Thursday, October 31, 2013

Employment Growth Slowing Since June - Well Before Government Shutdown

From The Wall Street Journal, Real Time Economics, "Vital Signs: Private Hiring Slowed Well Before the Shutdown" by Kathleen Madigan:
According to payroll processor Automatic Data Processing, private businesses added just 130,000 jobs in October, down from 145,000 slots created in September. Private-sector job gains have been shrinking since June—well before the budget dispute closed the federal government.
***
Source: The Wall Street Journal

US Income Tax Is More Progressive Than 25 Years Ago

From Tax Foundation, "The Income Tax Code Is More Progressive than It Was 20 Years Ago" by Andrew Lundeen and Scott A. Hodge:
The top 1 percent of taxpayers pay a greater share of the income tax burden than the bottom 90 percent combined, which totals more than 120 million taxpayers. In 2010, the top 1 percent of taxpayers—which totals roughly 1.4 million taxpayers—paid about 37 percent of all income taxes. This is a big jump from 1985, when the top 1 percent paid a quarter of all income taxes. Indeed, the income tax burden on the bottom 90 percent has dropped by one-third since 1985.

Source: Tax Foundation

Obama Insincere Sales Pitch About Keeping Your Existing Health Insurance Will Hurt All Kinds Of Future Reforms

From Balance, "Bold Promises, Promises" by Tim Kane:
Reform is hard, and reformers have learned that making changes to existing law will often create winners and losers. So the modern approach is to "grandfather" the potential losers. Think of it as the "everyone gets a trophy" approach to fiscal policy. So when we talk about converting military pensions away from the coercive 20-year cliffed lifetime defined benefit and towards a 401k-style plan, the discussion cannot even begin without a commitment to honor the existing veterans. That’s how it should be.

Obama made this kind of no-loser commitment, and it was insincere. It was a sales pitch, not a policy description. And it probably will hurt future reform efforts of all kinds, notably the military pension overhaul. The administration’s own analysis after the law was passed and before it was implemented found that roughly half of policyholders would actually lose their coverage immediately. It’s rightfully a scandal. But it’s worse than that.

US Treasury Books $10 Billion Loss From $50 Billion GM Bailout

From The Detroit News, "Feds report $9.7B loss on GM shares" by David Shepardson:
The U.S. Treasury has booked a $9.7 billion loss on its $49.5 billion bailout of General Motors Co. on the sale of nearly all of its shares it received as part of its $49.5 billion bailout.
***
The taxpayers’ ownership stake in the Detroit-based automaker — swapped for more than $40 billion in loans, was initially 60.8 percent, but is now down to about 7 percent, the Treasury said.
***
Treasury would need to get $147.95 on its remaining shares to break even. That’s not going to happen: GM’s stock closed Wednesday at $35.80, up $0.21, or 1 percent. At current trading prices, the government’s remaining stake is worth about $3.6 billion. At current stock prices, taxpayers would lose about $10 billion on the bailout when all the stock is unloaded.

Wednesday, October 30, 2013

ObamaCare Is Second Rate Imitation Of The EHealthInsurance Website Plus A Voucher

The EHealthInsurance website is an internet based marketplace for buying health insurance. According to Wikipedia, the company is licensed in all 50 states and the District of Columbia to offer for sale more than 10,000 health insurance products from over 180 insurance companies. The site has been up and running on the internet well before Barack Obama was elected president.

While Obama and his staff tout the availability of government subsidies to make health insurance under ObamaCare affordable, the truth is that the government subsidies under ObamaCare are a form of a health insurance voucher to be used to purchase health insurance listed on the exchanges. It is similar to the subsidy for health care insurance, a voucher, proposed by Romney. A voucher is a limited credit given to a purchaser, a subsidy, to make a purchase more affordable. A means-tested, voucher-based system for healthcare, such as Romney proposed, and as ObamaCare is using, in conjunction with the experienced online health insurance marketplace, EHealthInsurance, would have accomplished the same things as HealthCare.Gov, the health insurance exchanges, and ObamaCare in a shorter time at a lower cost of implementation with less bureaucracy and with more insurance choices and insurance competition than the Affordable Care Act, ObamaCare. ObamaCare however, unlike Romney's voucher plan, overly restricts the types of health insurance that can be sold and treats the role of health insurance as a prepayment plan for all types of routine medical services. Insurance is monetary protection for the cost of the harm of risky events. Insurance is not a pooled savings plan for commonplace routine expected expenses.

The mere fact that a high deductible, catastrophic health insurance plan is not an acceptable health insurance plan under Obamacare shows that neither Obama nor the Democrats have any understanding of health insurance, it purpose or how it works and is priced.


Monday, October 28, 2013

ObamaCare Is Just A Medicaid Expansion Program: States Will Share In Medicaid Costs: Shortage Of Doctors Accepting Medicaid Resulting In Long Appointment Delays And Poor Health Results: Enrollment Bypasses Healthcare.Gov: Everybody Loses

From The Wall Street Journal, "States Report Medicaid Surge After Health-Law Rollout" by Amy Schatz and Jennifer Corbett Dooren:
Some states are signing up tens of thousands of new Medicaid enrollees in the initial weeks of the health law's rollout, while placing far fewer in private health insurance—a divergence that suggests Medicaid expansion may be a larger part of the law than expected.
***
In Washington state, one of the states that operates its own exchange, 87% of the 35,528 people who had enrolled in new insurance plans from Oct. 1 to Oct. 21 were joining Medicaid plans, according to state figures. By Thursday, 21,342 Kentuckians had newly enrolled in Medicaid, or 82% of total enrollees. In New York, about 64% of the 37,030 people who have finished enrolling were in Medicaid.
**
Medicaid, a federal-state health-insurance program for the poor, was long aimed at women, children and the elderly poor. The Affordable Care Act expanded it to cover people earning up to 133% of the federal poverty level.
***
Getting Medicaid is often simpler than private coverage, especially since many states have cut back on paperwork. Medicaid enrollees can go to state offices to sign up and avoid the federal HealthCare.gov portal, which currently can't transfer information about Medicaid-eligible people to the states. And Medicaid enrollees typically have fewer decisions to make on deductibles, prescription-drug plans and doctor networks.
***
About half of all states aren't joining the Medicaid expansion. Many cite fears about covering the costs over the long term or expanding government.
***
Critics of Medicaid expansion say the program is already overburdened and may not improve the health of enrollees.
Payments to doctors accepting Medicaid are low. Many doctors refuse to particpate in the Medcaid program and will not see patients enrolled in Medicaid. Patients have long wait times for appointments, for tests and for procedures. States share in the costs of Medicaid with some states paying half the cost. Initially, ObamaCare will pay 100 percent of new enrollee costs but States will pick up part of the new Medicaid costs over time.

Saturday, October 26, 2013

FBI Seize $28.5 Million In Bitcoins

From Forbes, "FBI Says It's Seized $28.5 Million In Bitcoins From Ross Ulbricht, Alleged Owner Of Silk Road" by Andy Greenberg:
The Silk Road made a small fortune during its two and a half years as the web’s biggest anonymous black market for illegal drugs. As of Friday, at least one $28.5 million chunk of that fortune now belongs to the FBI.

An FBI official tells me that the bureau has located and seized a collection of 144,000 bitcoins, the largest seizure of that cryptocurrency ever, worth close to $28.5 million at current exchange rates. It believes that the stash belonged to Ross Ulbricht, the 29-year-old who allegedly created and managed the Silk Road, the popular anonymous drug-selling that site was taken offline by the Department of Justice after Ulbricht was arrested earlier this month and charged with engaging in a drug trafficking and money laundering conspiracy as well as computer hacking and attempted murder-for-hire.

Thursday, October 24, 2013

US Debt Will Likely Remain At About 2X Historical Average For At Least Another Decade

From The Wall Street Journal, "How 'Debt Ceilings' Increase Debt: They provide the illusion of spending control while government expands apace." by Gary S Becker and Edward P Lazear:
The debt's burden on the economy can be gauged by its relation to gross domestic product. The Congressional Budget Office projects that the debt-to-GDP ratio will remain above 70% for the next decade. This is well above the 39% average over the past four decades. In 2007, before the recession began, the debt-to-GDP ratio was 36%. This debt ratio grew rapidly during the past five years, partly because federal spending increased greatly and partly because tax revenues were low during the recession and weak recovery.

College Education Majors Have Lower SAT Scores In Reading, Writing And Math Than Average College Students

From The Wall Street Journal, "Why Teacher Colleges Get a Flunking Grade: Let's give up on education majors.Too much theory, not enough practical learning about teaching." by Barbara Nemko and Harold Kwalwasser:
By 2010, the mean critical-reading SAT score of entering college freshmen was 501, but for education majors it was 481. The math score was 516 compared with 486, and in writing, 492 versus 477.

US Powerplant Greenhouse Gas Emissions Declined By 4.5 Percent Last Year And 10 Percent Last Two Years

From The Washington Post, "Greenhouse gas emissions from power plants declined from 2011 to 2012, EPA says" by Lenny Bernstein:
Greenhouse gas emissions from power plants and other industrial facilities declined by 4.5 percent from 2011 to 2012 as utilities continued to switch from coal to natural gas to generate electricity and produced slightly less power overall, the Environmental Protection Agency reported Wednesday.

Greenhouse gas emissions from these sources have declined by 10 percent in the two years since the EPA began compiling the data in 2010.

US Antitrust Laws Created McKinsey And Other Consulting Firms As An Unintended Consequence

From Longreads, "The Making of McKinsey: A Brief History of Management Consulting in America" by Duff McDonald, The Firm, Simon & Schuster:
Unwittingly, the federal government did its part to create the modern consulting business. Starting in the last part of the nineteenth century, Washington made periodic regulatory efforts to curb the power of big business, including the 1890 Sherman Antitrust Act, the Federal Trade Commission Act and Clayton Act of 1914, and the Glass-Steagall Act of 1933. The intended effect of these measures was to prevent corporations from colluding with one another to fix prices and otherwise manipulate the markets. The unintended effect, according to historian Christopher McKenna, was to accelerate the creation of an informal—but legal—way of sharing information among oligopolists. Who could do that? Consultants.

Regulatory efforts paid another rich benefit to the likes of McKinsey: Restricted from cutting backroom deals with each other, firms were thus obliged to actually compete, which meant they needed to make their operations more efficient. Here again, consultants were the answer.

But perhaps the circumstance that most aided the creation of the consulting industry was the entry of a new, key player into business itself. Empire builders with names like Carnegie, Duke, Ford, and Rockefeller had built huge, vertically integrated companies, but they had neither the time, the talent, nor the inclination to create and carry out management systems for those entities. These were the conquerors of capitalism, not its administrators. And yet, as Chandler pointed out, “their strategies of expansion, consolidation, and integration demanded structural changes and innovations at all levels of administration.”

Into the breach stepped a new economic actor who was neither capital nor labor: the professional manager. Gradually, he replaced the robber baron as the steward of American business. Alfred P. Sloan, the legendary president of General Motors, was the first nonowner to become truly famous for his managing skills. His decentralized, multidivisional management structure gave GM the agility to outmaneuver the more plodding Ford Motor Company and snatch the industry lead. Ford may have revolutionized manufacturing, but Sloan realized that the car-buying market had become big enough to be segmented into people who bought Buicks, Cadillacs, Chevrolets, Oldsmobiles, and Pontiacs. By the late 1920s, the car market was maturing, and people wanted choice. Sloan also gave them the ability to buy a car on credit—a groundbreaking idea at the time. Before the decade was over, GM had surpassed Ford as the market share leader, a position it didn’t relinquish until the 1980s.

Sloan and his ilk were perfect customers for McKinsey: Lacking the legitimization of actual ownership, professional managers felt great pressure to show they were using cutting-edge practices. And who better to bring those practices to their attention than consultants who were talking to everyone else? This was the beginning of a decades-long separation of ownership from control in corporate America, and the consultant was an able ally to the professional manager in this tug-of-war—an ally who wasn’t gunning for the manager’s job. Thus began the era of managerial capitalism.

Corporate Income Taxes As Percent Of GDP, 1973 - 2023 Chart

From CBO, "Snapshot of Corporate Income Tax Receipts:"
Since 2008, receipts from corporate income taxes have been smaller, relative to the size of the economy, than their historical average of 1.9 percent of gross domestic product (GDP)—largely because the recent recession substantially reduced taxable corporate profits. Temporary provisions in tax laws also played a role, particularly provisions that let firms accelerate deductions for investments they made in certain equipment between 2008 and 2013. CBO projects that corporate income tax receipts will rise as a percentage of GDP in the next few years—to levels above the historical average—as the economy continues to recover and those temporary provisions expire. After 2016, however, receipts are projected to decline as a percentage of GDP—dropping back near their historical average by 2023—as profits fall relative to GDP. The relative decline in profits is expected to stem from increases in corporations’ interest payments, growth in the share of national income going to workers, and increased deductions for investments as the stock of business capital rises due to the economic recovery.

Corporate Income Taxes As Percent Of GDP, 1973 - 2023 Chart
Source: CBO

New Yorker, Vanity Fair, Vogue And Other Condé Nast Publications End Internships Over Minimum Wage Lawsuit

From The New York Times, "Sued Over Pay, Condé Nast Ends Internship Program" by Cara Buckley:
For Lauren Indvik, a business editor and soon-to-be co-editor in chief at Fashionista, the 2008 internship at Vogue was worth every sacrifice.
***
So it was with a measure of shock and dismay that Ms. Indvik greeted the news on Wednesday that Condé Nast was closing down its internship program. A spokeswoman for the company, whose publications include The New Yorker, Vanity Fair and Vogue, confirmed that the program would end, but said current interns would not be affected.

The move, first announced in Women’s Wear Daily, comes about four months after two formers interns sued Condé Nast, claiming they had been paid below minimum wage for the summer jobs at W Magazine and The New Yorker. The case, still pending, is one of several recent lawsuits filed by low-paid and unpaid interns in the media field.

Wednesday, October 23, 2013

37 Percent Of Low And Moderate Income Taxpayers Have Marginal Tax Rates Of 30 To 39 Percent: CBO Chart

From CBO, "Snapshot of Marginal Tax Rates for Low- and Moderate-Income Workers:"
Marginal tax rates are the percentage of an additional dollar of income that is paid in taxes or given up in government benefits; those rates affect taxpayers’ choices about many things, including how much to work and save. In 2013, 37 percent of low- and moderate-income taxpayers who have earnings face total marginal tax rates—including federal and state individual income taxes, federal payroll taxes, and the phasing out of benefits from the Supplemental Nutrition Assistance Program—between 30 percent and 39 percent, and over 20 percent of that group face marginal rates of 40 percent or more. CBO estimates that 56 percent of such taxpayers face marginal rates of 10 percent to 19 percent from the federal individual income tax system alone.

37 Percent Of Low- And Moderate-Income Taxpayers Have Marginal Tax Rates Of 30 To 39 Percent
Source: CBO

Tuesday, October 22, 2013

Painting The Door While Termites Lurk In The Structure: HealthCare.Gov And ObamaCare

Healthcare.Gov is an entranceway into Obamacare. It functions as a door into the Affordable Care Act, but the website's long-term role in the success or failure of controlling healthcare costs in the US and insuring the uninsured is minor. Economic, social and psychological forces will determine if the President's healthcare law is a success. Fixing healthcare.gov and highlighting its roll is like putting a fresh coat of paint on a door to a house while termites are eating away at the structure of the house.

The uninsured represent about 15 percent of the US population and that percentage has existed for many years, despite outreach programs to increase the enrollment of those uninsured eligible, but not enrolled in Medicaid and CHIP. Another way of looking at the uninsured problem is to recognize that about 85 percent of the population has health insurance. Many social and government programs would consider 85 percent participation a tremendous success and it is a target number that is difficult to exceed. Additionally, a significant proportion of the uninsured are undocumented aliens in the US and uninsured young adults. The new healthcare law excludes undocumented aliens from coverage. The uninsured young adults  are for the most part too healthy to need health insurance. However, if the new law does succeed in decreasing the uninsured and increasing the numbers of insured individuals in the US, the law has the potential to increase doctor and hospital usage. Increased usage means increased healthcare expenditures, not less.

Young adults who are a major portion of the uninsured cannot afford health insurance, are unemployed or working part-time without employer health coverage. They could not afford health insurance before, and cannot afford health insurance after the new law, as it increases insurance premiums and deductibles compared to the cost prior to the passage of the Affordable Care Act.

The low premium health insurance policies offered on the exchanges raise the deductible amount the patient must pay. This is cost shifting, but not medical cost reduction. If as economists expect, higher consumer payments for services reduce usage, there will be a reduction is medical expenditures. The shift to higher deductibles by employers, who use to account for 85 percent of healthcare insurance coverage of the US population, was underway before Obamacare. The new health law was unnecessary for this trend to continue, since higher deductibles reduce employer premium costs.

As most exchange policies have limitations on availability of doctors and hospitals that are covered, the exchange policies will reduce costs, but at the expense of increasing the social costs (and decreasing general welfare) to consumers through increased delays, wait times and denial of services. Counting these unmeasured soft costs would offset fully the reductions in medical expenditures.

Additionally, some of the parts of the law used to offset the extra costs of Obamacare are in reality not available. Medicare expense reductions were counted twice; once to offset rising Medicare costs and once to offset Obamacare costs. Eventually, either Obamacare or Medicare will be short these expected funds.

A large number of young adults, who are low users of healthcare, will not pay the inflated Obamacare premiums to offset the costs to older adults. It is highly unlikely that the existence of Obamacare, the health insurance exchanges or the modest penalties for remaining uninsured will trigger large increases in young adults obtaining health insurance, especially in the current job market, which has increased young adults' rate of unemployment and part-time work.

Fixing Healthcare.Gov is well and good, but the termites of higher deductibles, increased usage by newly insured, undocumented aliens, young adults not enrolling in large numbers, young adults' low wages from increased part-time work and unemployment and other negative factors and consequences will undo the new health insurance law, the Patient Protection and Affordable Care Act, aka ACA, aka ObamaCare.

The termites will eat away at the healthcare house created by ObamaCare until the entire structure falls or is so modified that it no longer even faintly resembles the original. The US will end up with a revised, fixed, great web portal, HealthCare.Gov 2.0, but there will be nothing behind the door to see that will be worthwhile. The door will remain standing, but the house will crumble.

Video And Transcript Of Michael Porter's Talk On The Need To Use Businesses To Solve Social Problems: Non-Profits And NGOs Can Solve Social Problems Only On Small Scale Due To Resource Constraints And Lack Of Scalability

As Michael Porter says in his talk, business makes a profit by solving problems. Business makes a profit by meeting needs. Profit allows business to grow, that is profitable business is scalable and not money and resource constrained. While not explicitly saying so, Porter means economic profit and not accounting profit. In the government, non-profit and NGO worlds, there are not enough taxes, monies or resources to invest to solve social problems.

Video and transcript of Porter's Tedtalk follows:

From Ted, "Michael Porter: Why business can be good at solving social problems:"



Transcript of video follows:
I think we're all aware that the world today is full of problems. We've been hearing them today and yesterday and every day for decades. Serious problems, big problems, pressing problems. Poor nutrition, access to water, climate change, deforestation, lack of skills, insecurity, not enough food, not enough healthcare, pollution. There's problem after problem, and I think what really separates this time from any time I can remember in my brief time on Earth is the awareness of these problems. We're all very aware.

Why are we having so much trouble dealing with these problems? That's the question I've been struggling with, coming from my very different perspective. I'm not a social problem guy. I'm a guy that works with business, helps business make money. God forbid. So why are we having so many problems with these social problems, and really is there any role for business, and if so, what is that role? I think that in order to address that question, we have to step back and think about how we've understood and pondered both the problems and the solutions to these great social challenges that we face.

Now, I think many have seen business as the problem, or at least one of the problems, in many of the social challenges we face. You know, think of the fast food industry, the drug industry, the banking industry. You know, this is a low point in the respect for business. Business is not seen as the solution. It's seen as the problem now, for most people. And rightly so, in many cases. There's a lot of bad actors out there that have done the wrong thing, that actually have made the problem worse. So this perspective is perhaps justified.

How have we tended to see the solutions to these social problems, these many issues that we face in society? Well, we've tended to see the solutions in terms of NGOs, in terms of government, in terms of philanthropy. Indeed, the kind of unique organizational entity of this age is this tremendous rise of NGOs and social organizations. This is a unique, new organizational form that we've seen grown up. Enormous innovation, enormous energy, enormous talent now has been mobilized through this structure to try to deal with all of these challenges. And many of us here are deeply involved in that.

I'm a business school professor, but I've actually founded, I think, now, four nonprofits. Whenever I got interested and became aware of a societal problem, that was what I did, form a nonprofit. That was the way we've thought about how to deal with these issues. Even a business school professor has thought about it that way.

But I think at this moment, we've been at this for quite a while. We've been aware of these problems for decades. We have decades of experience with our NGOs and with our government entities, and there's an awkward reality. The awkward reality is we're not making fast enough progress. We're not winning. These problems still seem very daunting and very intractable, and any solutions we're achieving are small solutions. We're making incremental progress.

What's the fundamental problem we have in dealing with these social problems? If we cut all the complexity away, we have the problem of scale. We can't scale. We can make progress. We can show benefits. We can show results. We can make things better. We're helping. We're doing better. We're doing good. We can't scale. We can't make a large-scale impact on these problems. Why is that? Because we don't have the resources. And that's really clear now. And that's clearer now than it's been for decades. There's simply not enough money to deal with any of these problems at scale using the current model. There's not enough tax revenue, there's not enough philanthropic donations, to deal with these problems the way we're dealing with them now. We've got to confront that reality. And the scarcity of resources for dealing with these problems is only growing, certainly in the advanced world today, with all the fiscal problems we face.

So if it's fundamentally a resource problem, where are the resources in society? How are those resources really created, the resources we're going to need to deal with all these societal challenges? Well there, I think the answer is very clear: They're in business. All wealth is actually created by business. Business creates wealth when it meets needs at a profit. That's how all wealth is created. It's meeting needs at a profit that leads to taxes and that leads to incomes and that leads to charitable donations. That's where all the resources come from. Only business can actually create resources. Other institutions can utilize them to do important work, but only business can create them. And business creates them when it's able to meet a need at a profit. The resources are overwhelmingly generated by business. The question then is, how do we tap into this? How do we tap into this? Business generates those resources when it makes a profit. That profit is that small difference between the price and the cost it takes to produce whatever solution business has created to whatever problem they're trying to solve. But that profit is the magic. Why? Because that profit allows whatever solution we've created to be infinitely scalable. Because if we can make a profit, we can do it for 10, 100, a million, 100 million, a billion. The solution becomes self-sustaining. That's what business does when it makes a profit.

Now what does this all have to do with social problems? Well, one line of thinking is, let's take this profit and redeploy it into social problems. Business should give more. Business should be more responsible. And that's been the path that we've been on in business. But again, this path that we've been on is not getting us where we need to go.

Now, I started out as a strategy professor, and I'm still a strategy professor. I'm proud of that. But I've also, over the years, worked more and more on social issues. I've worked on healthcare, the environment, economic development, reducing poverty, and as I worked more and more in the social field, I started seeing something that had a profound impact on me and my whole life, in a way.

The conventional wisdom in economics and the view in business has historically been that actually, there's a tradeoff between social performance and economic performance. The conventional wisdom has been that business actually makes a profit by causing a social problem. The classic example is pollution. If business pollutes, it makes more money than if it tried to reduce that pollution. Reducing pollution is expensive, therefore businesses don't want to do it. It's profitable to have an unsafe working environment. It's too expensive to have a safe working environment, therefore business makes more money if they don't have a safe working environment. That's been the conventional wisdom. A lot of companies have fallen into that conventional wisdom. They resisted environmental improvement. They resisted workplace improvement. That thinking has led to, I think, much of the behavior that we have come to criticize in business, that I come to criticize in business.

But the more deeply I got into all these social issues, one after another, and actually, the more I tried to address them myself, personally, in a few cases, through nonprofits that I was involved with, the more I found actually that the reality is the opposite. Business does not profit from causing social problems, actually not in any fundamental sense. That's a very simplistic view. The deeper we get into these issues, the more we start to understand that actually business profits from solving from social problems. That's where the real profit comes. Let's take pollution. We've learned today that actually reducing pollution and emissions is generating profit. It saves money. It makes the business more productive and efficient. It doesn't waste resources. Having a safer working environment actually, and avoiding accidents, it makes the business more profitable, because it's a sign of good processes. Accidents are expensive and costly. Issue by issue by issue, we start to learn that actually there's no trade-off between social progress and economic efficiency in any fundamental sense. Another issue is health. I mean, what we've found is actually health of employees is something that business should treasure, because that health allows those employees to be more productive and come to work and not be absent. The deeper work, the new work, the new thinking on the interface between business and social problems is actually showing that there's a fundamental, deep synergy, particularly if you're not thinking in the very short run. In the very short run, you can sometimes fool yourself into thinking that there's fundamentally opposing goals, but in the long run, ultimately, we're learning in field after field that this is simply not true.

So how could we tap into the power of business to address the fundamental problems that we face? Imagine if we could do that, because if we could do it, we could scale. We could tap into this enormous resource pool and this organizational capacity.

And guess what? That's happening now, finally, partly because of people like you who have raised these issues now for year after year and decade after decade. We see organizations like Dow Chemical leading the revolution away from trans fat and saturated fat with innovative new products. This is an example of Jain Irrigation. This is a company that's brought drip irrigation technology to thousands and millions of farmers, reducing substantially the use of water. We see companies like the Brazilian forestry company Fibria that's figured out how to avoid tearing down old growth forest and using eucalyptus and getting much more yield per hectare of pulp and making much more paper than you could make by cutting down those old trees. You see companies like Cisco that are training so far four million people in I.T. skills to actually, yes, be responsible, but help expand the opportunity to disseminate I.T. technology and grow the whole business. There's a fundamental opportunity for business today to impact and address these social problems, and this opportunity is the largest business opportunity we see in business.

And the question is, how can we get business thinking to adapt this issue of shared value? This is what I call shared value: addressing a social issue with a business model. That's shared value. Shared value is capitalism, but it's a higher kind of capitalism. It's capitalism as it was ultimately meant to be, meeting important needs, not incrementally competing for trivial differences in product attributes and market share. Shared value is when we can create social value and economic value simultaneously. It's finding those opportunities that will unleash the greatest possibility we have to actually address these social problems because we can scale. We can address shared value at multiple levels. It's real. It's happening.

But in order to get this solution working, we have to now change how business sees itself, and this is thankfully underway. Businesses got trapped into the conventional wisdom that they shouldn't worry about social problems, that this was sort of something on the side, that somebody else was doing it. We're now seeing companies embrace this idea. But we also have to recognize business is not going to do this as effectively as if we have NGOs and government working in partnership with business. The new NGOs that are really moving the needle are the ones that have found these partnerships, that have found these ways to collaborate. The governments that are making the most progress are the governments that have found ways to enable shared value in business rather than see government as the only player that has to call the shots. And government has many ways in which it could impact the willingness and the ability of companies to compete in this way.

I think if we can get business seeing itself differently, and if we can get others seeing business differently, we can change the world. I know it. I'm seeing it. I'm feeling it. Young people, I think, my Harvard Business School students, are getting it. If we can break down this sort of divide, this unease, this tension, this sense that we're not fundamentally collaborating here in driving these social problems, we can break this down, and we finally, I think, can have solutions.

Thank you.

(Applause)

Monday, October 21, 2013

FHA Single-Family Mortgage Gurantees Cost Taxpayers $15 Billion Plus Lost Savings Of $45 Billion For Total Of $60 Billion

FHA's single-family mortgage gurantees have cost the US taxpayers $60 billion, comprised of $15 billion in budgetary outlays and $45 billion in lost expected budgetary savings.

From Congressional Budget Office, "FHA’s Single-Family Mortgage Guarantee Program: Budgetary Cost or Savings?" posted by Chad Chirico & Susanne Mehlman:
Has FHA’s Guarantee Program for Single-Family Mortgages Produced Net Savings to Taxpayers?
No. Collectively, the single-family mortgage guarantees made by FHA between 1992 and 2012 have had a net federal budgetary cost of about $15 billion, according to the most recent estimates by FHA. In contrast, FHA’s initial estimates of the budgetary impact of those guarantees sum to savings of $45 billion (see the figure below). That swing of $60 billion from savings to cost primarily reflects higher-than-expected defaults by borrowers and lower-than-expected recoveries when the houses of defaulted borrowers have been sold—especially for loans made over the 2004-2009 period.
Initial and Current Estimates Of Federal Budgetary Impact Of FHA Single-Family Mortgage Gurantees
Source: CBO

Federal Budgetary Impact of FHA Single-Family Mortgage Guarantees
Source: CBO

Changes In The Top Ten US Retailers From 1990 To 2012: Six Of The Top Ten Have Been Replaced

From McKinsey&Company, Insights & Publications, "How retailers can keep up with consumers: The retail industry is more dynamic than ever. US retailers must evolve to succeed in the next decade." by Ian MacKenzie, Chris Meyer, and Steve Noble, October 2013:
Indeed, six of the ten largest US retailers in 1990 have since fallen from their positions as new winners, such as Amazon.com, Costco, and Walgreens, emerged in their place (Exhibit 1).

Exhibit 1

Shifts in the retail industry often create new winners, as evidenced by changes in the top ten US retailers. 
Source: McKinsey&Co

Reprint Of "Healthcare Reform Is Risky And Scary" Post

The following is a reprint of a post I published on this blog 4 years ago in 2009. It was wriiten prior to the passage of the Affordable Care Act and is still appropriate.

Monday, September 21, 2009

Healthcare Reform Is Risky And Scary: Every Healthcare Proposal Needs Measurable Milestones And A Sunset Provision

Posted By Milton Recht

Healthcare reform is risky and any legislation needs measurable milestones at a fixed time interval, e.g. five years after passage, with an automatic sunset provision if the independently measured milestones are not met. There are known health related and cost reasons for passing health reform legislation so let us write these reasons into the legislation as measurable numerical target milestones. Milestones can be many different targets, such as reduction in the number of uninsured to a predetermined level, a reduction in costs by a preset amount or percentage, etc. If the goals of the legislation turn out to be overly optimistic and not achievable, then let us have Congress reconsider the need for the legislation by having them actively vote for the continuation of the program at some later date. An automatic sunset provision in the legislation will require Congress to stand up and voice their reasons for voting on the continuation of the law that is not achieving its original intended goals.

Anyone who has ever read or prepared a business, strategic or operating plan for a new product, business or division knows, despite the best attempts and intentions, there is a lot of risk and uncertainty about the success of a new endeavor. There is also uncertainty about the accuracy of the projections of future sales, revenues, customers, market share, costs, profits, etc. Additionally, most new business ventures fails despite planning.

Despite the best intentions of the President, Congress and all their advisors, making significant changes to the current healthcare system and insurance entails a lot of uncertainty and risk. We have some idea of the strengths and weaknesses of the current healthcare arrangement in the US, but we only have conjectures about the effects of the changes that will occur by healthcare reform legislation. There is a chance that health reform legislation will pass but fail to achieve any of its goals and possibly make health care and insurance costs worse in the US.

Business mitigates its risks in new endeavors by pacing its roll out and evaluating successfulness. It might open a few stores to see how they do before it rolls out all the stores, or it might put a new product in a few areas to see if it sells well before it does a nationwide rollout. If things are not working as planned, a business might abandon the whole concept. Unfortunately, that is not how new legislation generally works. It is usually all at once, a regional rollout without reevaluation, or nothing. Legislative passage does not usually allow for abandonment after a law is passed because it is not working as planned. In business, investors and creditors stop putting new money into losing ventures and businesses cease to exist.

Healthcare is about 17 percent of US GDP. The healthcare industry is also hiring and growing during this period of high unemployment and recession. There is a lot at risk to the US economy, workforce and the public's healthiness if Congress unintentionally mucks things up.

I do not get any sense from the President's speeches or from Congress that there is general awareness of the risk involved to the US economy, healthcare industry, and the US workforce if passed health reform legislation does not work as planned.

A business is constantly evaluating the success of its endeavors through the measurement of profit. If the activities fail to be profitable, business will either close the activity down or make significant changes, such as cut costs, change product offerings, modify pricing, etc. to attempt to make it successful. Government programs are not measured by profit and are rarely shut down or responsively modified quickly to changes in strategy or the environment.

Putting a sunset provision in the law with realistic measurable metrics will, at least show that Congress and the President understand that despite good intentions there is a lot of risk and uncertainty about how new healthcare reform legislation will play out if it is passed. A sunset provision will also minimize the damage that a mistake could cause to the US economy, workforce and the health insurance and healthcare of US residents.

Reprint of 2009 Post, "Why Health Reform Did Not Get Bipartisan Support But Medicare And Social Security Did"

A reprint of my 2009 post on this blog on why healrh reform did not get bipartisan support when other entitlement programs did.

Monday, December 21, 2009

Why Health Reform Did Not Get Bipartisan Support But Medicare And Social Security Did

Posted By Milton Recht

It has always been about costs. Debt for social programs was not as big an issue in the past. When Social security passed, US life expectancy was below retirement age. You worked until you died. Workers paying for retirees was a feasible plan. See, http://www.infoplease.com/ipa/A0005148.html.

Medicare started as universal health, but became a senior health plan to pass and life expectancy was about 6-7 years less than now and doctor and hospital usage was much lower. The 65 year olds at that time were before baby boomer retirees' bulge and before the retirees of US population growth of the immigration influx of early 1900s and there was the belief the Medicare tax would pay for it.

Finding the money for social programs is much more difficult now. We have expanded the numbers and percentage of the population we include and are much less willing to tax those workers who will benefit as we did with social security and Medicare.

Now we want to tax the rich to pay for an ever-expanding list of needs of the rest of the population.

Every economist recommended eliminating the employer deduction for worker health benefits. The new tax receipts would have funded the entire plan. President Obama took off the table the ability to do the most economically sensible thing to reform health care. Obama also committed to not taxing the middle class, eliminating the ability of Congress to tax those who would benefit, such as taxing workers before they lost their health insurance to unemployment and middle class individuals before they got pre-existing conditions.

Much of the Congressional health care spectacle is because Obama tied the hands of Democrats and prevented them from doing the most sensible things to achieve their goal of universal health care. Obama turned it into class warfare and a conservative versus liberal war through the removal of many of the best options for independent, conservative and republican agreement with the plan.

In doing so, Obama's initial actions resulted in many bad compromises and provisions in the final reform that would not have been there otherwise. Obama will get credit for passing health reform, but he should also take the credit for being the cause of many of the bad provisions in it.

Sunday, October 20, 2013

Half Of States Will See Material Decline In Health Insurer Competition On Exchanges: Third Of Current State Health Insurers Opted Out Of Exchanges: Low Competition Leads to High Future Rate Increases

From USA Today, "Big insurers avoid many state health exchanges" by Jayne O'Donnell and Annika McGinnis:
So few insurers offer plans on some of the new government health insurance exchanges that consumers in those states may pay too much or face large rate increases later, insurance experts say.
***
About a third of insurance companies opted out of participating in the exchanges in states where they were already doing business, according to a recent report by McKinsey & Co. About half of states — which include about a third of the non-elderly insured population — will see a "material decline" in competitors, says McKinsey, while the other half of states will have about the same or more insurance choices on the exchanges.

"When there are too few carriers, down the road there will be issues with rate increases that make plans unaffordable for average Americans even with rate subsidies," says Bryce Williams, managing director of Towers Watson Exchange Solutions, which operates private insurance exchanges for companies. "We need competitive insurance markets in all states (and) multiple carriers competing hard."

19 Years From Idea To Market For A Marinating Stick, A Metal Tube With Holes, Without Any Regulatory Hurdles: Does Obama Or Congress Have Any Idea How Hard It Is In Real Life To Innovate Or Implement: ACA Anyone?

From The New York Times, "An Invention That Marinated for 19 Years" by Jack Hitt:
Later this month, Mary’s Marinating Sticks are scheduled to go on sale in Target stores. Mrs. Hunter’s invention follows the classic arc seen in movies: she had a good idea, got it patented and found a market.

But that’s the movies. In real life, it’s never that easy. For starters, Mrs. Hunter’s divine idea came to her in 1994. She’s been following through ever since.

It’s safe to say that many very good ideas never get out of the pew — or off the barstool — where they were conceived. Inventors are often quick to explain that a brilliant idea is the easy part and that the real work comes in navigating through the mundane problems and scut work of getting to market. Mrs. Hunter’s sticks are proof of that claim. [Emphasis added.]

Friday, October 18, 2013

Total Household Debt Falling Since 2009

From Federal Reserve Bank of Cleveland, Economic Trends, "Consumer Debt and the Housing Market" by Yuliya Demyanyk and Amy Higgins:
Household debt has been shrinking since 2009, and the latest data show the trend continues. Total consumer debt outstanding fell from $11.23 trillion dollars in the first quarter of 2013 to $11.15 trillion in the second quarter (Equifax, FRB NY CCP). In contrast, however, two components of overall debt rose over that period: Auto loans went up from $749 billion to $800 billion, and student loans went up from $986 billion to $994 billion.
Source: Federal Reserve Bank of Cleveland

Corporate Tax Slows GDP And Wage Growth

From Tax Foundation, "JCT: Corporate Tax Falls Partly on Labor" by William McBride:
First, capital and labor are the main inputs to production, and they are complementary, meaning taxing capital ultimately hurts workers. Think of how unproductive you’d be without computers, and how much less you’d get paid. Now think of where computers come from: companies that pay corporate tax. Raising the corporate tax on them reduces the number of computers produced. The chart below, from an economics textbook, shows what happens to workers' wages when there is less capital per worker.

Second, on average workers get about two-thirds of GDP growth in the form of wages, and capital gets about one-third. Taxing capital does not change that ratio, it just reduces GDP growth, thus reducing wage growth.

Third, capital is the most sensitive input to taxes. Capital is more mobile than labor, meaning capital can relatively easily move across borders to avoid taxes. Investors are also more sensitive to after-tax returns, so when faced with higher taxes on capital income they simply invest less and consume more. Most workers do not have the luxury of working considerably less when their after-tax wages go down.

Fourth, consistent with these results, most empirical studies find corporate taxes, and other taxes on capital, are the most harmful to economic growth. And since slower economic growth translates into slower wage growth, studies find that corporate taxes reduce wages.

Thursday, October 17, 2013

US Can Be Regionally Divided By Residents' Personality Types: People Of Similar Temperaments Live In Same Parts Of US

From "Divided we stand: US regions exhibit distinct personalities" on ScienceBlog:
Americans with similar temperaments are so likely to live in the same areas that a map of the country can be divided into regions with distinct personalities, according to new research published by the American Psychological Association.

People in the north-central Great Plains and the South tend to be conventional and friendly, those in the Western and Eastern seaboards lean toward being mostly relaxed and creative, while New Englanders and Mid-Atlantic residents are prone to being more temperamental and uninhibited, according to a study published online by APA’s Journal of Personality and Social Psychology.

"This analysis challenges the standard methods of dividing up the country on the basis of economic factors, voting patterns, cultural stereotypes or geography that appear to have become ingrained in the way people think about the United States," said lead author Peter J. Rentfrow, PhD, of the University of Cambridge. "At the same time, it reinforces some of the traditional beliefs that some areas of the country are friendlier than others, while some are more creative."

Wednesday, October 16, 2013

Needless Federal Price Control Laws And Policies And Not OPEC Created 1970s Gasoline Rationing And Long Gas Station Lines

From Foreign Affairs, "The Myth of U.S. Energy Dependence: What We Got Wrong About OPEC's Oil Embargo" by By Gal Luft and Anne Korin:
Meanwhile, in the United States, another policy had already set the stage for the snaking gas lines and desperate drivers. The Economic Stabilization Act of 1970 gave the president control of wages, rents, and prices across the American marketplace, including the price of fuel. Whereas in 1970, the Mandatory Oil Import Quota Program had kept U.S. oil prices about 2.5 times higher than global prices, and politicians said nothing, the major price spike following OPEC’s 1973 production cuts sent the political and regulatory machinery into a spin. Politically unable to unwind fuel price controls and let the price of gasoline go up in sync with rising global oil prices, the U.S. government had made selling fuel in the United States a losing proposition for some refiners. This caused a reduction in domestic fuel supply. Demand did not drop because the government prevented prices from rising in a way that reflected market realities. The result was shortages at the pump, a spread of panic and uncertainty among buyers, and a doubling down by the government: the Emergency Petroleum Allocation Act, passed in November 1973, enabled the administration to embark on Soviet-style allocation and rationing of petroleum products.

Energy security is traditionally defined as the availability of sufficient supply at affordable prices. The collective memory of the embargo and the U.S. response to it were mostly shaped by the events that were perceived to affect availability -- the embargo and the gas lines -- rather than OPEC’s change of the supply-demand balance, which for decades has affected the affordability side of the ledger.

Charter Schools Better At Keeping At Risk Kids Out of Special Ed And Getting Kids Out Of Special Ed

From New York Post, "Charter schools the best hope for escaping special ed" by Mark Cunningham:
So it turns out that one big reason why New York City charter schools have fewer kids in special education is that a child at a charter is more likely to escape special ed than one attending a traditional public school. They do a better job getting kids out of it, and of keeping at-risk kids from falling into it.

Extensions Of Unemployment Benefits Increased Equilibrium Wage, Decreased Job Creation And Caused Persistent Increase In Unemployment: Macro Effects Research

From NBER Working Paper Series, "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects" by Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, and Kurt Mitman, NBER Working Paper No. 19499, October 2013:

ABSTRACT

We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed -- the micro effect -- we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively. [Emphasis Added.]

PAPER

5 The Role of Macro Effects

In equilibrium labor market search models, the dynamics of unemployment over the business cycle and the response of unemployment to changes in policies are primarily driven by employers’ vacancy creation decisions. Consider, for example, an increase in unemployment benefit duration. Having access to longer spells of benefits improves the outside option of workers and leads to an increase in the equilibrium wage. This lowers the accounting profits of firms and reduces vacancy posting to restore the equilibrium relationship between the cost of firm entry and the expected profits. Lower vacancy creation leads to a decline in labor market tightness, defined as the ratio of vacancies to unemployment. This lowers the job finding rate of workers and results in an increase in unemployment.

In this section, we present evidence on the empirical relevance of these macro effects. In particular, we document the effect of unemployment benefit extensions on vacancy creation, employment, and wages in the data.
***
8 Conclusion

In this paper we employed a state-of-the-art empirical methodology to measure the total effect of unemployment benefit extensions on unemployment. In particular, we exploited the discontinuity of unemployment insurance policies at state borders to identify their impact. Our estimator controls for the effect of expectations of future changes in benefits and has a simple economic interpretation. It is also robust to the heterogeneous impacts of aggregate shocks on local labor markets.

We found that unemployment benefit extensions have a large effect on total unemployment. In particular, our estimates imply that unemployment benefit extensions can account for most of the persistently high unemployment after the Great Recession. [Emphasis Added.]

Tuesday, October 15, 2013

Corporations Slow To Reallocate Assets To Higher Return Businesses, Even In Economic Downturns: McKinsey & Company

From McKinsey Quarterly, "Never let a good crisis go to waste: New research shows that actively reallocating corporate resources is even more important in a downturn than it is in good times." by Mladen Fruk, Stephen Hall, and Devesh Mittal:
The vast majority of organizations are surprisingly slow to reshuffle their resources. When we conducted a large-scale analysis of the reallocation patterns of multibusiness companies, for instance, we found that most of them awarded each business in their portfolio an unchanging percentage of total corporate capital year after year between 1990 and 2005. Yet the returns were higher and the volatility lower at organizations that reallocated more actively.

When we present these findings (which we highlighted in a previous McKinsey Quarterly article) to senior executives, they often ask us about the impact of the financial crisis and the downturn that followed. Surely, they argue, a tougher economic environment has led to more pronounced changes in resource-allocation patterns as companies were forced to look for new sources of value.

In fact, this proves not to be true. When we extended our analysis through 2010, thereby covering a full 20 years of performance by 1,500 companies, we found that the downturn had virtually zero impact on patterns of reallocation. There was apparently no greater aggregate corporate appetite for it in the tough recent years than there had been in the previous 15. [Footnotes omitted.]

Saturday, October 12, 2013

It Is Illegal To Back Pay Furloughed Government Workers

I have tremendous sympathy for workers and households that suddenly find themselves without a paycheck.

I understand the motivation of politicians that do not want to anger future voters when their anger can be easily appeased with taxpayer dollars.

I suspect, despite the hardships, paying furloughed federal workers for not working is illegal and unconstitutional. It is not a payment for services rendered. It is not a payment based on a showing of economic or physical hardship, such as poverty or disability. Safety net programs, such as food stamps and unemployment benefits, are available to furloughed workers. Pay for furloughed time is a gift of taxpayer dollars to a special group. Disbursement of gifts to individuals is not a valid governmental interest.

Since the back pay law is not a law of general applicability, that is the law does not apply to all furloughed workers, just government furloughed workers, or to all persons affected by the government shutdown, just government workers, the law would appear to violate the 5th amendment's equal protection and due process interpretation.

My guess is a back pay law is unconsitutional.


Friday, October 11, 2013

Government Subsidies Responsible For High College Tuition And Unaffordability Of College

From The Wall Street Journal, "Richard Vedder: The Real Reason College Costs So Much The expert on the economics of higher education explains how subsidies fuel rising prices and why there's a 'bubble' in student loans and college enrollment." by Allysia Finley:
College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. [Richard] Vedder, [Director, Ohio Universoty's Center for College Affordability and Productivity, author of book "Going Broke by Degree: Why College Costs Too Much"] and the president's new plan could exacerbate the trend. By Mr. Vedder's lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible.

In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans.

Meanwhile, grants have increased to $49 billion from $6.4 billion in 1981. By expanding eligibility and boosting the maximum Pell Grant by $500 to $5,350, the 2009 stimulus bill accelerated higher ed's evolution into a middle-class entitlement. Fewer than 2% of Pell Grant recipients came from families making between $60,000 and $80,000 a year in 2007. Now roughly 18% do.

This growth in subsidies, Mr. Vedder argues, has fueled rising prices: "It gives every incentive and every opportunity for colleges to raise their fees." [Emphasis added.]

Tax Foundation Ranks State Business Tax Climate: New York Has Worst Business Tax Climate: Wyoming Has Best

From Tax Foundation, "How Friendly Is Your State's Tax System? The Tax Foundation's 2014 State Business Tax Climate Index" by Scott Drenkard and Joseph Henchman:

State Business Tax Climate Index Map
Source: Tax Foundation

Thursday, October 10, 2013

Federal Insurance Exchange Healthcare.gov Purportedly Cost $634 Million To Build: Way Over Initial Estimate Of $93.7 Million

From Digital Trends, "We paid $634 million for the Obamacare sites and all we got was this lousy 404" by Andrew Cout:
The reason for this nationwide headache apparently stems from poorly written code, which buckled under the heavy influx of traffic that its engineers and administrators should have seen coming. But the fact that Healthcare.gov can’t do the one job it was built to do isn’t the most infuriating part of this debacle – it’s that we, the taxpayers, seem to have forked up more than $634 million of the federal purse to build the digital equivalent of a rock.

The exact cost to build Healthcare.gov, according to U.S. government records, appears to have been $634,320,919, which we paid to a company you probably never heard of: CGI Federal. The company originally won the contract back in 2011, but at that time, the cost was expected to run “up to” $93.7 million – still a chunk of change, but nothing near where it apparently ended up.

Given the complicated nature of federal contracts, it’s difficult to make a direct comparison between the cost to develop Healthcare.gov and the amount of money spent building private online businesses. But for the sake of putting the monstrous amount of money into perspective, here are a few figures to chew on: Facebook, which received its first investment in June 2004, operated for a full six years before surpassing the $600 million mark in June 2010. Twitter, created in 2006, managed to get by with only $360.17 million in total funding until a $400 million boost in 2011. Instagram ginned up just $57.5 million in funding before Facebook bought it for (a staggering) $1 billion last year. And LinkedIn and Spotify, meanwhile, have only raised, respectively, $200 million and $288 million.

Obamacare Will Stifle Medical Innovation Due To Its Centralized Command And Control

From The Federalist, "What The Internet Teaches Us About Healthcare: Why decentralized decision-making drives innovation." by Pascal-Emmanuel Gobry:
Obamacare could cause untold unnecessary deaths by destroying healthcare innovation. To explain, let me offer an analogy.

In 1993, almost everyone in the technology industry agreed that the next wave of innovation in computing was going to be related to some global network to which consumers and businesses could be connected and shop and converse.

However, almost no one thought that this global network could be the internet, which was the province of academia and wasn’t user friendly.

In Silicon Valley in 1993 the conventional wisdom was that this global network would be some sort of connected TV run through the cable system, and that it would be controlled by gatekeepers (such as cable companies and media companies) which would approve and run the services that would be on top of it.
***
Again, I want to emphasize the point that the key thing isn’t "the free market" vs "the gummit. [government]" As all ideological advocates note, the government had plenty of a role in creating the internet. But it did so in a decentralized fashion. If you read about the history of DARPA, when a guy had the idea for TCP/IP (the fundamental protocol on which the internet runs) he basically went to his boss who was an engineer like him and the guy said "Sure, I’ll give you $3 million [of 1960s money] to try it out" and the engineer went and convinced other guys who were assigned to other projects to work on it with him. That’s not how government typically works, but it’s definitely how decentralized trial-and-error innovation works.

When you see how extensively we use hospitals even though they are inherently dangerous places, you see potential for innovation being untapped.

Similarly, in healthcare, discussions of "free market" and "gummit" quickly lead to dead-ends. There’s no telling where one begins and the other ends. And because of widely-shared (including by me) moral intuitions about the desirability of common access to healthcare, government will always be involved in that sector. But the question is: how decentralized is decision-making? And the answer is: in most non-US countries, very little; in the US, not by much, and Obamacare makes it worse. This centralization is much more the fault of the insurance-driven view of healthcare than of the government as such.

Wednesday, October 9, 2013

US Economic And Market Risks Are Details Of The Negotiated Budget Settlement And Not US Bond Default: US Treasury Cash Inflows And Outflows

As the CBO stated at the end of September (see next paragraph), the US Treasury cash inflows from prepayment of taxes, mostly witholding from paychecks, is about $7 billion per day. The October 31 interest payment on US Treasury securities is about $6 billion dollars, or less than 1 day's receipt of funds, and the large quarterly interest payment on November 15 is about $30 billion, or about 4 to 5 days of cash inflows. The US government has more than sufficient cash inflows to avoid a default on US debt payments. 5 to 6 days cash inflows from witholding taxes on paychecks is sufficient to prevent a US debt default. Additonally, US government workers' salaries, and US payments to contractors and state and local governments will be delayed, not avoided, and the economic impact will be temporary and not equivalent to a slowdown in the economy caused by a permanent decrease in employment. The real risk to the future of the US economy and the stock and bond markets are the terms of the budget settlement between the President and the Congress. What if any increases in taxes will be agreed to and what if any cuts in US government spending, subsidies and entitlement programs will occur? The uncertainty to the markets and the economy is the terms of the budget agreement and not the prospect of a US debt default.

From Congressional Budget Office Report, September 25, 2013, "Federal Debt and the Statutory Limit, September 2013:"
What Are The Upcoming Key Dates For Treasury Cash Flows And Debt Issuance?
In the coming weeks, transactions on certain dates will have a significant influence on when the Treasury will exhaust the borrowing authority created by its extra-ordinary measures and will have insufficient cash to pay obligations as they become due.

Cash Outflows from the Treasury
  • October 1—payments to Medicare Advantage and Medicare Part D plans; pay for active-duty members of the military; and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income (about $42 billion, in total).
  • October 3—payments of Social Security benefits (about $25 billion).
  • October 9, 16, and 23—additional Social Security benefit payments (about $12 billion each time).
  • October 31—payment of interest on Treasury securities (about $6 billion).
  • November 1—payments of Social Security benefits (shifted from the third of the month, which falls on a Sunday); payments to Medicare Advantage and Medicare Part D plans; pay for active-duty members of the military; and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income (about $67 billion).
  • November 13—payments of additional Social Security benefits (about $12 billion).
  • November 15—large quarterly payment of interest on Treasury securities (about $30 billion).
  • Most of the benefit payments involve redeeming GAS securities from a trust fund, thereby temporarily providing additional room to borrow from the public in order to raise cash.
  • In addition to these payments, government spending for its ongoing programs and activities is likely to average about $10 billion a day over the next several weeks, but can vary from one business day to the next.

Issuance of Government Account Series Securities
At the beginning of October, large investments will be made in both the Military Retirement Fund and the Medicare-Eligible Retiree Health Care Fund to account for the amortization of the unfunded liability for certain retirement benefits earned by military personnel for service before 1985 and for accrual contributions to cover the cost of future benefits for current military personnel. Those payments are expected to boost the amount of debt held by government accounts by a total of about $80 billion.

Also, in the middle of October, the Highway Trust Fund is expected to receive an intragovernmental payment from the general fund, thereby increasing debt held by government accounts by $12 billion.

Cash Inflows to the Treasury
Most inflows will be from remittances by employers of income and payroll taxes withheld from paychecks. Those remittances typically average about $7 billion per day but can vary significantly from one business day to the next.

Unpaid Intern Not Protected From Supervisor Sexual Harassment

From BloombergBusinessweek, Lifestyle, "Unpaid Intern Is Ruled Not an ‘Employee,’ Not Protected From Sexual Harassment" by Venessa Wong:
There’s plenty for unpaid interns to complain about—mainly, the lack of money—but apparently it gets worse. Because they’re not paid and don’t receive remuneration such as pension and life insurance, interns don’t always count as employees, which means they’re not always entitled to certain employee protections. For one former unpaid broadcasting intern at Phoenix Satellite Television U.S., that means not being able to bring a sexual harassment claim against her former supervisor, according to a Bloomberg BNA report.
More details available in the original Businessweek article.

Carbon Markets 16 Times Cheaper Than Renewable Subsidies

From Bloomberg, "Carbon Markets 16 Times Cheaper Than Renewable Aid, OECD Says" by Mathew Carr:
Carbon markets are more than 16 times cheaper at cutting greenhouse gases than renewable subsidies paid to power producers, according to the Organization for Economic Cooperation and Development.

The cost of reducing carbon dioxide in the electricity generating industry using emissions trading systems is 10 euros ($13.56) a metric ton on average, compared with 169 euros for feed-in tariffs, the OECD said today in a report. Some feed-in tariffs can cost more than 700 euros a ton, the Paris-based OECD said in the study based on data from 15 countries, including China and the U.S.

Tuesday, October 8, 2013

Younger US Workers Losing Educational Competitiveness Against International Counterparts

From The Wall Street Journal, "Younger Americans Fare Poorly on Skills Against International Peers: OECD Study Shows Baby Boomers Line Up With Peers in Industrial Countries" by Douglas Belkin:
The results show a marked drop in competitiveness of U.S. workers of younger generations vis a vis their peers. U.S. workers aged 45 to 65 outperformed the international average on the literacy scale against others their age, but workers aged 16 to 34 trail the average of their global counterparts. On the numeracy exam, only the oldest cohort of baby boomers, ages 55 to 65, matched the international average, while everyone younger lagged behind their peers—in some cases by significant margins.

In most cases, younger American employees outperformed their older co-workers—but their skills were weaker compared with those of other young people in OECD countries. By contrast, some countries are improving with each generation. Koreans aged 55 to 65 ranked in the bottom three against their peers in other countries. But Koreans aged 16-24 were second only to the Japanese.

The results show that the U.S. has lost the edge it held over the rest of the industrial world over the course of baby boomers' work lives, said Joseph Fuller, a senior lecturer at Harvard Business School who studies competitiveness. "We had a lead and we blew it," he said, adding that the generation of workers who have fallen behind their peers would have a difficult time catching up.