Friday, March 30, 2012

For Drugs, Higher Purchased Price Includes More Warranties And More Rights To Sue

My comment to John Goodman's Health Policy Blog, "Bad Law Leads To a Bizarre SCOTUS Outcome" by John Goodman about the New York Times editorial, "A Bizarre Outcome on Generic Drugs" published March 23, 2012, on how users of brand name drugs can sue drug manufacturers for inadequate labeling and warnings, while generic drug users cannot sue the manufacturers.
The different outcomes are only strange because we have a heavily regulated third party payer system for drugs and health care and patients are not part of the contractual purchase negotiations. The individual harmed did not get to choose generic versus branded. Generics are cheaper and the usual assumption is that is due only to R&D, patent and manufacturing costs, but legal rights are also part of the price. Additionally, normal commercial transaction legal rules about warranties, etc., do not apply to most of health care.

For example, using a non-medical situation of construction, a homeowner can hire an insured or uninsured contractor; demand that the contractor increase the amount of his liability insurance; demand the contractor purchase a performance and completion bond; demand that everyone on the job be experienced and licensed and so forth. The above-mentioned items will increase the cost of the job, but will allow a homeowner to sue successfully for damages. It is the homeowner’s choice whether to pay more and get a contractor that can pay damages in a lawsuit or not. Many homeowners choose to pay less and forego the additional insurance benefit. Large companies and governments tend to pay more to have the additional insurance benefits.

Our regulated third party health care system removes the price versus benefit discussion from the patient and focuses only on cost without consideration of the lost social benefits to the consumer, such as the right to sue and many other intangible benefits.

Thursday, March 29, 2012

GDI, The Alternative To GDP, Shows Stronger Recent Economic Growth

From The Wall Street Journal, "GDI: An Alternate Measure Showing Stronger U.S. Growth" by David Wessel:
The Commerce Department has (at least) two ways to measure the growth and size of the overall U.S. economy. One is to add up all the value of all the goods and services produced in the economy in a quarter or a year. That’s the gross domestic product, or GDP. The other is to add up all the income received in the economy, wages and interest and profits and so on. That’s gross domestic income, or GDI.
some economists argue that the GDI may be a more meaningful measure, particularly at turning points in the economy. “Placing an increased focus on GDI may be useful in assessing the current state of the economy,” Federal Reserve Board economist Jeremy J. Nalewaik wrote in a 2006 working paper.

Source: The Wall Street Journal

Three Quarters Of Fannie Mae, Freddie Mac Underwater Mortgages Are Current: Fannie Mae, Freddie Mac Overseer Opposes Mortgage Principal Reduction

From Bloomberg, "Geithner’s Math Puzzle Beyond Numbers for DeMarco: Mortgages" by Clea Benson, Dan Levy and Jody Shenn:
Fannie Mae (FNMA) and Freddie Mac guarantee almost 3 million mortgages that are underwater. Of those, most are not delinquent, [Edward J] DeMarco [Fannie Mae and Freddie Mac’s overseer] said.

"Three out of every four underwater homeowners with mortgages by Fannie and Freddie are current," DeMarco said in an interview on Bloomberg Television’s "Street Smart" with Trish Regan. "These borrowers are making their monthly mortgage payments by honoring their obligations."
Paul Willen, senior economist at the Federal Reserve Bank of Boston, offered evidence in a 2008 study that suggests DeMarco’s concerns about principal reductions may be right.

He found only 5.2 percent of borrowers underwater by 20 percent or more during the 1990s in Massachusetts (DFARMA) lost their homes. Two-thirds of those still in homes in 1994 would have had positive equity if they avoided foreclosure until 2000.

"The idea that there’s a slam-dunk case for principal reductions isn’t true," Willen said in an interview.

Wednesday, March 28, 2012

US Supreme Court Audio Of Entire 3 Days Of Health Care Arguments: Updated

Monday, March 26, 2012, Oral Arguments

Jurisdictional Issues and the Tax Anti-Injunction Act:

Audio and transcript of first day of health care arguments before the US Supreme Court is available here.

Tuesday, March 27, 2012, Oral Arguments

The Commerce Clause and the Individual Mandate To Buy Health Insurance:

Audio and transcript of second day of health care arguments before the US Supreme Court is available here.

The official name of the court case is Department of Health and Human Servs. v. Florida, Docket Number: 11-398.

[I added the following Wednesday's oral arguments on the afternoon of Mar. 28]

Wednesday, March 28, 2012, Oral Arguments


Is The Insurance Mandate Severable From the Entire Health Care Law Or Does The Whole Law Fall If The Mandate Is Unconstitutional

Audio and transcript of morning of third day of health care arguments before the US Supreme Court is available here.

The official name of the severabilty case is National Federation of Independent Business v. Sebelius, Docket Number: 11-393.


Is The Medicaid Expansion Mandate Coercive To The States And Therefore Unconstitutional

Audio and transcript of afternoon of third day of health care arguments before the US Supreme Court is available here.

The official name of the coercive case is Florida v. Department of Health and Human Services, Docket Number: 11-400.

Tuesday, March 27, 2012

Need To Cut Future Social Security And Health Program Expenses Plus Raise Taxes Even After ObamaCare, According To CBO

From CBO Director Douglas Elmendorf's March 26, 2012, presentation to the National Association for Business Economics, "Choices For Federal Spending And Taxes" on the choices the US faces about future federal spending and taxes:
...putting federal debt on a sustainable path still requires changes in Social Security, the major federal health care programs, and taxes that amount to about $750 billion in 2022.

To meet that target for 2022, one can think of two broad choices:
  • If lawmakers extend the expiring tax provisions (other than the payroll tax reduction) and index the alternative minimum tax for inflation, as described in the alternative fiscal scenario, they would need to cut spending on Social Security and the major federal health care programs by about one-fourth. Because most of such spending goes to people over age 65, a cut of that magnitude would represent a major change to the sorts of benefits provided for Americans when they become older.

  • Alternatively, if lawmakers do not change spending on Social Security and the major federal health care programs, they would need to raise tax revenue by about one-sixth. Such an increase would raise federal revenues significantly above their average share of GDP in the past several decades.
Of course, lawmakers could also adopt some combination of those choices, cutting spending on those programs by somewhat less than one-fourth and raising tax revenue by somewhat less than one-sixth.
CBO Presentation Slides:

Less Than 80 Percent Of Emails Make It To Inboxes

From TIME, "Why Your Inbox May Seem a Little Less Crowded These Days" by Gary Belsky:
Return Path, one of the world’s biggest email certification companies, says the number of emails getting through to inboxes worldwide dropped considerably in the second half of 2011. The decline in “deliverability rates”, from 81% to 76.5%, was the first such dip since Return Path began keeping track in 2004. Put another way, roughly 1 in 4 emails did not get through to you, me or anyone else from July through December 0f 2011.

Where does the missing email go? After reviewing data from more than 1.1 million messages, 142 ISPs and 34 countries, Return Path estimates that 8.4% of the MIA mail was sent directly to spam folders, while almost twice that number (15.1%) was blocked by filters at the ISP level. All told, that’s a 20% increase in the number of AWOL messages across the globe. In North America, the deliverability rate was slightly higher, at 79%, but still down dramatically from the first half of the year.

Home Prices At 10 Year Low

From, "Home prices hit a 10-year low" by Les Christie:
The housing market started off the new year with a thud. Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

The average home sold in that month lost 0.8% of its value, compared with a month earlier, and prices were down 3.8% from 12 months earlier, according to the S&P/Case-Shiller home price index of 20 major markets.

Home prices have fallen a whopping 34.4% from the peak set in July, 2006.

More Than Half Of Western US Land Is Federally Owned

From The Percolator Blog, "A Wealth of Land" by Holly Fretwell:

Source: The Percolator Blog

The U.S. federal government owns and manages more than one-fourth of the nation’s acreage. The bulk of it rests in the West. In fact, more than half of the West is federally owned.

Twenty Percent Of Americans Bank By Mobile Phone

From Federal Reserve Bank of Atlanta, Financial Update, "One in Five in U.S. Using Mobile Banking" Vol. 25, No. 1, First Quarter 2012:
According to a new survey by the Federal Reserve Board of Governors, 20 percent of American consumers used their mobile phones to access their bank accounts, credit cards, or other financial accounts in the 12 months through January. An additional one out of five people said they would probably use mobile banking in the future.
One third could go mobile soon
By 2013, mobile banking usage could grow to about 33 percent of mobile phone users, according to the survey.

Monday, March 26, 2012

Two-thirds of Americans Want Health Law Overturned

Even a NY Times poll cannot find support for the new health care law.

From The New York Times, "Most Americans Oppose Health Law, Poll Finds" by Dalia Sussman, Helene Cooper and Kate Phillips:
Two-thirds of Americans want the Supreme Court to overturn some or all of the health care law, even though large majorities support a few of its major aspects, according to a poll by The New York Times and CBS News.

US Supreme Court Decision Will Be Irrelevant To US Health Care

As I have written in the past (here and here) on this blog, the new health care law does nothing to resolve the underlying economic issues facing health care in the US. Robert Samuelson makes a similar argument on Real Clear Politics that the health care law does very little to improve the health of its supposed beneficiaries.

From either an economic or health related perspective, the US Supreme Court decision about the new health care law is irrelevant. The decision, if the court reaches one and does not defer until the penalty tax goes into effect in 2015, will only impact the powers of Congress under the Commerce Clause.

From Real Clear Politics, "Obama's Ego Trip" by Robert Samuelson:
Rarely has a program [Patient Protection And Affordable Care Act] with so little potential inspired so much contention. Although millions would benefit from health insurance, the overall relationship between people's insurance status and their self-reported health is underwhelming. Consider a study of Massachusetts' universal coverage program, enacted under former Gov. Mitt Romney, by economists Charles J. Courtemanche of the University of Louisville and Daniela Zapata of the University of North Carolina at Greensboro. It estimated that about 1.4 percent of the state's adult population moved into the "very good" or "excellent" health categories.

Another study by economist Daniel Polsky of the University of Pennsylvania examined what happened to uninsured Americans who went on Medicare at age 65. Polsky found "no significant health effect for the uninsured relative to the insured upon reaching Medicare eligibility." [Emphasis added.]

Sunday, March 25, 2012

Limits To Government, Strong Property Rights, Competitive Markets And Incentives To Invest Foster Economic Growth

From The Wall Street Journal, "The Roots of Hardship: Despite massive amounts of aid, poor countries tend to stay poor. Maybe their institutions are the problem." by William Easterly:
For Messrs. [Daron] Acemoglu and [James A] Robinson, it is institutions that determine the fate of nations. Success comes, the authors say, when political and economic institutions are "inclusive" and pluralistic, creating incentives for everyone to invest in the future. Nations fail when institutions are "extractive," protecting the political and economic power of only a small elite that takes income from everyone else.
Inclusive political institutions mean both a broad distribution of political power and limits to that power, such as democratic elections and written constitutions. Inclusive economic institutions encompass property rights, contract enforcement, ease of starting new companies, competitive markets, and freedom for citizens to enter the occupation and the industry of their choice. The billionaire telecommunications mogul Carlos Slim, we're told, does not fall into this category. He is extractive, "a master at obtaining exclusive contracts," winning economic monopolies through political connections, but he enriches primarily himself, not Mexico. Bill Gates, by contrast, enriches both himself and the U.S. because he can make money only by creating products that are better or more popular than those produced by rivals.
MIT Professor Daron Acemoglu and Harvard Professor James A Robinson are the academic heavyweights in the field of why countries grow or fail.

In their framework of inclusive versus extractive, I think the general public understands intuitively, without exactly knowing why, and shows through their low approval rating of Obama and his programs, such as the health care law and the GM bailout, that the president's programs are extractive and impediments to the future economic growth of the US.

Inclusiveness to Acemoglu and Robinson is about the freedom to enter new businesses in a competitive, property rights protected marketplace. Inclusiveness is not about class warfare, government programs or income redistribution as Obama claims in his rhetoric and proposed laws. The US will not succeed if it repeatedly favors Unions over GM bondholders; Solyndra and other green technologies over competitive energy markets: Income redistribution over investment incentives. As Acemoglu and Robinson show, some long term government actions can have dire consequences for a nation's future economic growth and continued existence.

Friday, March 23, 2012

Holding A Gun Makes You See Held Objects As Guns

Wielding a gun increases a person’s bias to see guns in the hands of others, new research from the University of Notre Dame shows.

Notre Dame Associate Professor of Psychology James Brockmole, who specializes in human cognition and how the visual world guides behavior, together with a colleague from Purdue University, conducted the study, which will appear in an upcoming issue of Journal of Experimental Psychology: Perception and Performance.
“Beliefs, expectations, and emotions can all influence an observer’s ability to detect and to categorize objects as guns,” Dr. Brockmole says. “Now we know that a person’s ability to act in certain ways can bias their recognition of objects as well, and in dramatic ways. It seems that people have a hard time separating their thoughts about what they perceive and their thoughts about how they can or should act.”

The researchers showed that the ability to act is a key factor in their effects by showing that simply showing observers a nearby gun did not influence their behavior; holding and using the gun was important.

“One reason we supposed that wielding a firearm might influence object categorization stems from previous research in this area which argues that people perceive the spatial properties of their surrounding environment in terms of their ability to perform an intended action,” Brockmole says.
By arming police officers, security guards and others with guns and putting them in situations where they will draw their firearms, independent of any racial or other prejudices, the gun holders will have a bias towards seeing more innocent objects held by others as guns. Unfortunately, due to this perceptual illusion, innocent victims are mistakenly shot and killed.

Bill Gates On His Investment In Gen IV Nuclear Energy: Video

Thursday, March 22, 2012

Political Parties And The Stock Market

From SMBC, Saturday morning breakfast cereal comics:

Bernanke College Lecture II On The Fed After WW II

Course material for this lecture.

Bernanke's previous college lecture on Origins Of The Fed.

Majority Of Americans Favor Approval Of Keystone XL Pipepline

From Gallup News, March 22, 2012:
A solid majority of Americans think the U.S. government should approve the building of the Keystone XL pipeline, while 29% think it should not. Eight in 10 Republicans want it approved, as do 51% of independents and 44% of Democrats.
Read more about the Gallup survey "Americans Favor Keystone XL Pipeline: Republicans twice as likely as Democrats to say the government should approve it" by Elizabeth Mendes:
A solid majority of Americans think the U.S. government should approve of building the Keystone XL pipeline, while 29% think it should not. Republicans are almost twice as likely as Democrats to want the government to approve the oil pipeline. About half of independents also approve.
The survey was conducted March 8-11, 2012.

Tuesday, March 20, 2012

CBO On The Effects Of Eliminating The Health Insurance Mandate

According to the Congressional Budget Office analysis, see slide 4 below, the elimination of the individual insurance mandate in the new health care law will decrease the US budget deficit by $282 billion over the ten year window 2012-2021.

Bernanke College Lecture On Origins Of Fed

Course material for the lecture.

Solar Energy or Jobs But Not Both In US

From The New York Times, "U.S. to Place Tariffs on Solar Panels From China" by Keith Bradsher And Matthew L Wald:
The Commerce Department has decided to impose tariffs on solar panels imported from China after concluding that the Chinese government provided illegal export subsidies to manufacturers there.
Cheaper prices for solar cells means more companies and people will use than as an energy source. A tariff will raise the price of the cheaper imported solar energy cells and slow down the adoption of solar power in the US. More solar power installations will increase the need for local labor to install, repair and maintain the cells, but it will not increase US based manufacturing jobs.

At the same time, imports decrease the need for US based solar cell production facilities. The US is non-competitive in the solar field even with the large consumer and green energy investment subsidies the US currently provides.

So, is the US government for solar power, or is it just a political ruse to impose tariffs and start a trade war with China? The only loser is the US consumer who due to all sorts of tariffs pays more for goods than foreign producers are willing to sell them for in the US. Tariffs only decrease the purchasing power of the US consumer. The tariffs affect consumers the same way that taxes or higher prices affect them. Tariffs reduce consumers' purchasing power.

Women Use Health Care Much More Than Men

From The New York Times, "The Annual Appointment Loses Some Relevance" by Tara Parker-Pope:
Women have long been the most frequent users of health care, particularly for pregnancy care and pediatric visits for their children. But even when pregnancy and pediatric care are removed from the equation, women are still 33 percent more likely to visit the doctor, according to the Centers for Disease Control and Prevention. The rate of doctor visits for annual exams and preventive services for women is double that of men. [Emphasis added.]

Minimum Tax On The Rich, A Buffett Rule, Has Very little Impact On The Budget Deficit

From Bloomberg, "Buffett Rule Tax Bill Would Raise $31 Billion Over 10 Years" by Richard Rubin:
Implementing a "Buffett rule" to require a minimum 30 percent tax rate for the highest U.S. earners would raise $31 billion over the next decade, according to a government estimate.

The estimate for the proposal backed by President Barack Obama comes from the Joint Committee on Taxation, the scorekeepers for Congress.

...Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a statement that noted the proposal would have little effect on reducing the federal budget deficit. "It was designed for no other reason than politics. There is no economic rationale for it."
The Congressional Budget Office estimates that Obama’s 2013 budget plan would expand the deficit by $6.4 trillion over the next decade. The bill would reduce that by less than 0.5 percent.

Monday, March 19, 2012

US High School Graduation Rates Rise

From The Washington Post, "High school graduation rate rises in U.S." by Lyndsey Layton:
The national [high school] graduation rate increased to 75.5 percent in 2009, up from 72 percent in 2001. And the number of “dropout factories” — high schools where at least 60 percent of students do not graduate on time — fell from 2,007 in 2002 to 1,550 in 2010.
Researchers found that graduation rates vary by race, with 91.8 percent of Asian students, 82 percent of whites, 65.9 percent of Hispanics and 63.5 percent of blacks graduating on time.
The lower high school graduation rates for Blacks and Hispanics, and the consequential lower college graduation rate, accounts for much of the racial disparity in income in the US.

Sunday, March 18, 2012

A Blogger's Defense Of Goldman Sachs

From The Voice of Reason, "Defending Goldman Sachs":
His [Greg Smith's Goldman Sachs NY Times] editorial prompts several questions:

1. Why, if Goldman doesn’t care about their customers, do their customers keep coming back for more of Goldman’s services? Why is Goldman growing their customer base so significantly when all they care about are themselves? This is not how businesses grow, and Goldman has been growing and generating huge repeat business.

2. Why stay there for so long if it was so bad?

3. Explain these quotes from the editorial: “Culture was always a vital part of Goldman’s success”. ”I look around today and see no trace of the culture that made me love working for this firm for many years” (my emphasis on many). ”But this was not always the case. For more than a decade I recruited and mentored candidates….”. Smith worked at Goldman for 12 years, and it sounds like he had a very happy and proud 10 years at least. Has he just had a bad 2 years? If so, who happily and proudly works for a company for 10 years, has an unhappy two, and goes out with a bitter editorial in the New York Times?

4. Why, Greg, did you end your editorial “I hope this will be a wake up call to the Board of Directors”. If that’s what you hoped, and you truly respected the company for 10 of the 12 years you worked there (and apparently paid you over $500k/year on average), and you wanted the best for the fellow employees you left behind as you claim, why didn’t you strongly express your opinions on the inside instead of the outside? The result of your editorial may actually be an implosion at the top, but it may also generate the destruction of valuation of the company for employees, job cuts, reduction in equity held by employees and investors, loss of customers, and more. The editorial was “destructive”, not “constructive”.

5. Why has this company that you vilify ranked in the top 25 companies to work for in the last 5 years (Fortune 100 Best Companies to work for)?

6. Can you please explain the timing of your departure? Is it a coincidence that you left immediately AFTER receiving your 2011 bonus? Did you reach the tipping point in January of 2012, or did you happen to reach it in March, just after you saw the EFTS [electronic funds transfer] of your bonus hit your checking account?

Another Reason To Televise US Supreme Court Health Care Legal Arguments

From Rasmussen Reports, a telephone survey conducted two weeks prior to the US Supreme Court health care hearings, "Supreme Court Update: New Low: 28% Give Supreme Court Positive Ratings":
The latest Rasmussen Reports national telephone survey of Likely U.S. Voters shows that 28% give the Supreme Court good or excellent ratings. Nineteen percent (19%) rate the highest court in the land as poor.
Also, see my post, "US Supreme Court Misses A Golden Opportunity For Transparency And Engaging The Public."

US Supreme Court Misses A Golden Opportunity For Transparency And Engaging The Public

From The New York Times, "Health Law Hearings: Justices Plan Daily Tapes" by Adam Liptak:
The Supreme Court announced on Friday that it would release same-day audio recordings of the arguments over the constitutionality of the health care overhaul law. The arguments will be heard over three days starting on March 26.

The court’s recent practice has been to release audio recordings of arguments at the end of the week. It plans to alter that practice for the health care case, the court said in a statement, "because of the extraordinary public interest" in the arguments.
The US Supreme Court is the least transparent of the three pillars of our checks and balances democracy, the executive, the legislative and the courts. Supreme Court justices are appointed for life and usually are not well known publicly. Court proceedings are not televised, even on a delay.

We grow up watching TV, movies, video games and a computer monitor. We post videos on YouTube and Facebook. We video teleconference work meetings and we video Skype with our friends and family. The golden age of radio, great orators and audio alone died long ago. The visual holds our interest and attention.

We are a visual people who recognize that facial expressions, body language and mannerisms convey information in addition to our spoken words. Congress can televise its sessions and committee meetings. The President and his staff are often in front of the TV camera discussing important issues. The public with access to the courtroom is allowed into the US Supreme Court to watch the proceedings, but not those more distant or less politically connected to get seats for important legal arguments.

The visual of the US Supreme Court hearings, the facial expressions of the nine Justices, and the movements and body language of the arguing attorneys are as much a part of the hearings as the audio.

A public that can see the US Supreme Court in action is a public that is much more engaged in the legal process.

The Emperors needs to go out in public to show that they are wearing clothes. The Wizards needs to lower the curtain to show that they have nothing to hide.

The US Supreme Court needs to televise all its in court proceedings to the public to show the world the workings of one of the important pillars of our society. The health law arguments would have been a great way to start televising court proceedings.

The public will watch a video of US Supreme Court proceedings. The public will ignore the audio of the same events.

The justices lost a chance to expand public engagement in the legal process and the rule of law. Shame on the nine justices for their elitism and their belief that live video of their and counsels' actions should be above the watchful eyes of the general public.

Also, see my post, "Another Reason To Televise US Supreme Court Health Care Legal Arguments."

Saturday, March 17, 2012

US Income Inequality Is Linked To Education Levels

From The Tax Foundation Tax Policy Blog, "Census Data Shows Inequality Linked to Education, Not Taxes" by Scott A. Hodge:
Today, we will look at the link between education and income. Recent Census data comparing the educational attainment of householders and income shows about as clearly as you can that America's income gap is really an education gap and not the result of tax cuts for the rich.

Source: Scott Hodge, Tax Foundation Tax Policy Blog

Wednesday, March 14, 2012

Last Recession Saw Greatest Decline In Consumption Spending Since WWII: Due To Lower Expectations Of Future Income Growth And Lower Wealth From Declines In Stock Market And Housing Values: The Stock Market Being A Larger Factor Than Home Value Declines: Fed Is Useless In Changing Income Expectations

According to a recent Chicago Fed study quoted below, the severity and duration of the past recession are due to declines in consumer expectations of future income and declines in the value of the stock market and homes, which are also measures of the future economy, with the loss of wealth in the stock market being a more important factor than home value losses.

Income (consumption spending) and corporate earnings growth (stock market value) come from future worker productivity and technological improvements. Other studies show that the decline in US productivity coincides with the past collapse of home prices and the beginning of the past recession. Additonally, the Chicago Fed research found that the wealthier consumers are more pessimistic about future income growth than the poorer, less wealthy consumers.

Policies Needed To Favor Income Growth

The best policies to get the US economy growing robustly would be policies that favor and promote future strong income and earnings growth. The US needs policies that promote private investment and wealth creation, such as lowering taxes on investment gains and wealth creation, incentivizing, promoting and lowering the intitial costs of start-ups, business formations and entrepreneurship, promoting advancement of talented and gifted individuals and recognizing that a strongly growing economy will produce wealth in a successful few that will motivate many others to follow in their footsteps. In other words, policies in exact opposite of those promoted by our President and his staff.

Many economists think that the Federal Reserves' current policy of increasing the money supply is by itself enough to get the US economy rolling again. However, the Fed has been feeding the money supply since the start of the recession and the US economy and employment are still lagging. The Fed is beginning to look like a fireman who keeps throwing useless water on a grease fire. Eventually, the fire will use up all the grease, will burn itself out and the fireman will take the credit for putting it out with water. Eventually, the US economy will grow again and economists and the Fed's chairman will credit the Fed's loose monetary policy, but one has to wonder whether, after so much time, the Fed's loose monetary policy is like the fireman that throws water on a grease fire and then takes credit for his ineffective firefighting methods.

From The Federal Reserve Bank of Chicago, Economic Perspectives, "Consumption and the Great Recession" by Mariacristina De Nardi, Eric French, and David Benson:
The Great Recession of 2008–09 was characterized by the most severe year-over-year decline in consumption the United States had experienced since 1945. The consumption slump was both deep and long lived. It took almost 12 quarters for total real personal consumption expenditures (PCE) to go back to its level at the previous peak (2007:Q4).
Our main findings from the macrodata are the following. First, the Great Recession marked the most severe and persistent decline in aggregate consumption since World War II. All subcomponents of consumption declined during this period. However, the large drop in services consumption stands out most, relative to previous recessions. Second, while the decline was historic, the trends in consumption and its subcomponents leading up the recession were not substantially different from past recessionary periods. Third, the recovery path of consumption following the Great Recession has been uncharacteristically weak. It took nearly three years for total consumption to return to its level just prior to the recession. In contrast the second-worst rebound observed in the data followed the 1974 recession and lasted just over one year. We find that this persistence is reflected most in the subcomponents of nondurables and especially in services.

Our main findings from the analysis of the microdata are as follows. First, expected nominal income growth declined significantly during the Great Recession. This is the worst drop ever observed in these data, and this measure has not yet fully recovered to pre-recession levels. Second, the decline exists for all age groups, education levels, and income quintiles. Relative to previous recessions, those with higher levels of income and education are more pessimistic coming out of this recession than their poorer and less-educated counterparts. Third, expectations for real income growth have also declined, and the decline in expected real income growth is more severe when personal inflation expectations are used instead of actual Consumer Price Index (CPI) inflation. Fourth, expected income growth is a strong predictor of actual future income growth. Since expected income growth is a very important determinant of consumption decisions, the observed drop in expected income has the potential to explain at least part of the observed decline in consumption.

In the context of a simple permanent-income model, we find that the negative wealth effect (coming from decreased stock market valuations and housing prices) and consumers’ decreased income expectations were big factors in determining the observed consumption drop. In fact, we find that in this model, the observed drops in wealth and income expectations can explain the observed drop in consumption in its entirety....
Data from the Federal Reserve Board of Governors' flow of funds accounts show that in 2008, American households experienced a loss of $13.6 trillion in wealth, with most of the loss concentrated in stock market wealth. While stock market wealth has partially recovered since then, housing wealth has continued to decline. The resulting wealth loss, combined with lower expected income growth, has the potential to explain the extent to which consumers cut back consumption during the Great Recession.
we find that the negative wealth effect (coming from decreased stock market valuations and house prices) and decreased consumer income expectations were crucial factors in determining the observed consumption drop. In fact, we find that in this model, the observed drops in wealth and income expectations can explain the observed drop in consumption in its entirety.... [Emphasis Added.]

Tuesday, March 13, 2012

On An Energy Equivalent Basis, Oil Is Almost 8 Times The Cost of Natural Gas

From Carpe Diem Blog, "Chart of the Day: Natural Gas Prices Fall to Fresh Record Low vs. Oil on an Energy-Equivalent Basis" by Mark Perry:
Source: Prof. Mark Perry, Carpe Diem Blog
With natural gas selling for about $2.30 per million BTUs, its equivalent price for the same energy as a barrel of oil would be $13.34, or 87% below the price of WTI oil at $104.71 per barrel. When measured on an energy equivalent basis, natural gas has never been cheaper than oil than it is today.
There are about 5.8 million BTUs per barrel of oil. One million BTUs of natural gas is selling for $2.30 or $13.34 for 5.8 million BTUs, the amount in a barrel of oil. $104.71 (price of oil)/$13.34 (price of same BTUs of gas as barrel of oil) = 7.85.

Companies Do Not Successfully Time The Stock Market For Share Repurchases

From McKinsey Quarterly, "The savvy executive’s guide to buying back shares: Timing share repurchases is tricky. The most shareholder-friendly approach: don’t try." by Bin Jiang and Tim Koller [Annoying and intrusive free registration required to read whole article.]:
Markets are volatile and unpredictable, and what seem to be longer-term trends can quickly reverse course. Overconfidence can lead executives to buy back shares even at the peak share price—and a bias for caution can restrain them from buying shares when prices are lowest. The result is that companies seldom consistently pick the right time to buy back their shares at advantageous prices.

companies should give up trying to time the market. Long-term shareholders will be better off if management would simply forecast total excess cash and evenly distribute it each calendar quarter as “dividends” in the form of share repurchases. CFOs can approach such regular buybacks in two ways. First, they can repurchase shares as excess cash becomes available. This is the easiest approach and the one least likely to send adverse signals to investors around the potential for excess cash or cash shortfalls. It is probably right for most companies, even if it generates lower returns.

Second, companies can evenly distribute similarly sized repurchases over time.

Saturday, March 10, 2012

US Requires Nuclear Plant Upgrades To Prevent Japanese Type Reactor Accident

From, "NRC requires quake, flood upgrades for Indian Point, other reactors" by Greg Clary:
[New York's nuclear power plant] Indian Point and the rest of the nation’s nuclear plants must install more safety equipment, including devices to monitor spent fuel pool risks, to strengthen reactor protection from earthquakes, flooding and other disasters that could leave a site without electrical power.

The Nuclear Regulatory Commission, two days before the one-year anniversary of the Fukushima nuclear disaster in Japan, has authorized its staff to issue orders immediately to operators of 104 U.S. reactors, with deadlines varying based on task.

Odds Of Republican Controlled US Senate Dropped From 75 Percent To 55 Percent: Republican House Odds At 65 Percent And Declining

In the last few weeks, the Intrade odds of the Republicans controlling the US Senate after the next election have dropped from around 75 percent to 55 percent.

Last 30 Days Intrade Odds Of Republican Controlled Senate

Lifetime Intrade Odds Of Republican Controlled Senate

The Intrade odds of the Republicans controlling the US House of Representatives are higher around 65 percent, declining over the last three months.

Past 3 Months Intrade Odds Of Republican Controlled House

Lifetime Intrade Odds Of Republican Controlled House

Make Birth Control Pills Available Over The Counter Without A Prescription

From Bloomberg, "Fight Birth-Control Battle Over the Counter" by Virginia Postrel:
Partly because birth-control pills are available only by prescription, people tend to think they’re more dangerous and less well understood than they actually are. In fact, “more is known about the safety of oral contraceptives than has been known about any other drug in the history of medicine,” declared an editorial in the American Journal of Public Health back in 1993. That editorial accompanied an article arguing for over-the-counter sales.

Safer Than Ever

Unlike most medications, the article noted, birth-control pills require no medical diagnosis: “A woman herself determines her need for oral contraception; she assesses her own risk of pregnancy ... and the costs and benefits of both pregnancy and alternative contraceptions.” Nearly two decades later, birth- control pills look even safer than they did then, and recent research indicates that women are both able and eager to manage their own purchase decisions.

Requiring a prescription “acts more as a barrier to access rather than providing medically necessary supervision,” argues Daniel Grossman of Ibis Reproductive Health, a research and advocacy group based in Massachusetts, in an article published in September in Expert Review of Obstetrics & Gynecology. [Emphasis Added.]

Job Market Still Far From Recovered

From The New York Times Economix Blog, "Comparing Recessions and Recoveries: Job Changes" by Economix Editors:
Four years after employment peaked, scarcely one-third of the net loss in jobs has been reversed.
by the Labor Department’s count based on its survey of establishments, after shedding some 8.8 million jobs in about two years, the economy has generated about 3.45 million in the ensuing two years.
Source: Bureau of Labor Statistics. Chart by Amanda Cox. Via The New York Times
Horizontal axis shows months.Vertical axis shows the ratio of that month’s nonfarm payrolls to the nonfarm payrolls at the start of recession. Note: Because employment is a lagging indicator, the dates for these employment trends are not exactly synchronized with National Bureau of Economic Research’s official business cycle dates.

Minimal Health And Environment Impact From One Year Ago Japanese Nuclear Accident

From The Wall Street Journal, "In Japan, Relief at Radiation's Low Toll: A year after Fukushima, its impact on physical health and the environment appears to be far less severe than initially feared" by Yuka Hayashi, Phred Dvorak and Robert Lee Hotz:
A year after the Fukushima nuclear accident, the emerging consensus among scientists is that its effects on physical health and the environment have so far been minimal. There have been no reported radiation-related deaths or illnesses from the accident, even among workers who faced very high exposure. That's a stark contrast with the world's last major nuclear accident, in Chernobyl in 1986, when 28 workers died of acute radiation syndrome within the first year.

"From a radiological perspective, we expect the impact to be really, really minor," said Kathryn Higley, a specialist in tracking radiation in the environment at Oregon State University.

Friday, March 9, 2012

Top 1 Percent Income Share Moved In Tandem In All Developed Countries Over Last 100 Years

Developed countries with different economic policies and amounts of income redistribution saw similar movement in the income share of the top 1 percent.

From The Wall Street Journal, "A Look at the Global One Percent: The remarkable similarity in income distribution across countries over the past century means domestic policy has less effect than many believe on who gets what." by Allan Meltzer:
the widening gap between the top 1% of earners and the remaining 99% is proof that American capitalism is unjust and should be traded in for an economic model more closely resembling the social democracies of Europe.

But an examination of changes in income distribution over nearly 100 years, not just in the United States but elsewhere in the developed world, does not bear this out. In a 2006 study titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish economists Jesper Roine and Daniel Waldenström compared the income share of the top 1% of earners in seven countries from the early 1900s to 2004. Those countries—the U.S., Sweden, France, Australia, Britain, Canada and the Netherlands—all practice some type of democratic capitalism but also a fair amount of redistribution.

Source: The Wall Street Journal

As the nearby chart from the Roine and Waldenström study shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can't be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%.

Inadvertent Patent Infringement Due To Prohibitively High Search Costs

From the abstract to "Scaling the Patent System" by Christina Mulligan, Yale Law School, Information Society Project and Timothy B. Lee, Cato Institute:
Why do firms in some industries ignore patents when developing new products? This paper posits a simple but novel answer to this long-puzzling question: firms ignore patents because they are unable to discover the patents their activities might infringe. The costs of finding relevant patents, which we call discovery costs, are prohibitively high.

Not all industries face high patent discovery costs. Chemical patents are "indexable," meaning that relevant patents can be efficiently retrieved by chemical formula. As a result, discovery costs in the chemical and pharmaceutical industries are low, and inadvertent infringement by firms in these industries is rare. But many other patent categories are not indexable, and in some cases that makes avoiding infringement practically impossible. In software, for example, patent clearance by all firms would require many times more hours of legal research than all patent lawyers in the United States can bill in a year. The result has been an explosion of patent litigation.

This paper attacks two core premises of patent law — that parties are always able to respect each other’s patent rights, and that firms should be punished for infringement even if they could not have avoided it. It concludes with several suggestions for how to change the patent system to alleviate the problems created by non-indexable patents.

Income Inequality Growth In The US Is A Mirage

From Real Clear Markets, "The Misleading Tale of Income Inequality" by Diana Furchtgott-Roth:
Spending per person by income quintile shows how individuals are doing over time both in absolute terms and relative to those in other income groups. These data can be calculated from the government's Consumer Expenditure Survey. An examination of these data from 1985 through 2010 shows that inequality has declined rather than increased.

The average annual spending for a household in the lowest quintile in 2010 was $12,325 per person. In contrast, the average spending for a household in the top quintile was $29,022 per person.

On a per-person basis, Labor Department data show that in 2010, households in the top fifth of the income distribution spent 2.4 times the amount spent by the bottom quintile. That was about the same as 25 years ago. There is no increase in inequality. In addition, the overall level of inequality is remarkably small. A person moving from the bottom quintile to the top quintile can expect to increase spending by only 140 percent.

But compared with 1985, the big winners are the lowest-income group, whose expenditures per capital increased by 6.5 percent in constant dollars. In contrast, spending per person in the top income quintile increased by 1.5 percent. This shows that even though the income spread from top to bottom might be larger, those at the bottom are doing better than they did 25 years ago because they have greater spending power, after adjusting for inflation. This is important for the bottom quintile-economically, socially, psychologically.

Growth in inequality in America is illusory, a mirage. Economic studies and commentators that find increased inequality are celebrated, those that find none are ignored. Cursory reviews reveal no increase in real inequality, merely changes in demographic patterns such as increases in single-head-of-household families or an aging population.

Much "inequality" in the United States is a problem in search of reality, caused by writers who know a certain storyline will sell to an audience anxiously looking for additional reasons to have the government inject itself even more into the lives of ordinary Americans.

Thursday, March 8, 2012

Society Needs People Who Can Get Things Done And Rewards Them With Wealth

From Bloomberg, "Logic of Finance Can Banish Corruption (P. 4)" by Robert Shiller:
The economic power that some in the financial community attain bothers many people deeply. It offends our ideal of a society that aspires to respect, appreciate and support everyone. The pursuit of power that often drives financial capitalism seems contrary to the concept that finance should be about the stewardship of society’s assets.

Yet successful societies develop elites partly because they need leaders with the power to get things done. We have to make it possible for a relatively small number of people to use their personal judgment to direct our major activities. A system of financial capitalism will eventually imbue those in possession of such faculties with wealth and power. [Emphasis Added.]

US To Sue Apple And Publishers For E-Book Price Fixing

From Bloomberg, "U.S. Prepares Apple Lawsuit Over E-Book Prices" By Jeff Bliss and Sara Forden:
The U.S. Justice Department told Apple Inc. (AAPL) and five publishers that it’s preparing to sue them for allegedly fixing the prices of electronic books, according to a person familiar with the matter.
The publishers involved in the case are Lagardere SCA (MMB)’s Hachette Book Group, News Corp. (NWSA)’s HarperCollins Publishers, Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, CBS Corp. (CBS)’s Simon & Schuster and Pearson Plc (PSON)’s Penguin Group (USA), the person said.

Friday, March 2, 2012

Increasing Health Insurance Coverage Does Not Increase Access to Care

From John Goodman's Health policy Blog, "WOW: New Evidence on Access to Care" by John Goodman:
Expanding public [health] insurance doesn’t increase access to care. Paying doctors more does increase access.
From the original study abstract:
The findings suggest that (1) coverage expansions, even if they substantially reduce patient cost sharing, do not necessarily increase physician utilization, and (2) increasing the generosity of provider payments in public programs can improve access....

More Americans Entering Older Age Live Alone

From The New York Times "More Americans Rejecting Marriage in 50s and Beyond" by Rachel L Swarns:
Over the past 20 years, the divorce rate among baby boomers has surged by more than 50 percent, even as divorce rates over all have stabilized nationally. At the same time, more adults are remaining single. The shift is changing the traditional portrait of older Americans: About a third of adults ages 46 through 64 were divorced, separated or had never been married in 2010, compared with 13 percent in 1970, according to an analysis of recently released census data conducted by demographers at Bowling Green State University, in Ohio.

Sociologists expect those numbers to rise sharply in coming decades as younger people, who have far lower rates of marriage than their elders, move into middle age.
The elderly, who have traditionally relied on spouses for their care, will increasingly struggle to fend for themselves.
Most unmarried baby boomers are living alone....

Thursday, March 1, 2012

US Net Petroleum Exporter In 2011: First Time In Over 60 Years

From "U.S. Was Net Oil-Product Exporter in 2011" by Barbara Powell:
The U.S. exported more gasoline, diesel and other fuels than it imported in 2011 for the first time since 1949, the Energy Department said today.

Shipments abroad of petroleum products exceeded imports by 439,000 barrels a day, the department said in the Petroleum Supply Monthly report. In 2010, daily net imports averaged 269,000 barrels. U.S. refiners exported record amounts of gasoline, heating oil and diesel to meet higher global fuel demand while U.S. fuel consumption sank.