses have no such luck, because if you have five employees and one becomes seriously ill, that will drive up premiums for all five. And we have emergency rooms at not-for-profit hospitals. But these are all band-aids that are becoming weaker and weaker, either because the government cannot afford its health care expenditures at their projected growth rates, or because the free market is chipping away at employer health insurance.
Actuarially fair health insurance is something that only works for healthy people. There are various ways to try to patch the system, such as making coverage portable and forcing insurers to ignore preexisting conditions when calculating premiums. Taken to its logical conclusion, though, that implies that you only have to get medically underwritten (evaluated by the insurer for healthiness) once - when you start working - and then you are safe for the rest of your life, because any illnesses you get will be covered as preexisting conditions. If that's the case, then, insurers will have to boost premiums for everyone since they can't charge differential premiums (unless they start evaluating your DNA when you are young, but let's ignore that problem for now), and then no one is ever paying premiums based on his health - and we have something very close to social insurance.
I can't foresee what the solution will be, because this is a fundamentally political problem. But the basic presumption that health care should be paid for via a health insurance system, in which insurers make money by charging premiums that exceed expected losses - and that's how insurers make money - is part of the problem."
http://voices.washingtonpost.com/hearing/2009/05/health_care_debate_warms_up.html
Monday, April 27, 2009
Fair And Balanced Foments Ignorance
TW: I liked Avent at the Economist and I still like now that he has moved the Portfolio. Here he addresses a classic journalism bugaboo- the mindless pursuit of balance. Amity Schlaes' work has been panned by a strong majority of actual economists. Yet the MSM continues to want to reference her work on the Great Depression of the 30's as legitimate economic theory. Head in the sand Hooverite Republicans refer to her work ad nauseum for the simple reasons they have little else to which to refer when they propose cutting spending into the teeth of a massive worldwide demand contraction.
Her credentials and the substance of her book are highly dubious but when MSM with cooperation from a political faction get behind someone or something it just takes on a life of its own. Frequently in MSM you now end up with vanilla "he said, she said" which equates the "expert" opinion of two guests or views with no effort at weighting the one who may be backed up by actual academics versus the quack or Fox/MSNBC overtly biased coverage.
Into the void or land of mindless vanilla comes interest groups with savvy PR organizations who can then shape the debate through obfuscation. Tobacco and anti-climate change groups being prominent players in this field. As I have said before the web is the best means by which to obtain competing views, it is not as easy as absorbing 30 second sound bites but it is far more useful.
From Ryan Avent at Portfolio:
"...her revisionist views on the impact of the New Deal on the economy of the Depression have made her the darling of conservatives seeking to stand in the way of expansionary economic policies. The symbiotic relationship between Shlaes and Republicans has set up an interesting dynamic. She has a book called The Forgotten Man which calls into question the value of expansionary policy in the 1930s. Republicans really need some research to that effect, so they all start carrying around her book. Well, this is news, and so the press writes up the story of the academic behind the GOP's economic ideas. Of course, they need to present the other side, so they find an economist or two (usually) to say that Shlaes ideas are utter dreck. But it doesn't matter to readers; academics disagree about things all the time.
So you have the papers paying attention to Shlaes, which suggests she's worth paying attention to, and noting that academics disagree with her, suggesting that this is an area of academic debate. Suddenly she seems very authoritative! Which is good for Republicans and for Shlaes and for the papers, which get eyeballs from writing a story about a contrarian view of economic policy.
...The problem, of course, is that Shlaes views are bunk. Eric Rauchway, who has labored to explain to folks why Shlaes should be ignored, writes:
The problem with Politico reporting of Amity Shlaes's Forgotten Man...is not that it's "they-said, she-said" journalism, but that it's an inadequate representation of the truth. It's not just Shlaes versus a famously shrill Nobelist and some dude at an ag university; it's Shlaes versus the accepted academic consensus.
As previously noted, if you were a sufficiently honest and competent researcher located like Amity Shlaes near any number of world-class reference libraries simply out to find out the unemployment rate in the 1930s, you would not find the data Shlaes cites; you would find, in the authoritative reference work, an explanation of why it's not best to cite the data Shlaes cites. Shlaes has to go out of her way to find other data.
Rauchway notes the obvious parallels -- press coverage long ago of the health effects of smoking, and press coverage now of the science of climate change. The way in which reporters write about the latter drives climate scientists insane; peer-reviewed, well-accepted scientific findings are routinely placed alongside the drivel published by think tanks funded by fossil fuel interests to protect fossil fuel interests. Andy Revkin at the New York Times had a blockbuster story to this effect just yesterday. Industry groups were told by their scientists over a decade ago that their climate change denialism wasn't supported by the facts, and yet they continued to fund organizations claiming the opposite. Revkin writes:
By questioning the science on global warming, these environmentalists say, groups like the Global Climate Coalition [which was financed by fossil fuel industries] were able to sow enough doubt to blunt public concern about a consequential issue and delay government action.
"They didn't have to win the argument to succeed," Mr. Monbiot said, "only to cause as much confusion as possible."...
http://www.portfolio.com/views/blogs/market-movers/2009/04/25/what-good-is-the-news
Her credentials and the substance of her book are highly dubious but when MSM with cooperation from a political faction get behind someone or something it just takes on a life of its own. Frequently in MSM you now end up with vanilla "he said, she said" which equates the "expert" opinion of two guests or views with no effort at weighting the one who may be backed up by actual academics versus the quack or Fox/MSNBC overtly biased coverage.
Into the void or land of mindless vanilla comes interest groups with savvy PR organizations who can then shape the debate through obfuscation. Tobacco and anti-climate change groups being prominent players in this field. As I have said before the web is the best means by which to obtain competing views, it is not as easy as absorbing 30 second sound bites but it is far more useful.
From Ryan Avent at Portfolio:
"...her revisionist views on the impact of the New Deal on the economy of the Depression have made her the darling of conservatives seeking to stand in the way of expansionary economic policies. The symbiotic relationship between Shlaes and Republicans has set up an interesting dynamic. She has a book called The Forgotten Man which calls into question the value of expansionary policy in the 1930s. Republicans really need some research to that effect, so they all start carrying around her book. Well, this is news, and so the press writes up the story of the academic behind the GOP's economic ideas. Of course, they need to present the other side, so they find an economist or two (usually) to say that Shlaes ideas are utter dreck. But it doesn't matter to readers; academics disagree about things all the time.
So you have the papers paying attention to Shlaes, which suggests she's worth paying attention to, and noting that academics disagree with her, suggesting that this is an area of academic debate. Suddenly she seems very authoritative! Which is good for Republicans and for Shlaes and for the papers, which get eyeballs from writing a story about a contrarian view of economic policy.
...The problem, of course, is that Shlaes views are bunk. Eric Rauchway, who has labored to explain to folks why Shlaes should be ignored, writes:
The problem with Politico reporting of Amity Shlaes's Forgotten Man...is not that it's "they-said, she-said" journalism, but that it's an inadequate representation of the truth. It's not just Shlaes versus a famously shrill Nobelist and some dude at an ag university; it's Shlaes versus the accepted academic consensus.
As previously noted, if you were a sufficiently honest and competent researcher located like Amity Shlaes near any number of world-class reference libraries simply out to find out the unemployment rate in the 1930s, you would not find the data Shlaes cites; you would find, in the authoritative reference work, an explanation of why it's not best to cite the data Shlaes cites. Shlaes has to go out of her way to find other data.
Rauchway notes the obvious parallels -- press coverage long ago of the health effects of smoking, and press coverage now of the science of climate change. The way in which reporters write about the latter drives climate scientists insane; peer-reviewed, well-accepted scientific findings are routinely placed alongside the drivel published by think tanks funded by fossil fuel interests to protect fossil fuel interests. Andy Revkin at the New York Times had a blockbuster story to this effect just yesterday. Industry groups were told by their scientists over a decade ago that their climate change denialism wasn't supported by the facts, and yet they continued to fund organizations claiming the opposite. Revkin writes:
By questioning the science on global warming, these environmentalists say, groups like the Global Climate Coalition [which was financed by fossil fuel industries] were able to sow enough doubt to blunt public concern about a consequential issue and delay government action.
"They didn't have to win the argument to succeed," Mr. Monbiot said, "only to cause as much confusion as possible."...
http://www.portfolio.com/views/blogs/market-movers/2009/04/25/what-good-is-the-news
Monday, March 30, 2009
High Stakes Poker With the Automakers
TW: I suspect this week's drama with the automakers is merely another inning in the on-going fandango with the automaker bondholders (the bondholders hold tens of billions of notes on the automakers, they must take significant haircuts if the automakers are to have viable recovery plans, the stocks are toast except for casino playing traders). Below Smith outlines the downside of the hardball Obama is playing this week. While at a certain level the bigwigs being held to the fire is enjoyable, the risks are considerable. Ultimately I strongly doubt Obama wants any of the Big Three in Chapter 11, naturally the bondholders know this hence the need for the game of chicken. The southern Republicans may relish the world auto industry losing American based manufacturers, I am not convinced the rest of the American public is ready for that step.
From Yves Smith at Naked Capitalism:
"It would be better if we were wrong, but we are of the school that putting the big automakers into bankruptcy, despite its attractions (being able to restructure debt and dealer networks; the UAW contracts are far less significant economically than the media makes them out to be) misses out on one crucial element: you don't have a business if you don't have customers. And a GM bankruptcy would be a protracted affair. Even if consumers believe the company will make it, what about their local dealer? If they worry they might have to schlepp to get their car serviced, is it worth it?
In typical backwards American deal and contract focused thinking, the officialdom has not spent enough time assessing the single most important issue: how would customers react? If GM and Chrysler were to lose as many as 20% of sales they'd otherwise get as a result of a bankruptcy filing, that it is a very big change in outcomes. And the drop could be considerably higher than that.
I worry that this punitive move will wind up being Lehman redux. Recall that bailout disgust was running high post Bear and Fannie and Freddie, and Someone Had to Suffer to show the Administration was made of real men. Now since no one even dares bitch slap a bank (the bonus stuff is mere Punch and Judy), all the hostility is channeled at Big Auto. And the danger is going into overkill literally, not just figuratively, to make up for being too easy on the financiers. And if GM or Chrysler were to be liquidated, the knock-on effects would be grim. They are important to quite a few parts suppliers. If those suppliers fail, it threatens the viability of the foreign transplants."
http://www.nakedcapitalism.com/2009/03/auto-company-plans-rejected-by-task.html
From Yves Smith at Naked Capitalism:
"It would be better if we were wrong, but we are of the school that putting the big automakers into bankruptcy, despite its attractions (being able to restructure debt and dealer networks; the UAW contracts are far less significant economically than the media makes them out to be) misses out on one crucial element: you don't have a business if you don't have customers. And a GM bankruptcy would be a protracted affair. Even if consumers believe the company will make it, what about their local dealer? If they worry they might have to schlepp to get their car serviced, is it worth it?
In typical backwards American deal and contract focused thinking, the officialdom has not spent enough time assessing the single most important issue: how would customers react? If GM and Chrysler were to lose as many as 20% of sales they'd otherwise get as a result of a bankruptcy filing, that it is a very big change in outcomes. And the drop could be considerably higher than that.
I worry that this punitive move will wind up being Lehman redux. Recall that bailout disgust was running high post Bear and Fannie and Freddie, and Someone Had to Suffer to show the Administration was made of real men. Now since no one even dares bitch slap a bank (the bonus stuff is mere Punch and Judy), all the hostility is channeled at Big Auto. And the danger is going into overkill literally, not just figuratively, to make up for being too easy on the financiers. And if GM or Chrysler were to be liquidated, the knock-on effects would be grim. They are important to quite a few parts suppliers. If those suppliers fail, it threatens the viability of the foreign transplants."
http://www.nakedcapitalism.com/2009/03/auto-company-plans-rejected-by-task.html
Thursday, February 26, 2009
Setting Expectations For the Credit Crisis
From Tim Duy's Fed Watch"
"Whatever news comes out of Washington regarding the plan of the day for the banking system, I hope one thing is soon made clear to the public - fixing the financial system is not the same thing as expanding lending. We are way past that point; you can't fix the system with more bad loans. If Treasury Secretary Geithner tries to sell his plans as the solution that will revive credit growth, I suspect he will further test the already strained credibility of the government. A more honest approach: We are simply trying to prevent the financial system from outright collapse."
TW: These are wise bits of perspective. Those who get uptight about banks "lending more" are missing the point. At this point in the downturn lending is not the big issue, solvency/viability as a going-concern are the big issues. I am highly confident the Treasury and Fed folks who receive plenty of backseat advice from peanut gallery are focused on the latter rather than the former as well they should be.
The market seems captivated by their parlor games relative to what DC will do next with the banks etc. Three things to keep in mind:
a) some "sages" lament DC getting so involved, but for the banks/hedgies etc. screwing things up so badly there would not be a need for Barney Frank et al. to be so prominent
b) far more importantly the big challenge now is demand contraction, the banks are a component but not the only or even largest piece of putting this economic puzzle back together
c) this fascination with bank nationalization seems missplaced, the banks are insolvent. Whether or not the equity holders get anything after all is said and done may be important to those equity holders and the pundits on cable but not to the overall state of our economy. The pundits are worrying about bank stock prices when they should be more concerned about a viable banking system.
"Whatever news comes out of Washington regarding the plan of the day for the banking system, I hope one thing is soon made clear to the public - fixing the financial system is not the same thing as expanding lending. We are way past that point; you can't fix the system with more bad loans. If Treasury Secretary Geithner tries to sell his plans as the solution that will revive credit growth, I suspect he will further test the already strained credibility of the government. A more honest approach: We are simply trying to prevent the financial system from outright collapse."
TW: These are wise bits of perspective. Those who get uptight about banks "lending more" are missing the point. At this point in the downturn lending is not the big issue, solvency/viability as a going-concern are the big issues. I am highly confident the Treasury and Fed folks who receive plenty of backseat advice from peanut gallery are focused on the latter rather than the former as well they should be.
The market seems captivated by their parlor games relative to what DC will do next with the banks etc. Three things to keep in mind:
a) some "sages" lament DC getting so involved, but for the banks/hedgies etc. screwing things up so badly there would not be a need for Barney Frank et al. to be so prominent
b) far more importantly the big challenge now is demand contraction, the banks are a component but not the only or even largest piece of putting this economic puzzle back together
c) this fascination with bank nationalization seems missplaced, the banks are insolvent. Whether or not the equity holders get anything after all is said and done may be important to those equity holders and the pundits on cable but not to the overall state of our economy. The pundits are worrying about bank stock prices when they should be more concerned about a viable banking system.
Monday, February 23, 2009
The Word Of the Week: Them
TW: As I have written previously populism is at once pervasive but almost always destructive. We are amidst challenging times, we do not need populism to morph into a destructive force. Few recall that FDR's greatest challenger for the presidency in 1936 was not a Republican but another Democrat, Huey Long of Louisiana. Long was assassinated in 1935 conveniently pricking a growing bubble of populism embodied by Long and others such as Father Charles Coughlin.
From Jesse's American Cafe blog:
"Demagoguery refers to a strategy for gaining political power by appealing to the popular prejudices, emotions, fears and expectations of the public — typically via impassioned rhetoric and propaganda, and often using nationalist or populist themes, usually singling out a group or groups. >
No, not demagogue or demagogy. The Word for the Week is "them.
Why should we help them.
We are being dragged down by them.
Blaming them feels good.
It makes one feel as if they were successful, not part of the problem.
It wasn't us, it was them.
They caused their own problems.
They caused our problems. It is unfortunate but they would be better off somewhere else, out of sight, no longer an impairment or competition for scarce resources.
They are the scapegoats, usually singled out by the group or groups that caused the problems, and even those who benefitted indirectly, made some money out of the bubble, less deservedly than they might like to imagine.
They are the weak, the poor, the defenseless, the different, the other.
And the circle of the ones that are considered them spreads wider and wider.
Because even those shouting and waving their fists in the crowds against them are also them to someone else higher up in the power structure. Useless eaters.
And then someone will come and take them away, where they do not wish to go. And then comes the descent into madness and destruction, for all."
From Jesse's American Cafe blog:
"Demagoguery refers to a strategy for gaining political power by appealing to the popular prejudices, emotions, fears and expectations of the public — typically via impassioned rhetoric and propaganda, and often using nationalist or populist themes, usually singling out a group or groups. >
No, not demagogue or demagogy. The Word for the Week is "them.
Why should we help them.
We are being dragged down by them.
Blaming them feels good.
It makes one feel as if they were successful, not part of the problem.
It wasn't us, it was them.
They caused their own problems.
They caused our problems. It is unfortunate but they would be better off somewhere else, out of sight, no longer an impairment or competition for scarce resources.
They are the scapegoats, usually singled out by the group or groups that caused the problems, and even those who benefitted indirectly, made some money out of the bubble, less deservedly than they might like to imagine.
They are the weak, the poor, the defenseless, the different, the other.
And the circle of the ones that are considered them spreads wider and wider.
Because even those shouting and waving their fists in the crowds against them are also them to someone else higher up in the power structure. Useless eaters.
And then someone will come and take them away, where they do not wish to go. And then comes the descent into madness and destruction, for all."
Friday, February 20, 2009
Stats, Selflessness, Incentives And Basketball
TW: This is a very long piece from NYT Magazine by Micheal Lewis (Moneyball, Liar's Poker author). Lewis examines a Houston Rocket player, Shane Battier, who has very mediocre stats except for the fact that whenever he plays his team performs materially better than when he does not play. The same cannot be said for many more heralded superstars. It is a very interesting if you have an interest in any of the below:
1) Basketball- how it is a truly team game as opposed to say baseball
2) Statistics- many stats are not at all representative of actual value
3) Incentives- many contracts and rewards are based upon stats but given #2 the rewards frequently are incentivizng the wrong actions
4) Selflessness-drives the extraoridinary performance which is frequently not reflected in #2 and #3
#2 and #3 and #4 obviously have implications far beyond basketball.
http://www.nytimes.com/2009/02/15/magazine/15Battier-t.html?scp=1&sq=shane&st=cse
1) Basketball- how it is a truly team game as opposed to say baseball
2) Statistics- many stats are not at all representative of actual value
3) Incentives- many contracts and rewards are based upon stats but given #2 the rewards frequently are incentivizng the wrong actions
4) Selflessness-drives the extraoridinary performance which is frequently not reflected in #2 and #3
#2 and #3 and #4 obviously have implications far beyond basketball.
http://www.nytimes.com/2009/02/15/magazine/15Battier-t.html?scp=1&sq=shane&st=cse
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