Keynesianism in 2009

"We're all Keynesians now," stated Milton Friedman in a 1965 article in Time magazine. Friedman, famous for a conservative brand of economic policy, was actually quoted out of context and clarified the record several weeks later. Forty-four years later, Keynesian economic policies have been the subject of much mainstream debate and widely accepted in Washington and on Wall Street.

As the U.S. economy continued to slide at the beginning of 2009 and Barack Obama was set to take office, Nancy Pelosi and Harry Reid set out to craft an economic stimulus package designed to provide a jolt to the economy. The economic orthodoxy was out in full force suggesting that the only way we could stem rising unemployment was to close the output gap by increasing aggregate demand. Paul Krugman, for example, suggested that we could stem unemployment by one percentage point for each $300B of GDP impact.

The debate over the size of the stimulus, the type of "multipliers" that different forms of stimulus would have, and the timing of the stimulus raged on the Sunday shows and in the blogosphere. Meanwhile, the politics of the debate heated up as the GOP solidified their position to vote against the stimulus despite agreeing that stimulus was needed. Meanwhile, post-Keyensians such as Steve Keen and economists of the Austrian school continued to debunk the claims of the mainstream.

The failed pseudo-science of neo-classical economics continues to maintain its mythical status of a robust theory. Multipliers, Okun's Law, and other such theory extend weak statistical correlations to prescribe public policy. What makes this worse is the stronghold that the neo-classical views have in academia and in the government (see here for a detailed account). All of this enables politicians to use the musings of Ph.D. economists as fodder for pork and political gain.

Alas, the forecasts of the economic policy makers were wrong, and the economic policies of the Federal Reserve and the U.S. Treasury enabled the financial crisis. But, as long as heterodox voices are ignored, those with power will continue to spin data and reality to claim success and maintain their positions of influence. We should all remain as Keynesians at our own peril.

Another Kashkari Update

A mere one day after the Washington Post article which I posted here on the new, rugged lifestyle that the former Interim Assistant Secretary of the Treasury for Financial Stability (that's a mouthful) and "TARP czar", Neel Kashkari, had found, we have new news.

Kashkari has taken a job at PIMCO as a managing director and head of new investment initiatives. PIMCO is a big player in the bond market and is, like other big investment corporations, tightly linked in with the corporatists in Washington. I'm sure he'll fit right in.

The Torture Loophole Preserved

Two hundred, thirty-three years ago:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights...

We all know that the injustice of slavery clouded the reality of these brilliant words. However, years of progress, and certainly the election of Barack Obama, was to set aside such errors and enshrine equality amongst all people of earth. I believe that these "unalienable Rights" are such that no government nor individual can infringe upon these rights as they are natural to all people. These rights, in my mind, involve life, liberty and property. It is arguable whether rights such as that to a writ of habeas corpus or those granted under the Bill of Rights fall under such classification. That question has been one of significant debate in our federal courts over the last several years.

In the aftermath of September 11 and the invasions of Afghanistan and Iraq, the Bush administration notably expanded the interpretation of provisions which excluded such rights. In the Military Commissions Act of 2006, Congress passed legislation which prevented unlawful enemy combatants from submitting a writ of habeas corpus to the federal courts thus restricting such prisoners to legal recourse via a military tribunal. This was challenged in Boumediene v. Bush with the Supreme Court ultimately overturning the provision allowing for Guantanamo detainees to to challenge their detentions in federal court.

Fast forward to Rasul, et al., v. Myers, et al., where four Guantanamo detainees further challenged their lack of rights. Specifically, they asserted that they were subject to torture and religious abuse while in custody. In response to Boumediene v. Bush, the petitioned the court for a second review (here is the Court of Appeals decision) of the case seeking to extend Constitutional and international law protections against such treatment.

On Monday, December 14, the Supreme Court refused to hear the case thereby affirming the decision from the Court of Appeals. As such, unlawful enemy combatants, and, in particular, these former detainees are denied protection against torture and declared as "not persons" under the Religious Freedom Restoration Act. Further, the Military Commissions Act may extend to U.S. citizens who are determined to be unlawful enemy combatants.

The Obama administration could have swayed the Supreme Court to hear the case. Instead, they fought to uphold the previous decision which effectively allows torture in cases where the is a loophole in legal jurisdiction. Read more on the decision here and here.

Where is Neel Kashkari?

Find out here. I feel for him.

Senator Bayh's Response

I received a canned response from the office of Sen. Bayh (D-IN) this week in reply to my email to him asking that he oppose Bernanke's reappointment. While I specifically focused on the reappointment, his response appeared to be his generic response to queries regarding the Audit the Fed legislation (H.R. 1207 and S. 604).

The key point at the end of the response stated that Bayh is "committed to ensuring that the Fed's activities remain consistent with its mission of promoting financial stability, maximum employment and low inflation." If Sen. Bayh is committed to such principles, then perhaps he needs to examine Bernanke's record. The Fed has absolutely failed in promoting financial stability, fostering maximum employment, and maintaining low inflation.

I just happen to be finishing this up just as Bayh began his questioning of Bernanke in the confirmation hearing (watch here - Bayh starts at 1:29:05). He immediately pledges his support despite reservations.

Bernanke Reappointment

Later this week, the Senate Banking Committee will hold hearings on the reappointment of Ben Bernanke as Chairman of the Federal Reserve. I oppose his reappointment and sent the following email to Senator Evan Bayh (D-IN) this evening. Bayh is a member of the committee and is my Senator.

Senator Bayh,

I would like to take this opportunity to express my position on the pending reappointment of Federal Reserve Chairman Ben Bernanke.

Chairman Bernanke has been a central player in national economic issue for several years and has failed in his duty to oversee the banking system. While Bernanke's policies which have been executed over the past year have provided temporary relief to a distressed system, he has failed to correct structural issues which will continue to impair the economy. Further, he has stretched the authority of the Federal Reserve and has sought to obfuscate critical information regarding collateral for the myriad of new programs which he implemented.

We need real change and new perspective at the Federal Reserve. Please oppose Bernanke's reappointment.

Regards,
Matthew Wittlief
Indianapolis, IN

Let's hope common sense prevails. Please contact your Senators - especially if they serve on the Banking Committee - and voice your position.

Catching Up...

After the holidays, cleaning, entertaining, decorating,...

I'm finally reading. I don't want to do a disservice by posting anything of substance when I have nothing of substance to post. So, please stay tuned (if you are still there). I'll be back this week. This time, I promise.

More Funky Stuff

I'm not sure what the problem with this site has been exactly. It seems like it might be working now... hope to get through these technical difficulties soon. The holidays have kept me busy; I hope to still get a post out later today or tomorrow.

Thanks.

Blog Update

Sometime last week, Google's Blogger service's algorithms thought that this blog was a spam blog. They shut it down. Earlier today, we were reinstated. For better or for worse, I'm back and hope to get a post or two in before the week is done. Thanks for your patience.

Loose Ends... Vol. LXIX

I´m at the airport in Barcelona, Spain. I´m traveling this week, so posts may be light.

Afghanistan and Veteran's Day

On this Veteran's Day, while Obama mulls his options for Afghanistan, I figure it's about time that I provide some of my thoughts on the subject. Today, we are supposed to honor our military veterans and thank them for their service. I thank them, but I often feel very disheartened that we do not respect their commitment fully in our military adventures.

Several weeks ago on September 10, Matthew Hoh, an Iraq War veteran and U.S. representative in Afghanistan, submitted his resignation. In his resignation letter, available here courtesy of the Washington Post, Hoh describes in great detail his reasons. Most notably, Hoh feels that our mission and strategy in Afghanistan is not worth the sacrifice of our military personnel:

I fail to see the value of worth in continued U.S. casualties or expenditures of resources in support of the Afghan government in what is, truly, a 35-year-old civil war.

He concludes his letter stating:

The dead return only in bodily form to be received by families who must be reassured their dead have sacrificed for a purpose of futures lost, love vanished, and promised dreams unkept. I have lost confidence such assurances can anymore be made.

This is a difficult pill to swallow, but Hoh makes his case quite well. I strongly encourage you to read the entire letter (it's only four pages long). I truly do not believe that our mission in Afghanistan, which has recently led to the deadliest months in our campaign, is making us any safer. It is time we cut our losses and come home. This is politically difficult - both domestically and on a geopolitical scale. But, it is time.

Afghanistan has had a sordid recent history. Its civil war and the destabilization caused by international interference have allowed factions like the Taliban to exercise significant power. Its geography, history, and culture have created a system of government which, at the moment, is highly decentralized. In an interview with NPR, Hoh described the system as "valleyism" where allegiance is localized - family, then village, then valley. There is an opposition both to invaders and the central government. Listen to any political analyst or government official in the U.S. and you will quickly hear the rhetoric that our problem in Afghanistan is the due in significant part to the lack of a strong central government.

The current Afghan government, while flawed, has characteristics which resemble both early America and my description of ideal governance laid out in this article. Is a strong central government in Afghanistan a necessity for U.S. safety? Do we need to send our military, our friends and relatives, into harm's way to engage in nation building? Should we dictate how Afghanistan is governed? No, no and no.

Loose Ends... Vol. LXVIII

We have officially hit double-digit unemployment. The BLS provided its preliminary estimate for October employment - the result is 10.2% unemployment. The seasonally-adjusted U-6 rate, which is a broader definition of unemployment, is now at 17.5%. I don't believe that we've hit the peak yet. There is also reason to believe that the current rate should be higher as the "CES Net Birth/Death Model" which seeks to estimate new job creation that is unreported in the official surveys has added over a net one million jobs this year.

The Obama administration has been touting the success of the stimulus package in creating or saving over 600k jobs. We'll see if this strategy pays off. Politically, I think they may have been better off doing/saying less and blaming Bush more. They have claimed enough glory at this point to own the results going forward. There has been nothing done to correct the systemic weaknesses in the economy.

*****

The House passed H.R. 3962, the Affordable Health Care for America Act, by a slim 220-215 margin. Enough Democrats voted for it after a vote on an anti-abortion amendment passed during the floor proceedings. It is now up to the Senate where it will be difficult to get 60 votes. It is much easier to get things like this through the House where the Democrats enjoy a significant majority.

Great Transcender or Great Pretender

Instead of looking at tonight's election results, I'd like to take a quick look back at the election of Barack Obama one year ago.

I believe that many Americans felt that Barack Obama would be the Great Transcender. Obama ran a brilliant campaign on a message of hope and change. He sent a message that he would transcend politics as usual and change the way Washington works. While I didn't buy this completely, it was the sliver of hope in this message that led me to support Obama over McCain. (I voted for Barr.)

Instead, I think Obama has exemplified politics as usual. In fact, I'd say he is an amazing politician. His oratory, his rhetoric, his team, his demeanor... he's good. But, he transcends nothing. He has embraced Wall Street and the coporatists. He has indulged his base while simultaneously disappointing them. He has made both real and token gestures to the GOP while engaging in classic partisan attacks. He has reneged on his promise to bring transparency to legislation. He stands ready to deploy our military as the world's police. Shall I go on?

He is the Great Pretender.

Move Along... These Aren't the (Droids) You're Looking For

Despite 308 co-sponsors, H.R. 1207 - the Federal Reserve Transparency Act of 2009 - is functionally on life support. Arguably the single greatest measurable impact from the Ron Paul Revolution, the bill, which has garnered strong bipartisan support due in large part to grassroots efforts from Paul's Campaign for Liberty, has apparently been "gutted" by Mel Watt (D-NC).

Barney Frank (D-MA) who chairs the House Financial Services Committee promised his constituents at a health care town hall on August 27 that the bill would not die in committee and would be brought to the floor (see the Huffington Post article here and a YouTube clip here). Frank has not co-sponsored the bill. Frank held hearings on the bill in a move to begin the process of moving it towards the floor on September 25. Author and Austrian economist Thomas Woods had the opportunity to testify. Watt was downright hostile.

Watt's district includes Charlotte, the home of Bank of America. Since 1989, Watt's largest base of contributors have been from commercial banking. He is the subcommittee chairman for domestic monetary policy and his official House website states:

My service on the Financial Services Committee has been especially important because the 12th Congressional District is home to more banking and financial interests than any congressional district in the United States except the New York district in which Wall Street is located. I use my position on the Committee to listen to and study the interests of financial institutions and the interests of my constituents (their customers and consumers) and to help craft the important legislative balance that must exist between these interests.

As most readers know, Ron Paul (R-TX) mounted an unsuccessful Presidential bid in 2008 where he was largely dismissed by the media and establishment. The momentum which H.R. 1207 has received has been a validation that Paul's message of an out-of-control central bank has reached the mainstream. Unfortunately, the powers-that-be and their minions in Congress (and the Obama administration) want nothing to do with increasing transparency. Despite trillions of guarantees, secret transactions, and money-printing; the Stormtroopers, under the influence of the banking Jedi, are telling the taxpayers to move along. Clearly, there is nothing to see when it comes to the actions of the Federal Reserve.

Loose Ends... Vol. LXVII

The proposed expansion of the smoking ban in Indianapolis failed to pass earlier this week. The City-County Council did not kill the measure outright; it has been tabled for a future date.

*****

I just caught up on the back and forth between Edmunds.com and the White House this week. Edumunds released an analysis which stated that the "Cash for Clunkers" program cost taxpayers $24k per car. The analysis was based on the estimated incremental sales activity that the incentive generated versus the total payout of incentives. The White House fired back on their official blog with the sarcastic headline of "Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers" touting the impact that the program had on Q3 GDP. Edmunds retorted once more.

Goldman Sachs Defends Bonus Pay

I've had this article sitting in my browser for about a week now. In the article from the U.K. newspaper The Guardian, the vice-chairman of Goldman Sachs informs the public that it should "tolerate the inequality as a way to achieve greater prosperity for all."

I have no issue with people making money. Some people will always make more money than others. But, we shouldn't pretend that monstrous bonuses being paid at Goldman Sachs (GS) are somehow for our greater good. The company, which is clearly operating with implicit government support and received billions in explicit support via TARP and other bailouts (such as AIG), is on pace to dole out record bonuses this year due, in large part, to its trading operations. GS posted phenomenal trading results in both Q2 and Q3 this year.

The GS trading operations serve a role in the financial markets to provide depth and liquidity. I did some research and attempted to do some of my own analysis to determine the role that large players like GS play in the markets. The basic framework of capitalism and the role of a stock exchange is to allow investors to fund and profit from businesses. The trading operations of most stock market players including large institutions like GS have evolved beyond the capitalist investor. You can think of investors as those who think long-term and traders as those who think short term. Traders are nothing more than gamblers.

Now GS and others will tell you that they serve a useful and important role by trading. I don't dispute this. True investors may arguably have better success in executing a trade when the market is full of players willing to buy and sell at any time. However, those who are in the market simply to buy and sell and not to hold are, by definition, not investors. If you are not investing, then I'd say you are gambling.

I do not have a problem with gambling. But, let's call it for what it is. We should not pretend that traders, from the day trader to Goldman Sachs, serve some higher purpose which is for the benefit of greater society. They are there to take advantage of market inefficiencies, gamble, and make big bucks.

Quick Reflection on the Constitution

A discussion on the Constitution is one which could consume much time. It's late on a Friday night, but I wanted to get a few thoughts on out this subject. Lately, I've reflected a bit when I've heard comments about the Bill of Rights, our (the citizens) Constitutional rights, government authority, and so on.

I've found that even the most staunch advocates of "conservatism" and "small government" often speak of things such as the First Amendment as if the Constitution itself, and on behalf of the government, grants us rights. This is in direct conflict with the Declaration of Independence, and, to the best of my knowledge, the intent of the authors. I have both the Federalist Papers and the Anti-Federalist Papers in my reading queue, but consider the Declaration itself:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed...

The Constitution is intended to set forth laws for how the government operates. The Bill of Rights is not there to reflect the government's goodwill to its citizens. It is there to reinforce the limits which are imposed on government. We the people naturally have a right to free speech. The government does not give us this right. The Constitution does not give us this right. We have it. The Constitution and its amendments are intended to reinforce our natural rights and ensure that the government cannot take them away.

I would contend that there is no such thing as a Constitutional right. We give the government its power and its our responsibility to ensure that they do not abuse it. I think that we've failed. I think that, over time, the perspective has changed in that most people no longer hold the view that the government receives its "just powers from the consent of the governed," and that the government in its glorious generosity grants us our rights, such as free speech, provided that we don't abuse such rights.

Election Day

This coming Tuesday is an election day here in Indiana. In my township, there will be two issues on the ballot. Here is a link to the Perry Township, Marion County, Indiana ballot. I don't watch much local television and I don't read the newspaper. I haven't heard too much about these issues.

The first issue is in regards to Wishard Hospital. Wishard is in downtown Indy and is looking to build new facilities. To do this, they seek to issue bonds (get loans). Wishard is part of the Health and Hospital Corporation of Marion County - a quasi-government entity. As such, they can issue bonds which are guaranteed by the local government. Wishard contends that they will be able to repay their bonds with their own revenues; however, they seek government-backed bonds to receive lower interest rates.

You can read about the pro-Wishard position here. You can read one opposing view here (lots of well-informed comments on this post). I will be voting against the referendum.

I only heard about the second issue tonight while I was at my in-laws. My sister-in-law received a phone call to encourage a vote for the referendum. In this issue, the Metropolitan School District of Perry Township also seeks to issue bonds (up to almost $100M) for school renovations. I have not been able to find a good opposition website for this issue; you can visit the site which argues for the referendum here. I will be voting against this referendum as well.

While I admit freely that I do not have the context of the entire issue for either referendum, I am absolutely concerned with a further expansion of local government spending in this environment. I am not totally opposed to all local government spending. However, I do not feel that all options have been explored. Wishard serves the community but perhaps it's time for other hospitals to serve a similar purpose. Perry Township schools may well need renovation, but have we ensured that all other cost savings have been pursued prior to asking for taxpayer funded capital? I doubt it. I'll vote no.

Loose Ends... Vol. LXVI

I have saved a few articles in my Google Reader which I had thought about using as writing inspiration. Alas, it's time to clean them out with some short commentary. All three articles tonight come from the great financial blog, naked capitalism.

*****

This first entry comes from Edward Harrison of Credit Writedowns by way of naked capitalism. Harrison lays out many facts of the current economic climate and argues that we are in a depression - not a recovery from a recession. I have to agree with Harrison. While we will likely have a technical recovery in GDP growth in the third quarter, which will be announced later this week, the structural issues of debt in the economy still remain.

I like Harrison, respect his depth of knowledge, and usually agree with him. He generally has a libertarian view on things; however, he has called for more government intervention over the last year. To note from his blog:

From an ideological perspective, I would call myself a libertarian realist. I am a firm believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Often government intervention and oversight is not just wanted but warranted.

I highly recommend this article, but be warned; it is long. This also was one of my first exposures to "chartalism" - a macroeconomic theory which seeks to explain monetary phenomenon by way of a relationship between private savings, government spending, and the country's balance of trade. It's interesting - more in a future article on monetary theory.

*****

Yves Smith published this next article a couple weeks ago regarding the AIG bonus payouts. Two days later, Neil Barofsky of SIGTARP issued the latest audit report on AIG compensation. From the report (page 13):

... According to AIG officials, individual awards paid in March 2009 ranged from $700 for one File Administrator to more than $4 million for one Executive Vice President... $7,700 was awarded to one Kitchen Assistant... Distribution of the remaining $198 million is expected in March 2010...

Awesome - our bailout dollars at work. "Pay Czar" Kenneth Feinberg ordered significant reduction in pay at several bailed out companies earlier this week. I'm basically for this. These companies only exist due to the taxpayer largess. They can be told what to do.

*****

We turn back to an Edward Harrison post for the last entry of the night. This article highlights some key decisions happening in the courts regarding mortgage foreclosures. There are a lot of good links in this one to other bloggers who are picking up on the story.

The very interesting decision by the court (in one particular case) is that the bank which claims to hold the mortgage has not met the burden of proof to show this is actually the case. When one receives a loan to purchase a house, the mortgage is actually the security against the loan. The proliferation of securitization has transferred mortgages from one party to another over and over again. When the borrower stops making payments, the mortgage holder moves to foreclose on the property. Increasingly, the mortgage holders have been unable to prove that they actually legally hold the mortgage since the securitization process has been sloppy - at least in terms of following all the necessary and required processes for such a transfer.

Very interesting stuff... could we be seeing the beginning of a massive debtor's revolt?

Blue Laws and Corporatism

The Indiana General Assembly is not currently in session. In fact, they are hardly ever in session. This past year, they spent a lot of time debating a budget for the state. They required a special session to get that done. One thing they didn't address was Sunday sales of alcohol.

Indiana, like many other states, still has "blue laws" on the books which regulate and/or prohibit the sale of alcohol in various ways. A study committee was established to hold hearings, review and recommend potential legislation for the upcoming session. The Interim Study Committee on Alcoholic Beverage Issues convened over the past several weeks and voted on their recommendations on Tuesday, October 20.

The study committee has voted to recommend no changes to existing law. The two key proposals (which were shot down) were to allow Sunday sales of alcohol (defeated 7-4) and to allow other businesses besides liquor stores to sell cold beer (defeated 11-0). The full story can be read here. I have not been able to locate any sort of formal report at this point in time.

This particular issue and story has several things that I find distasteful. First, there is never a good time to legislate morality. The 18th Amendment was a failure. The purchase of alcohol on Sunday does not harm anyone as a threat to life, liberty or property. That is unless you are a liquor store in Indiana who is protected by government corporatism. That leads to my second point. The liquor store lobby does not want reform because they a) have a protected monopoly on cold beer sales, and b) have lower operating costs compared to their competitors because they stay closed on Sundays. Third, I noticed this vote was pretty much on party line. I'd like to see the final report before I pass judgment on that, but it smells fishy to me.

So, the forces of the nanny state have joined the forces of corporate lobbies to deny Hoosiers the ability to get a cold six-pack of beer at the local grocery store on Sundays. This is not over yet as this was just a study committee. However, I think this is a strong indication that this battle won't be won in the 2010 General Assembly.

Loose Ends... Vol. LXV

I'm a day late (and a few topics short) for Loose Ends this week.

Indiana University professor Elinor Ostrom was awarded the Nobel Prize for Economics last week. The award was "for her analysis of economic governance, especially the commons." This is a very interesting subject for those with libertarian leanings. I plan on reading some of her work and reporting back here on the blog.

Proposed Smoking Ban in Indianapolis

Indianapolis already has a limited smoking ban. For the most part, the only places you can smoke are bars which do not employ or allow entrance to anyone under the age of eighteen, smoke shops, and bowling alleys. Smoke Free Indy, an anti-smoking activist group, is leading the charge to strengthen the ban and remove pretty much all existing exemptions.

Proposal 371, which would extend the ban, passed out of committee on October 14. It will go before the entire City-County Council on October 26. Potentially adding some strength to their position, a report from the Institute of Medicine was released the next day which supports smoking bans as an effective tool in improving public health. The folks at libertarian-minded Reason published a response to the report on their blog which questions the strength of their conclusions and provides other good background material.

I think it's pretty clear that smoking isn't the greatest lifestyle choice to maximize longevity. Second-hand smoke (apparently also called "passive smoking") also has an adverse impact on health. We can all make our choices about smoking and, in today's anti-smoking world, spend most all of our time avoiding second-hand smoke if we choose to do so. Smoking is legal. Adults should be able to congregate in public places to smoke.

After spending a few hours of research on this subject, there is reason to be cautious in determining the magnitude of the health risk posed by second-hand smoke. But, to me, that's not really the whole issue. Owners of private property who operate an adult establishment should have the choice to allow smoking. A continuing escalation of smoking bans is an infringement on private property rights and personal liberty.

As an end note, the Marion County Health Department commissioned a report which was released in February 2002 on the economic impact of second-hand smoke in Marion County (Indianapolis). You can read the report here. It estimates that the health care costs due to second-hand smoke in 2000 were over $50M. I find it a bit amusing that in most economic studies, money being spent is equated to creating jobs and helping the economy. I guess there is a difference between good spending and bad spending.

Greed Is... Only Natural

Ever since the financial crisis exploded over a year ago, there has been plenty of rhetoric in the media decrying greed. Occasionally, you get a rabid capitalist taking the opposite position - reverently quoting Wall Street's Gordon Gekko... "Greed is good!"

Today, I read another article on the subject at naked capitalism. I had been planning on writing on this subject for some time. No time like the present...

What is greed? Wiktionary says: a selfish or excessive desire for more than is needed or deserved, especially of money, wealth, food, or other possessions. It's also one of the seven deadly sins. My basic philosophy of human action is that every decision - whether trivial or significant - is driven by a complex assessment which seeks to maximize the individual's self-interest. I also believe that self-interest is not the same as financial wealth. If I had to describe self-interest as anything, I'd describe is as happiness.

This philosophy of human action extends to the microeconomic theory of utility maximization. Generally utility is measured by money. For some, financial wealth is very important. Perhaps money cannot buy happiness, but money may be equated with happiness. I think of utility and self-interest as much more complex, perhaps "softer", concepts. Why else would one donate to a charity, smell the roses, or even love? These are rational actions which produce happiness.

The unending pursuit of happiness is only natural. So, is a "selfish or excessive desire for more than is needed" bad? There is no way to clearly define "excessive" or "more than is needed" - they are subjective terms. Thus, greed can only be attributed as wrong by one who feels that someone's actions exceed the reasonable pursuit of happiness. Perhaps greed is bad or sinful, but only under a system of morality which recognizes this as such.

The opposition voices to greed seek laws and regulations to control and/or punish greed. But, since greed is a moral issue, a matter of subjectivity, when is it appropriate to use government force? I suggest it is appropriate only when one's greed - the insatiable desire for excess - violates another's life or property.

I believe that humans are sinful. The pursuit of self-interest crosses the line when another is harmed. It is also usually kept in check by fear. This may be the fear of personal loss, but it may also be the fear of getting caught doing something illegal.

If greed is the biggest problem of capitalism, it is only because there is not enough risk associated with fear. I'd argue that this isn't capitalism; it's definitely not a free market. The government has removed this risk for some businesses and individuals which has allowed greed to take over. If you want to find blame for income inequality, high unemployment, and the financial crisis, don't blame greedy capitalists on Wall Street. Blame the government for systematically removing risk and misaligning incentives. Patchwork regulation, inconsistent enforcement, manipulated interest rates, perverse tax incentives, ... all these things serve to distort the greed/fear balance and let ugly human nature wreak havoc.

Money and Credit

This is a big subject. I've been meaning to post on this subject for some time now, but as I expand my research, it keeps getting bigger and bigger... So, I'll probably address this subject over a series of posts. I want to introduce the key themes here and provide some sources for readers to explore independently.

An any given economy there must be a means to facilitate the exchange of goods and services. Ancient systems were based on barter. This evolved to involve the concept of money where something was accepted as a commonly used medium to enable exchange. Commodity money is the most basic concept of money. Items which have an inherent value as a commodity (such as beads, stones, or gold) would serve a dual-purpose as money. Over the course of a few nuanced evolutions (largely driven by banks), we ultimately arrived at the concept of government-issued fiat money.

The general and basic understanding of monetary history speaks of government-issued commodity money whereby the state would issue currency which was "backed" by a commodity - usually gold and/or silver. One such example is the gold standard. The state would issue currency which would be redeemable on demand in gold. The state (via a central bank) would hold reserves of gold to ensure redemption could be executed.

(It should be noted that private banks have also issued private currency called banknotes. These banknotes may or may not be legal tender - something that has the force of law for resolving debts. While these concepts are important for a thorough understand of monetary history, they are not terribly relevant in this particular discussion.)

In a fiat currency system, the state issues currency which is backed by a variety of assets. Most currencies today are reserved with a combination of gold, foreign currencies, and government issued securities. Up until our recent financial crisis, the dollar has been backed largely by U.S. treasuries. The Federal Reserve issues Federal Reserve Notes (prints money) to acquire assets such as U.S. treasuries (government debt). The money goes into general circulation. Ultimately, the money is collected by the government via taxes and then remitted to the Federal Reserve to pay off the government debt. This ends the cycle.

To a large degree, most classical and modern macroeconomic and monetary theory is based on this view of currency. It is augmented by the phenomenon of fractional-reserve banking where banks expand the money supply (volume of currency/money in circulation) via lending. The traditional example is that the bank has $10M in deposits and can then loan out $9M under a reserve requirement of 10%. The $9M makes it way to another bank who can then lend $8.1M. This continues ad infinitum "creating" new money all the way along.

Unfortunately, these basic concepts upon which most economic theory and policy is based is wrong. Banks don't operate this way. The system is not this simple.

If you want to read a lot more detail, please read the following article. I'll attempt to explain the basic concepts in an upcoming entry.

"The Roving Cavaliers of Credit", by Steve Keen (my new favorite economist)

Loose Ends... Vol. LXIV

This is the sort of macroeconomic "theory" that burns me up... more from Paul Krugman:

... let's use the Taylor Rule estimated by Glenn Rudebusch at the San Francisco Fed... This rule describes past Fed policy quite well.

Applied to current data, the rule says that the Fed funds rate should be - drum roll - minus 5.6 percent. You can’t do that, of course, so we’re very hard up against the zero lower bound. And if you think the Taylor rule was a good guide to policy in the past, the Fed shouldn’t start to raise rates until the rule starts, you know, yielding a positive number.

I don't doubt that such a rule has historically been a good predictor of the Fed funds rate. But should it? Is the economy really so simple that the proper cost of money can be decided by a simple linear equation involving the distorted government statistics of inflation and unemployment? Has the historical rate actually been correct? (No. No. And no.)

The ruling class of macroeconomists not only think that they can plan and control the economy - no, that's not enough. They use relatively simple mathematics to determine their policies which are supposedly smarter than the dynamic market forces of hundreds of millions of people.

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The Nobel Peace Prize for 2009 has been awarded to Barack Obama. You can read the press release here. Nominations had to be received by February 1 which means that Obama had been in office for no more than eleven days before his nomination. However, I did also read that "the Committee may on that occasion add further names to the list, after which the nomination process is closed."

Obama apparently won based on his efforts to change the reputation of the U.S. which festered in the international community under the Bush administration. It appears that it is his promises, not his actions, which cemented the victory. Meanwhile, Obama is mulling an increase in troops in Afghanistan, potentially seeking regime change therein, and has yet to place significant public pressure on Israel, India or Pakistan to sign on to the Nuclear Non-Proliferation Treaty.

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Congressmen Ron Paul (R-TX) and Alan Grayson (D-FL), two of the fiercest opponents of the financial status quo, have submitted a letter to Senator Chris Dodd (D-CT) who is Chairman of the Senate Committee on Banking, Housing, and Urban Affairs.

The letter asks Dodd to delay the confirmation of Ben Bernanke to continue in his capacity of Chairman of the Federal Reserve. This seems like a simple and poignant request. The economy has experienced a major crisis which is almost universally agreed to be triggered by the financial sector. The Federal Reserve has regulatory authority over the banking system. Its monetary policy authority is conducted with the goals of maximum employment, stable prices, and moderate long-term interest rates. Read their mission statement.

While Bernanke has received many rave reviews for saving the economy, he was also in charge prior to the crisis. Regardless of your opinion on what Bernanke has done since the collapse of Lehman, his record in leading the Fed in its self-declared mission is questionable. Further, his creative, yet secretive, and legally dubious actions since Lehman should be investigated before we declare him our savior.

The Petrodollar Hegemony

Gold had a great week this past week hitting its all-time high of $1062.70 in nominal U.S. dollars. While there are many factors to such a rise in prices, an article by Robert Fisk on October 6 in The Independent, a U.K. newspaper, helped spur some of the action.

The article, entitled "The Demise of the Dollar", has set off something of a firestorm in the financial and political blogosphere. The article suggests that a secret agreement has been reached between key nations to end the pricing of oil in U.S. dollars which would subsequently end its dominance as the world's reserve currency. Is this a true signal of the dollar's collapse? Is hyperinflation around the corner? Or is this just overblown rhetoric and meaningless scaremongering? In order to answer these questions, we have to get a basic understanding of the world's currency markets.

All modern major currencies are fiat currencies and no longer exist on a commodity standard such as gold. Since the currencies cannot be converted into a commodity which has inherent value, the value of the currency is determined by the dynamics of supply and demand. These dynamics play out in the foreign exchange markets (forex) which set the prevailing rates of exchange between international currencies. The forex market accounts for between $3-4 trillion (yes, with a "t") of trading per day! It is the largest of the financial markets - bigger than stocks, bonds, commodities, or any other such market. Currencies are traded twenty-four hours a day for five days of the week. Banks and other financial institutions, multinational corporations, hedge funds and central banks are the biggest players; although, individual investors and many others also play the market.

To understand the value of a currency, one must break down the factors which contribute to the supply and demand for that currency. A currency is demanded when it is required for payment of goods and services or desired as a store of value. In the domestic economy, the fiat currency has its value since the government establishes it as required for payment of taxes. This gives the currency much of its inherent value. Consider a multinational corporation. It must pay its employees in a variety of currencies and may incur other expenses in multiple currencies as well. Similarly, revenues are collected in various currencies as customers generally pay in their local currency. Such corporations establish bank accounts in multiple currencies and execute currency exchange transactions to manage the differences in how their revenues and expenses are denominated. They also trade currencies to mange risks associated with changes in exchange rates.

Banks will also engage in currency trades for similar reasons as the multinational corporations. Banks also engage in transactions with central banks which adds an additional element to the supply and demand dynamics. Central banks issue currency and maintain reserves held against the issuance. Many central banks hold reserves of foreign currencies as assets which "back" the issuance of new currency which is considered a liability. This is a process which deserves its own article, but, needless to say, the actions of central banks and their relationships with commercial banks have an impact on the demand for various currencies.

These are some of the most important factors which impact the demand for a particular currency in the forex market. The supply of a currency is also variable. It would seem that the total circulation of the currency as issued by the central bank would be the most important factor in the supply of a currency. This is not entirely true for a few reasons. First, money supply measures do not fully capture credit money (money "created" by banks) and the potential expansion thereof. Second, and related to the first, leverage is widely used in the forex market. In other words, traders will take on debt to enter the forex market. Third, the supply of a currency in the forex market is dependent on the desire of the trader to not hold on to that particular currency. The currency of a completely insulated national economy with no international trade would have very little (if any) supply in the forex market regardless of the total supply of such a currency.

With this background, we can turn to the oil market. Since the 1970s oil has been (for the most part) priced and sold in U.S. dollars. Oil producing countries seeking to sell oil around the world have demanded U.S. dollars as payment for oil. This, along with other factors, has helped establish the U.S. dollar as the primary reserve currency of the world. Everyone needs oil. Thus, everyone needs dollars. This implicitly creates a demand for U.S. dollars as those who buy oil need to exchange their currency to complete their transactions. This also places dollars in the hands of oil producing countries who can either hold them (as reserves), invest them (by purchasing dollar-denominated assets such as U.S. treasuries or stocks), or exchange them for other currencies.

The term used to describe the dollars earned by these oil producing countries is a petrodollar. When these nations invest their petrodollars in other assets, it is referred to as petrodollar recycling. This recycling process leads to investment. The investment is arguably very favorable to the United States. Since countries such as Saudi Arabia, Kuwait, and Qatar amass large amounts of petrodollars, it enables easy recycling towards U.S. stocks and bonds. If oil were priced in euros or some other currency (or possibly even a new currency), these nations would now hold something other than dollars.

A key question is how such a change would change the behavior of the oil rich nations. If they earned an increasing amount of petroeuros (for the sake of argument), they could either hold them as reserves or recycle them. Holding them as reserves would link the value of their currency more closely to the euro. Recycling would imply either increased investment in euro-denominated assets or utilizing the forex market to sway euros for, say, dollars. It seems clear that if the oil producing nations prefer to hold and/or invest dollars, they would prefer to demand dollars for oil rather than accepting euros only to swap them later for dollars.

According to the Fisk article, China, Russia, Japan and France are involved in the discussions with the oil producing Arab nations to end the petrodollar hegemony. If this is the case, then it implies that these nations would prefer to avoid having to hold as many dollars as they do today. These countries acquire their dollars today via trading relationships, existing currency reserves, and the forex market. Their desire to move away from dollars would indicate an expected decrease in trade with the U.S., a desire to maintain or reduce their dollar reserves, and/or seeking to avoid the forex market. The last one is an unlikely reason since this would imply an expected increase in the value of the dollar.

However, the status of the U.S. dollar as the world's primary reserve currency is due to more than dollar-denominated oil. The U.S. is by far the largest consumer economy and importer of international goods and services. Other economies depend on a health U.S. consumer and, as a result, need the U.S. dollar. The U.S. has also been the leader in technology and other economic expansion which attracts foreign investment; this too creates demand for the dollar. Finally, political stability and military dominance solidifies the dollar as a safe investment. All these factors, in addition to the petrodollar hegemony, ensure U.S. dominance.

Will these things come to an end? Not anytime soon... but, the tide may be well be shifting. An end to the petrodollar hegemony may be an important step towards the end of the U.S. dollar hegemony and, ultimately, the end of U.S. political and military dominance.

For additional reading, see here and here.

Loose Ends... Vol. LXIII

Now that I have my health care posts behind me, I'll try to get to a more regular schedule. I don't have much interesting to say tonight. We'll keep an eye on Iran, Afghanistan, health care, and everything else this week.

Nicole and I officially took the plunge and joined the Libertarian Party today. We have been both skeptical and critical in the past, but we are hopeful that the Indiana chapter is committed to pragmatism.

Practical Ideas for Health Care

In my last post, I outlined my thoughts on a more ideal health care system. I recognize that these thoughts describe a system which is much different than what we have today. Justified criticism is often directed towards such ideas for being too ideological, theoretical, or impractical. So, I'd like to close my series on health care (for now) with some ideas which may be more practical. I do recognize that some of these ideas may be politically untenable at this time and also concede that true health care reform requires hours and hours of research beyond what I'm able to provide. Here is my six-point plan for reform.

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1. Authorize and Promote the Establishment of Health Care Subscription Programs

As noted in my thoughts on a more ideal health care system, the idea of a health and wellness subscription service seems like a great idea. Such a service may not be technically illegal today (I have not researched this), but the regulatory system and network of insurance providers are not aligned with such a model. This is not fundamentally different than prepaid health care which is a more accurate description of today's health "insurance" products. I would allow Medicare, Medicaid, and Medicare Advantage plans to use federal dollars towards such programs if the patient chooses to do so.

2. Provide Significant Tax Incentives for Private and Corporate Donations to Non-Profit Health Care Providers

Medicare and Medicaid face significant funding issues in the near future. Our federal budget problems are well known. I think it's important to put more choice in the hands of the taxpayer. As part of a larger plan to create a more democratic and free market system of taxation, I would implement a revolutionary tax credit for health care funding. Individuals and corporations would be eligible for a 50% tax credit for every dollar donated to an authorized, non-profit health care provider. This would include free clinics, non-profit hospitals, medical research centers, universities, and more. I would expect billions of dollars to flow into such institutions. The government would use this flow of funds to offset Medicare and Medicaid spending with the ultimate plan of eliminating the need for direct government aid to these programs.

3. Reduce the Patent Life for New Drugs and Streamline the FDA

Pharmaceutical companies have made major advancements to develop drugs which help patients all over the world with all sorts of ailments. They've made a lot of money doing so which provides the incentives to hire the best chemists and invest in research and development. But, I believe that we must level the playing field a little more. Patents support monopolistic practices and the FDA helps establish a de facto cartel in the drug industry. Both of these lead to higher medical costs. We need a quicker time to market for generics. We also need the FDA to increase competition by encouraging and regulating the expansion of natural medicine. If this requires the establishment of an independent agency to compete with the FDA, then so be it.

4. Implement Tort Reform

Defensive medicine clearly adds cost to the system. The expansion of more inexpensive care via free clinics and other non-traditional health and wellness services may only serve to encourage malpractice suits. This needs to be cut off before it constrains such expansion.

5. Allow Interstate Competition for Health Insurance and Implement Health Exchanges

Insurance products are regulated at the state level which has led to inconsistent rules and low levels of competition. Using the federal power to regulate interstate commerce, we should allow insurance to be sold across state lines with consistent regulation. This is not enough. The current plan to establish a health insurance exchange (with or without the public option) is a good one; however, I have a different twist on it. We have seen the Internet provide great tools to help consumers find what they are looking for. We should provide ten large grants to prospective health exchange providers set up as quasi-government corporations. After a term, they will be spun off as private corporations. As an example, imagine if Google provided a search service to find the best customized health program that meets your needs. The health exchange should help consumers find both traditional health insurance (today's prepaid health care) and local health subscription services as described above.

6. Phase Out the Health Maintenance Organization Act of 1973

The HMO Act of 1973 mandated that employers of 25 or more employees must offer health benefits to an approved HMO. This solidified the link between employment and health care coverage. This should be repealed in a responsible manner so that individuals seek their own health care coverage via the aforementioned exchanges. This could start with applying income taxes towards employer-provided health care benefits while providing a tax deduction for costs incurred by purchasing individual plans. Employers would not be allowed to rescind existing health care benefits without a certain percentage of employees opting out, a two-year notice period, and payout incentive to those who have not transitioned by the end of the two-year period.

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I'm sure there are other good ideas which would fit in this framework which is intended to support the evolution of today's health care system to one which I feel would be more effective. Having watched the Senate Finance Committee debate the Baucus plan, I appreciate the complexity involved in drafting reform legislation. I hope you have found this basic set of ideas to be interesting and practical.

Loose Ends... Vol. LXII

Excuses... The whole family was sick this weekend. I plan to wrap up my health care series this week with ideas for practical solutions to the issue this week. Then, hopefully, I'll get back to a more regular posting schedule.

Loose Ends... Vol. LXI

Earlier this week, the House convened and voted upon H. Res. 744:

Whereas on September 9, 2009, during the joint session of Congress convened pursuant to House Concurrent Resolution 179, the President of the United States, speaking at the invitation of the House and Senate, had his remarks interrupted by the Representative from South Carolina, Mr. Wilson; and

Whereas the conduct of the Representative from South Carolina was a breach of decorum and degraded the proceedings of the joint session, to the discredit of the House: Now, therefore, be it

Resolved, That the House of Representatives disapproves of the behavior of the Representative from South Carolina, Mr. Wilson, during the joint session of Congress held on September 9, 2009.

The resolution passed 240-179 (10 not voting and 5 Democrats voting "present"). I don't have a fundamental problem with this resolution. Wilson (R-SC) was clearly out-of-line with his now infamous "You lie!" outburst during Obama's speech before the joint session of Congress.

However, having now followed Congressional proceeding more carefully over the last year or so, I recognize how difficult it is to bring bills and resolutions before the House floor for a vote. I think the members of the House could have spent their time on far better things this week.

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Former President Jimmy Carter then took the "You Lie" sideshow to a new level when he declared, "an overwhelming portion of the intensely demonstrated animosity toward President Barack Obama is based on the fact that he is a black man."

There is no doubt that racism still exists. It will always exist. We can parse Carter's words or recognize his historical perspective, but this just heightens an already vitriolic level of discourse in today's political debate. Nancy Pelosi (D-CA) did not help the situation by suggesting a parallel between today's rhetoric and that in San Francisco in the time of the murders of San Francisco politicians Harvey Milk and George Moscone.

It's all really a shame. There is so much opportunity for healthy and intelligent debate on the issues we face. Unfortunately, our political system and the mediatainment business both encourage trivialities, name-calling, gotcha politics, and the perpetuation of the two-party duopoly.

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Early this week marked the one year anniversary of the collapse of Lehman Brothers. We've seen a lot of ups and downs in the markets, a deepening recession, and (potentially) a technical recovery since that time. I've spent a lot of time reading and learning more about finance and economics. My general thesis for some time is that we will experience both inflation and deflation simultaneously in the future. More on this in a future article, but in the meantime, I'd recommend reading Steve Keen at Debtwatch.

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One last piece of financial news... on August 3, the SEC charged Bank of America "for misleading investors about billions of dollars of bonuses that were being paid to Merrill Lynch & Co. executives" when the government helped engineer BoA's acquisition of ML. BoA immediately agreed to settle for $30M. The SEC's press release can be read here.

Noting that the shareholders who were allegedly misled by Bank of America ultimately share the pain of a $30M payout, Judge Jed Rakoff stated:

It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct... the S.E.C. argues that this is justified because "[a] corporate penalty... sends a strong signal to shareholders that unsatisfactory corporate conduct has occurred and allows shareholders to better assess the quality and performance of management." ... [which] makes no sense when applied to the facts here... [it] is absurd.

The entire order can be read here. This is, in my opinion, an important ruling where the Judicial Branch is stepping in regarding the ridiculous Wall Street pandering of the Executive Branch. New York Attorney General Andrew Cuomo has been pursuing a suit against BoA executive on this and related matters of failures to disclose material information to shareholders. Cuomo's office sent a letter to BoA on September 8 - no new developments yet.

This could all lead to penalties against Ken Lewis and other BoA executives. It may also extend to Henry Paulson, Ben Bernanke and Tim Geithner as they were all involved in the acquisition of Merrill. Recall this article.

A More Ideal Health Care System

This will now be my fifth post on the issue of health care over the last several weeks. I will recap these posts as they establish key principles for a more ideal health care system.

In the first entry, I argued that the business of insurance should not be regulated as a public utility. While the insurance industry may exhibit "too big to fail" characteristics which must be managed, it is a fundamentally profitable business model which does not require a massive initial capital investment like other infrastructure such as roads or a power grid.

The second post then focused on the concept of rights. A government guarantee of health care provision constitutes a positive claim right against either the health care providers and/or those who are forced to fund the guarantee. The state should not support or guarantee positive claim rights as this creates a state without limitless power.

I then turned to the concepts of human needs and the social safety net in my third post. In this I concluded that a social safety net is important to meet the human need of security by protecting those who have from those who have not. This introduces the potential need for state funded health services.

In my most recent post, I presented data gathered from the World Health Organization for a comparative analysis of national health care finances (public and private) as well as services and outcomes. My conclusion is that the U.S. system is inefficient as the costs do not justify the level of service - nor are Americans more healthy as a result.

I now want to turn to the design of a more ideal health care system. I say "more ideal" because I do not want to be so arrogant to conclude that I present would be "the ideal" system. With that in mind, let's start by grouping health care services into three categories: prevention, maintenance, and emergency care. Prevention encompasses wellness and routine check-ups. Maintenance includes health services such as prescription drugs, surgeries, blood tests, and extends to things like extended hospital stays, rehabilitation and chemotherapy. I'll define emergency care as unexpected events which require immediate attention such as heart attacks and accidents - including ambulance services.

Except for the unlucky few who are born with or develop health issues or contract diseases in their youth, most of us go through life relatively healthy. A more ideal health care system would revolve around prevention and occasional maintenance services with access to emergency services. I fall into this category - most you reading this probably do too. Successful prevention should help minimize the need for maintenance and this is a two-way street. Both the patient/consumer and the doctor/provider have a role in prevention. Lifestyle choices such as diet and exercise have a clear impact on prevention; however, the advice and assistance of health care professionals can also aid in prevention. This relationship should serve as the basis of the health care industry.

The design of this relationship should ensure that the incentives for both the individual consumers and the health care professionals are aligned to provide the best care possible. It is thus in the consumer's best interest for the service provider to also want to minimize maintenance services. I would suggest that this can best be done by placing the majority of the cost burden due to maintenance upon the health care professionals. This will force an emphasis on prevention. Recall that this is a two-way street. Thus, the consumer must also have an incentive lead a health lifestyle which aids in prevention.

This structure of incentives leads me to believe that a health care subscription service might be the best fit. In this model, the individual would pay a monthly subscription to a health care provider such as a family doctor, local hospital, or possibly a new type of entity that could specialize in these services. In return for the subscription fees, the provider would offer wellness consultations, preventative services, check-ups, and basic maintenance services such as prescription drugs, blood screening, x-rays, etc. The consumer's subscription fees would be higher or lower based on lifestyle choices, the willingness to opt-in to wellness programs offered by or sanctioned by the provider, the level of service desired by the individual, and the general level of health of the individual.

In addition to providing the basic preventative and maintenance services, the provider would also be responsible for emergency costs and more expensive specialist costs when required. As these costs would be less consistent and more expensive, the provider may purchase insurance contracts which cover them in such events. This may lead to a disincentive for the provider to pay for more expensive, but often necessary, treatments. However, this would lead to a direct impact on customer satisfaction and health outcomes. In a model such as the one described, the consumer would have the ability to shop for the best plan which meets their needs. A third-party regulatory body and/or consumer advocacy groups could publish subscription levels, mortality rates, and other relevant statistics to help consumers find the best value for their money. Further, the doctor/patient relationship would have more meaning and specialization would develop where some doctors would focus more on nutrition or exercise and other may tout alternative medicines.

Another feature that I believe that consumers would demand out of such a system is a sort of price guarantee. Consumers would not want their subscription costs to fluctuate too much or be modified in the case where they develop a condition which requires a higher degree of treatment. The subscription contracts could establish a fixed price over the course of months or even years and allow for renewal at prices which do not exceed a specified price level.

In terms of affordability and emergency coverage, this system would still have gaps. Note that I do not believe that access or choice of a provider service should be linked to employment. The subscription fees should be paid out-of-pocket by the individual so that the consumer has as much control over choice as possible (while also making the costs of health care more top-of-mind). Some people will still not be able to afford such a plan. This needs to be addressed from two points: access to emergency services and provision of basic care. Emergency services can be provided via the same infrastructure as described above since, in times of emergency, service should be provided first before we understand who is paying for the services. Basic care is a bit different.

I truly and emphatically believe that basic care can be provided via non-for-profit organizations funded largely (if not completely) by charitable donations. I have no empirical evidence prepared to support such a claim; however, between private individual donations, corporate donations from health providers (sanctioned and supported by their subscribers), and, in the worst case scenario, a tax on the for-profit health care industry which directly funds not-for-profit basic care providers, I'm sure we could cover it.

There are still plenty of questions which must be asked to determine how such a system would address all the critical issues of a health care system. It would be futile to attempt a comprehensive analysis on this blog. But, I do believe that the system describes addresses misaligned incentives, affordability, and overall cost. I have not addressed senior care or those with chronic conditions. The same framework should extend to such circumstances. Two facts that we must all remember in the health care debate are that we will all die and that health care costs money (just like food, water, clothing and shelter). We cannot expect that there would ever be a system which grants everyone infinite access to all forms of health care nor one where nobody dies.

Acronyms, Acronyms and More Acronyms

I've come to realize that, for whatever reason, I'm particularly interested in minutiae as it relates to "politics." I like to study the charts that congresspersons use as props when making floor speeches and search through legislation archives looking for bills that pertain to what are, frankly, ridiculous things (like the duties on certain types of pasta products or, one of my personal favorites, improving the management of wild free-roaming horses and burros). I think perhaps I feel that so many other people out there are thinking and writing about the "bigger" political picture (not that this isn't a really good thing), that there have to be some others who are interested in the smaller things. In this vein, there is a particularly minutial issue (indeed, I don't think I should really call it an "issue" at all) that has continued to annoy me for quite a while now--the widespread practice of using rather ridiculous acronyms in the titles of official pieces of legislation.

Here are some examples of some of these acronyms (from the current Congress), but there are COUNTLESS others (I'd be curious actually to see the results of an analysis of legislation from, say, the last 5 Congresses as to the percentage of bills that use acronyms in the title):

H.R. 3379: LOPSIDED Oil Prices Act of 2009 (Lowering Oil Speculation for Infrastructure Dedicated to Economic Development)

S. 1588: STOP Act (Stop Tax-breaks for Oil Profiteering Act)

H.R. 3295: RISE Act of 2009 (Removing Impediments to Students Education)

H.R. 3168: U.S. OUTDOOR Act (United States Optimal Use of Trade to Develop Outerwear and Outdoor Recreation)

H.R. 3222: AWARE Act (Adolescent Web Awareness Requires Education)

H.R. 2932: Stop VULTURE Funds Act (Stop Very Unscrupulous Loan Transfers from Underprivileged countries to Rich, Exploitive Funds)

H.R. 2681: P.R.O.U.D. Act (People Resolved to Obtain an Understanding of Democracy)

H.R. 3583: ASPIRE Act (American Samoa Protection of Industry, Resources, and Employment)

H.R. 3577: EARNED Act of 2009 (Education Assistance to Realign New Eligibilities for Dependents)

I could keep going forever, but I'm sure you get the picture. It's quite likely that I'm just odd, but I honestly find this horribly annoying. It very nearly makes me shudder to think of how much taxpayer-funded work/time went into JUST coming up with these immensely clever (sarcasm) bill titles. I think this is the reason why I'm so interested in digging around to find such seemingly trivial political "issues" -- it annoys the hell out of me to think of all the time spent by our congresspeople (perhaps not directly but via their staffers for certain), and also taxpayer dollars, on such stupid things at a time when there are certainly many gravely significant problems facing our country. So, yeah, it really does bother me that surely a reasonably significant amount of time and effort was put into figuring out how to create a bill title that fit the purpose of the bill and, more importantly, fit to the acronym LOPSIDED (because it's obvious that the acronym came before the actual title). I can't help but think that the time, effort and even creativity spent coming up with these titles could be put to much, much better use...although, at the same time I think I'm probably giving these bill writers too much credit. If I were in Congress, I think I would introduce a bill called the STUPID Act or something like that...it really doesn't matter that I don't know now what it stands for; I'll just leave that to my staffers to figure out.

Loose Ends... Vol. LX

It's late and the Bears lost, so I'm none too happy.

Here's a good read from the Huffington Post on the relationship between the Federal Reserve and the academic world of economics.

Health Care Statistics

This will be less thorough and analytical as I had initially hoped. There is so much information out there that could be researched and analyzed. However, I have gathered some key statistics from the World Health Organization which I believe shed some light on the state of health care in the U.S.

We are going to explore some data revolving around two broad categories: health care spending and general health care data. In the first table below, we take a look at government expenditures on health care as a percentage of GDP. The eighteen countries represented include the largest countries in the world as measured by GDP as well as a select few others based on either high per capita GDP and/or the Human Development Index.

Source: WHO Statistical Information System

A few things jump out in this first set of data. The so-called "BRIC" countries of Brazil, Russia, India and China have substantially lower volumes of government spending as compared to the other countries. The BRIC countries aside, the other countries range from 5.8% to 8.8% with a mean of about 7.0%. The U.S. is right in the middle at 7.0%. Incidentally, this places the U.S. at number two (behind Norway) in terms of per capita government spending on health care.

In this second table, we look at private (non-government) spending on health care as a percentage of GDP. This table tells a much different story with the U.S. leading the way at 8.3% and no other country coming even close. It does not take a view of the data to quickly recognize that the U.S. spends far more on health care than any other country in the world. We rank number one in per capita spending, spending as a percent of GDP, and, of course, in total nominal spending.

Source: WHO Statistical Information System

The key difference in the health care infrastructure between the U.S. and the other countries presented (the BRICs excluded) is that while the U.S. government appears to spend an ample amount on health care, there is also more than double the expense coming out of the private sector. This expense would only seem justified if there is either a structural need for higher health care expenses and/or the health care services are much better in the U.S.

This third table looks at some key health indicators for the same countries as above with the exclusion of the BRICs. As you can see, the U.S. has the highest adult mortality rate, mortality rate due to non-communicable diseases, and obesity rate. Our obesity rate is truly off the charts. The U.S. is below average in alcohol consumption and tobacco use. The obesity rate is the only factor of these which may suggest there is a systemic need for higher health care expenditures in the U.S. However, one may argue that the high obesity rate is an indicator of a problem with the system in general.

Source: WHO Statistical Information System; data definitions available upon request.

In the next table, we look at the number of hospital beds and physicians per 10,000 residents as a proxy of the level of service. This is clearly not the only way to measure service, but it does provide a reasonable snapshot of whether or not the higher spending in the U.S. actually results in more bed or physicians. It does not.

Source: WHO Statistical Information System

Health care outcomes are difficult to measure. Life expectancy at birth is lower in the U.S. when compared to the other top countries. If you consider the obesity problem a symptom of poor outcomes (or poor prevention) rather than some sort of disease or epidemic, than that would also point to a less effective system in the U.S. Infant and neonatal mortality rates are higher in the U.S., but so is the adolescent fertility rate which may explain the disparity.

All in all, it would appear that the public/private mix in the U.S. does not appear to provide the level of service or outcomes which would warrant the higher expenses that we have here. Reform is needed in this country as much of the inefficiency, in my opinion, is the result of regulation and legislation.