While much of medical spending is just waste big bucks make for better outcomes when you come in near death.
Studies have shown that regions spending more on medical care, such as Miami, do not have better health outcomes than regions that spend relatively less, such as Minneapolis. However, less is known about how medical spending affects health at certain critical times, such as in the immediate period after a patient is admitted to the hospital with a life-threatening condition.
When hospitalized for a major acute medical condition — including heart attack, stroke and pneumonia — patients were less likely to die in high-spending hospitals, according to a new study appearing in the Feb. 1 issue of the Annals of Internal Medicine.
The findings inform the ongoing discussion on how to curb health care spending.
"Our findings suggest that while regions spending more on health care generally produce no better care, specific types of medical spending, such as acute-care hospital spending, may save lives," said John Romley, an author of the study and an economist with the Schaeffer Center for Health Policy and Economics at USC, which is supported by the USC School of Policy, Planning, and Development and the USC School of Pharmacy.
If you must have a heart attack do it near a hospital that generates high costs per patient.
For example, from 2004 to 2008, patients admitted for heart attack to the top-spending hospitals were 19 percent less likely to die than patients admitted to the lowest-spending hospitals. From 1999 to 2003, patients admitted for heart attack were 9 percent less likely to die at the highest-spending hospitals than at the lowest-spending hospitals.
"Adjusted inpatient mortality was negatively associated with hospital spending for all six diagnoses, meaning those admitted to hospitals that spent the most were less likely to die in the hospital than were patients admitted to hospitals that spent the least," said Goldman, Norman Topping Chair in Medicine and Public Policy at USC and director of the Schaeffer Center at USC.
What I wonder: Are technological advances increasing the power of the most intense forms of treatment in response to acute crises?
Another way to avoid dying in a hospital: Go to a hospital that follows checklists of best practices. Yes, it is necessary for top-down rules to enforce best practices on doctors and nurses. In absence of a checklist hospital workers make many more mistakes and do not follow best practices and lots of people die as a result.
Data released today by the National Science Foundation show the recent economic recession had less effect on doctoral degree holders in science, engineering and health (SEH) fields than it did on the general population.
According to a new NSF report, the unemployment rate in October 2008 for SEH doctorate recipients was 1.7 percent, whereas the unemployment rate for the total U.S. labor force was 6.6 percent.
One big advantage they have: When they can't get jobs using Ph.D.-level skills they can move down to take lower paying jobs and less prestigious jobs. Their IQs are high enough they can easily adapt. Take someone whose skills are so limited they can't do more than wash dishes or mop floors. Say they get laid off. They can't make trade-offs to accept a lousier job at lower pay if they already were at minimum wage working the night shift .
Michael Mandel writes a great blog. Our masters are making more while large parts of the private sector lose ground.
This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from 2000 to 2009 (all in 2009 dollars). Next biggest was state and local government, which generated $151 billion in real wage gains. (The exact numbers change a lot if I change the end dates, but the pattern stays the same).
On the other hand, the big losers were manufacturing (-$245 billion), information (-$56 billion), retail trade (-$24 billion), and transportation and warehousing (-$6 billion). It’s interesting that the industries in the global supply chain were the big losers in real wages, but I’m not sure quite what to make of it.
Because some industries took it on the chin and experienced big losses the total dollar gain in private sector compensation from 2000 to 2009 was less than the total compensation gain among government workers. So federal government got 18% of total wage gains, state and local government got 37% and the private sector (which is of course far larger than state and local government) got only 45%. In the 2000 oughts the government became a bigger parasite on the private sector. Government and health care workers made out. Rich people did extremely well and their fates and interests are diverging from that of the bulk of the citizenry. The rest of us? Not so much.
At the state and local level I expect the rise in compensation for government employees to slow or even reverse. The unfunded retirement plans and public opposition to higher taxes combined with continued slow economic growth are squeezing state and local governments. The public has lost patience.
Another compensation pattern Mandel reported in a recent post: the gap between the most and least educated continues to rise. In a nutshell, the manual laborers are eating it. A huge influx of illegal aliens is swelling the ranks of the least skilled while much of the lower skilled manufacturing work is getting shipped abroad and eliminated by automation.
On a related note, I have just ordered Tyler Cowen's new Kindle book for $4: The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. He comments on it here and here.
As part of a rant about a double standard with regard to child pornography where movies and TV shows produced by large corporations can portray very sexualized teenagers Ferdinand Bardamu points out children are entering into puberty about 4-5 years sooner than they used to be. Where he gets it wrong is by arguing those kids are ready to handle their sexuality at the age of 12 or 13.
Mocking tone aside, am I the only one who’s noticed that as children sexually mature at younger and younger ages, we become more and more obsessed with protecting them from actual sex? For example, as late as 1850, the average age of menarche among European girls was 17 – now it’s 12-13. (Yes, that means that by modern standards, all of your ancestors were pedophiles. Pious Puritans, feminist or conservative, feel free to commit mass suicide to wash away the shame.) Children are clearly capable of taking on adult responsibilities at younger ages, yet our society is set up to prolong their adolescence as long as possible.
My take: The early puberty is a recent development that teens are not ready to handle. Sexual development should be delayed in order to give kids time to grow up and to avoid the cost for the rest of us that come from teen pregnancies.
The high calorie and high carbohydrate modern diet (irresponsibly blessed by the USDA food pyramid that supports big agricultural interests) is a likely cause of earlier menarche. Sugar and insulin probably accelerate puberty just as they probably cause myopia (more here). The brains of these kids do not go thru accelerated maturity as a result of the sugar and insulin that causes the early puberty. So arguing that they are ready to handle all the consequences is just plain wrong. They lack the education and job skills needed to support babies. They lack the emotional and intellectual maturity required for wise child raising.
In young girls at risk of early puberty and insulin resistance, the diabetes drug metformin delayed the onset of menstruation and decreased the development of insulin resistance, a risk factor for type 2 diabetes, according to a new study. The results were presented Monday, June 16, at The Endocrine Society's 90th Annual Meeting in San Francisco.
"The findings indicate that we can slow down puberty," said the study's senior author, Lourdes Ibanez, MD, PhD, of the University of Barcelona in Spain. "This is important because when puberty is faster in girls, the appearance of menses occurs earlier, and this sequence of events may ultimately result in a shorter adult height."
Get kids off the diets that cause early puberty and we will cut teen pregnancy, single motherhood, the ranks of welfare recipients, and high school drop-out rates. For how to do it see Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health by Gary Taubes.
Michael Mandel continues to flesh out his thoughts on knowledge capital flows and why Americans are feeling poorer/ Mandel sees China's exchange rate policy as a tool China uses to cause knowledge flows into China. This devalues US knowledge capital.
The short summary: The Chinese policy of buying dollars can be best understood as an indirect purchase of U.S. knowledge capital–technology and business know-how. That, in a nutshell, is why we feel poorer today. Unless the Obama Administration understands the link between the undervalued yuan and the global flows of knowledge capital, negotiations with China are doomed to fail.
He does not mention China's other tools for grabbing intellectual property. For example, it will require foreign sellers to use Chinese suppliers and it will force foreign suppliers into business partnerships with Chinese companies with IP flow into the Chinese partners. China's trying to force foreign car makers to turn over their electric car technology to Chinese companies for example.
The crux of Mandel's argument.
Consider this. When China keeps the yuan low, that’s an inducement for U.S.-based companies to set up factories and research facilities in China, both for sale in China and for imports back to the U.S. . And that, in turn, requires a transfer of technology and business know-how from the U.S. to China.
Sounds right to me. Mandel argues for a change in the dollar-yuan exchange rate in order to slow the flow of knowledge capital to China. I think we need a multi-prong strategy to slow that flow including a trade policy that opposes Chinese mercantilism. One of the factors driving manufacturing to China (and pulling a lot of engineering along with it) is the Chinese government's subsidies for key industries. Our tariffs and other trade rules should be shaped to reduce China's ability to gain so much from their mercantilism.
We also need less naive Western corporate management. But part of the problem with corporate management is their short time horizons. If you are obsessed with earnings over the next couple of years you are going to put less weight on the longer term impacts of, say, letting software developers in your China office get access to your full source code base.
Also see my previous posts Rapid Knowledge Spread Lowers Western Growth and Boeing Depleting Intellectual Capital With Suppliers?.
Tyler Cowen responds to Paul Krugman and Scott Sumner on whether the zero marginal product worker problem is growing. In other words, how many people have productivity which is so low that they are not worth hiring? Is that fraction of the total labor force growing? Tyler thinks it might be. Some other economists are skeptical. I'm in the "of course it is happening" camp.
4. For another take on #3, during the job-destroying periods of 2009, per hour labor productivity growth is rising at astonishing rates, try 3.4, 8.4, 7, and 6 percent, each quarter, annualized. That's not just the regular accretion of technological progress (though some of it may be), it is an artifact from dumping lower quality and zero MP workers. If I look in the second quarter and see labor hours go down 7.9 percent and see per hour productivity rise 8.4 percent, well, that's no proof but I sure go hmm....
5. I would not take it for granted that "normal" productivity growth continues in times of shock and crisis. Maybe yes, maybe no. Scott's talk of the "trend rate" is assuming that the growth and cyclical components are separable and that is begging part of the question.
6. The zero MP hypothesis helps explain why unemployment is so much more severe among the less educated and the lower earners. In contrast, Krugman writes: "As Mike Konczal points out, basically everyone’s unemployment rate has doubled, no matter their education level or location." In reality, that kind of multiplicative relationship is very much consistent with joint AS-AD determination, including a zero MP for many workers in the equilibrium. I'll write an entire blog post on that question soon, and then we'll see that this result actually discriminates against pure AD theories or is at best a neutral pointer.
One of the reasons I think this problem is real is a trend toward companies where the ratio of smarter to dumber workers is very high. The classical big industrial companies which reached their apex in the middle of the 20th century (e.g. General Motors and the other manufacturers) had a small fraction of smart people working as engineers and managers and a much larger work force doing fairly simple tasks which did not require great intellectual skills. Some of the assembly line workers no doubt were smart back before college education was rare. But the jobs did not require much intellectual ability.
Smart people innovated and employed large numbers of less intelligent people to produce what they developed. That's increasingly not how the world works any longer. The ratio of factory workers to engineers (and software developers) has plummeted as the number of factory workers plummeted and the number of engineering workers soared. Michael Mandel recently pointed out that computer software engineer employment in the US has already surpassed the pre-downturn levels of 2007 and 2008. In Silicon Valley the social media companies are bidding up developer salaries.
Unemployment among lower earning workers is extremely high. Tyler on ZMP workers back in July 2010:
There is another striking fact about the recession, namely that unemployment is quite low for highly educated workers but about sixteen percent for the less educated workers with no high school degree. (When it comes to income groups, the lowest decile has an unemployment rate of over thirty percent, while it is three percent for the highest decile; I'm not sure of the time horizon for that income measure.) This is consistent with the zero marginal product hypothesis, and yet few analysts ask whether their preferred explanation for unemployment addresses this pattern.
Philip Greenspun points out that office work has become more intellectually demanding and the costs of mistakes have risen.
Computer networks, however, have made the potential costs of a clueless or careless office worker dramatically higher. Suppose that a company hires a low-skill not-very-alert office worker for $10/hour. This person accepts an email invitation to follow a hyperlink. One click later and the company’s network is infected with a virus. Best case: IT department spends $50,000 cleaning up; worst case: customer lists, customer credit cards, and other private data are compromised, costing millions of dollars.
Arnold Kling points out that in previous recessions output used to fall less than employment as corporations wanted to retain people to use after recessions ended. But not any more.
Until the most recent recessions, the tendency was for output to fluctuate more than employment. Thus, if you drew a trend line for productivity growth, productivity growth would be below trend during recessions and above trend during booms. The more recent recessions, particularly in 2001 and in 2007-2009, have not followed this pattern.
Nick Rowe points out Spain and Ireland also have experienced rising productivity during the latest recession. Nick speculates this is due to lay-offs of construction workers who have fairly low productivity. But the US also experienced rising productivity in 2001. That was a result of the dot com bubble bursting.
Also see my previous post The Rise Of Zero Marginal Product Workers.
After listing some recent murders Ted calls for good people to be ready to stop evil people.
It is hard - almost impossible - for people of good will to fathom the depth of evil that resides in the soulless monsters who commit these senseless, violent and deadly crimes.
Regardless of whether we can fathom the evil and carnage that some rabid monsters do, we must be prepared and ready to respond to evil at a moment's notice. We can't depend on law enforcement, professional and brave as its members are, to protect us from murdering, psychotic monsters.
How does Ted think evil should be stopped? Hint: Ted does "Kiss My Glock".
The American Left talks a big game about multiculturalism, singing its praises. But I have long been skeptical that they really believe their own rhetoric. More likely they want to use assorted cultures as props for their own attack on America's own old culture in particular. These thoughts back to me when reading the now moderately famous Wall Street Journal article by Yale Law Prof Amy Chua: Why Chinese Mothers Are Superior.
Hey, she thinks her culture is superior to decadent indulgent permissive Western culture, at least when it comes to child-rearing. Imagine that. She does not see Chinese culture as just a bunch of endearing differences in how to dress, eat or do architecture. Nope. She knows that since cultures differ in substantial ways they cause differences in outcomes. She's even developed this argument a book titled Battle Hymn of the Tiger Mother. Note that it only gets 3 stars in Amazon. Some of the 1 and 2 star reviews accuse her of child abuse as have some of the commentaries written in response to her WSJ article. Chua has even received death threats.
In the week since The Wall Street Journal published an excerpt of the new book by Amy Chua, a Yale law professor, under the headline “Why Chinese Mothers Are Superior,” Ms. Chua has received death threats, she says, and “hundreds, hundreds” of e-mails. The excerpt generated more than 5,000 comments on the newspaper’s Web site, and countless blog entries referring in shorthand to “that Tiger Mother.” Some argued that the parents of all those Asians among Harvard’s chosen few must be doing something right; many called Ms. Chua a “monster” or “nuts” — and a very savvy provocateur.
If her book shocks some mothers into cutting way back on TV access for their kids it might serve a useful purpose. But Chinese parenting practices aren't going to turn dumb kids into smart kids.
A lot of people wonder how Chinese parents raise such stereotypically successful kids. They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too. Well, I can tell them, because I've done it. Here are some things my daughters, Sophia and Louisa, were never allowed to do:
She goes on to list assorted recreational diversions including sleepovers, participating in school plays, watching TV, and playing on the computer. Her yelling at her kids and strict demands for performance are seen as child abuse and bullying by many of her critics.
My take: She's lucky her daughters were smart enough to perform to her expectations. If their parents didn't have genes capable of making them both Yale Law School profs the daughters wouldn't have had the brains to achieve what she wanted them to do. Steve Sailer says her previous writings show Chua's got guts. I agree. She's not just sucking up the conventional wisdom. But I think she gives too much credit for her parenting for how her daughters turned out. Charles Murray sees smart genes at work.
To get a little bit serious: large numbers of talented children everywhere would profit from Chua’s approach, and instead are frittering away their gifts—they’re nice kids, not brats, but they are also self-indulgent and inclined to make excuses for themselves. There are also large numbers of children who are not especially talented, but would do a lot better in school if their parents applied the same intense home supplements to their classroom work.
But genes play a big role in whether you can demand that your child get an A in advanced calculus or make first seat in the violin section of the orchestra. With that in mind, let’s contemplate the genes being fed into those Chua children who are doing so well.
Maternal grandfather: EE and computer sciences professor at Berkeley, known as the father of nonlinear circuit theory and cellular neural networks.
Mother: able to get into Harvard (a much better indicator of her IQ than the magna cum laude in economics that she got there); Executive Editor of the Law Review at Harvard Law School.
Father: Summa cum laude from Princeton and magna cum laude from Harvard Law School, now a chaired professor at Yale Law School.
We are at the tail end of the era when the importance of genes can be denied and cultural views battle each other with genetic influences totally ignored. Why are we at the tail end of this era? Plummeting genetic sequencing costs are shortly going to enable the level of data collection needed to discover all the alleles that each small contributions to intelligence.
Time for another small diversion from politics. At Dan Morgan's suggestion watch Wilhelm Kempff dazzle on the keyboard.
He's no spring chicken. But what coordination.
Mulally traveled Wednesday to Washington, where he pressed U.S. Trade Representative Ron Kirk and the Obama administration to make sure that a provision to eliminate U.S. tariffs on imported Korean cars was accompanied by countermeasures that would increase access to the Korean auto market for American companies.
Alan Mulally thinks South Korean Ford customers should not be targeted with a tax audit just because they bought a Ford. This should give you a sense of some of the reasons why the US runs a big trade deficit.
Specifically, Mulally insisted that the U.S. tariffs be rolled back over time, rather than immediately, to make sure Korea held up its end of the bargain. He also pushed for non-tariff barriers be lifted and that a tough enforcement mechanism be implemented. Ford had complained, for instance, that Korea limited the hours that foreign brands could advertise, audited the tax returns of import car owners and manipulated its currency to protect Korean carmakers.
That's not cricket.
BEIJING — Aided by at least $43 million in assistance from the government of Massachusetts and an innovative solar energy technology, Evergreen Solar emerged in the last three years as the third-largest maker of solar panels in the United States.
...when you can partner with a Chinese company eligible for big government subsidies?
But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China.
What worries me: The giant sucking sound of US intellectual property going abroad. US policy is still shaped around a previous era's conditions. US innovation no longer leads to US factories or, in many cases, even a large trail of supporting engineers to productize an innovation. Former Intel CEO Andy Grove understands what mainstream economists, policy makers, and their glee club hasn't cottoned onto yet.
The United States has a big trade deficit problem that is about to get bigger.
Joseph Gagnon is worried. Mr. Gagnon, a former Federal Reserve economist now at the Peterson Institute, contends in a new paper that the world’s financial imbalances — such as China’s trade surplus and the United States’ trade deficit — will probably return to record levels in coming years.
The rising price of oil is going to make the trade deficit worse as well. I foresee a vicious cycle where the trade deficit drives down the value of the dollar and therefore drives up the price of oil more in dollars than in other currencies. As you make decisions on where to live and work and what to drive prepare for higher gasoline prices.
Using international corruption rating data from Transparency International a group of researchers find that the vast majority of earthquake deaths occur in the most corrupt nations.
A new assessment of global earthquake fatalities over the past three decades indicates that 83 percent of all deaths caused by the collapse of buildings during earthquakes occurred in countries considered to be unusually corrupt.
Authored by Professor Nicholas Ambraseys of the Imperial College of London and Professor Roger Bilham of the University Colorado at Boulder, the study also found that in some relatively wealthy countries where knowledge and sound business practices would be expected to prevail, the collapse of many buildings is nevertheless attributable to corrupt building practices.
Corruption and wealth are highly negatively correlated. So one might attribute the low standards for construction as resulting from lack of resources to build strong buildings.
The authors determined that there is roughly a one-to-one relationship between a nations' wealth and its perceived level of corruption. "Less wealthy nations are the most corrupt," said Bilham, also a fellow in the CU-Boulder based Cooperative Institute for Research in Environmental Sciences. "We found that fully 83 percent of all deaths from earthquakes in the last 30 years have occurred in nations where corruption is both widespread and worse than expected."
But more corrupt yet relatively more wealthy countries (e.g. nations that have lots of oil) have higher levels of death from earthquakes. So the corruption appears decisive.
"Corruption is found to be far worse in some countries than others, despite a measure of wealth that tells us they should do better," said Bilham. "It is in the countries that have abnormally high levels of corruption where we find most of the world's deaths from earthquakes."
A country's immigration policy should be designed to build up a populace that is averse to corruption and likely to oppose it. Since Finland is the least corrupt country in the world Finns should be most welcome.
Proposals to increase Tricare fees will pit Mr. Gates against those in Congress — and veterans’ groups — who say retired military personnel already have paid up front with service in uniform. Ten years ago, health care cost the Pentagon $19 billion; today, it tops $50 billion; five years from now it is projected to cost $65 billion.
- 2010 Budget: $112.8 billion (total including collections) – $55.9 billion in discretionary funding (including collections) and $56.9 billion in mandatory funding
- Enacted 2009: $97.7 billion (total including collections) -- $50.4 billion in discretionary funding (including collections, not including ARRA funds) and $47.3 billion in mandatory funding
To honor America’s veterans and expand the services they receive, the Fiscal Year 2010 budget increases funding for the Department of Veterans Affairs by $25 billion over the next five years. The budget includes an 11 percent increase in resources for a discretionary funding level of $55.9 billion. The budget increases health care funding for veterans, enabling the VA to provide timely, high-quality care to 5.5 million veterans, develop Centers of Excellence, and enhance access to mental health and cognitive care. It also restores health care eligibility for modest-income veterans, steps up investment in technology for the delivery of services and benefits to veterans, and provides improved benefits for veterans who are medically retired from active duty. The budget provides for a collaborative pilot program with non-profit organizations to help veterans avoid homelessness, and for the timely implementation of the Post-9/11 GI Bill to Americans who have served the country though military duty.
In fact, the VA's budget alone is bigger than the military budget for any other nation in the world except for China. Combined with the DOD's budget they together spend more on medical care than any other country spends on their military.
The US military should lead the way in automating health care. Use expert systems and robots. Embrace microfluidics to cut testing costs.
Using the National Longitudinal Study of Adolescent Health some Duke and Boston College researchers have published a research paper Terms of Endearment", that shows high school freshmen boys have the hardest time getting girls to say yes to sex and high school senior girls feel the strongest incentives to say yes.
A tamer version of that observation is borne out in the economists' work among high schoolers. Unsurprisingly, the majority of high school boys want to have sex (though only 47.6 percent of freshmen boys do). Unsurprisingly, the majority of high school girls do not (though 50.1 percent of senior girls do). Over the course of four years, the power shifts from the freshman girls who don't want to have sex to the senior boys who do.
The conclusion? Though high-school girls don't really want to have sex, many more of them end up doing so in order to "match" with a high-school boy. For them, a relationship at some point becomes more important than purity. Because of that phenomenon, in schools with more boys than girls, the girls hold more cards and have less sex. Where there are more girls, the male preference for sex tends to win out.
The senior guys are most desired and they prefer younger girls. So the senior girls are at a competitive disadvantage and so offer more sexual favors. This prepares the college-bound girls for the sex and relationship market they'll encounter in college. Once in college the girls who aren't absolute hotties will offer themselves up pretty easily to the Lacrosse team.
After participating in the sexual marketplace dangerous bitterness over disappointments can result. The truth about human sexuality is not pretty.
Most violent crime is the result of one person trying to take another person's cash, whether it's an addict robbing a convenience store or one dealer robbing another, says Wright. If cash isn't available to steal, the opportunities to commit crimes dwindle. At the same time, the drug trade, which relies on cash at the ground level and drives a large portion of violent crime, withers. Sure, drug dealers can still transfer funds electronically, but only at high levels. Street dealers are unlikely to use credit card swipe machines anytime soon.
Debit cards are much harder to use because you need to know the PIN. Criminals have been known to force someone to go to an ATM with their card and withdraw money. But then the criminals have basically ratched up their crime to include kidnapping. Plus, the ATM has a camera that might catch the criminals standing near the kidnapped debit card holder.
Another technological change cutting crime: cell phones. People can call the police to summons help as soon as they see a crime being committed. So criminals are more likely to still be at a crime scene when police arrive. Also, a rising number of cell phones have cameras built in. So victims and witnesses to crimes are more likely to snap pictures of the criminals in action.
In the longer run it will become possible to wear a camera that transmits images of nearby people to a server that will do facial recognition and will be able to report when a criminal is anywhere near you. Criminal movements will be tracked in this manner. Also, more buildings and cars will have cameras on them to provide records of crimes.
Following in the footsteps of Hungary takes from the prudent savers to give to the spendthrifts.
The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.
The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.
Following in the footsteps of the perfidious Cristina Kirchner of Argentina an assortment of European countries is draining pension money to pay for current deficits. Poland, France, and Ireland are all, in a variety of ways, taking from either individual retirees or large retirement funds.
Even though the US government has crossed the Bernholz warming limit on deficit spending and huge deficits stretch out for years I do not expect the US government will seize personal retirement accounts. More likely it will reduce the size of tax deductions for contributions to such accounts. So you are better off putting as much into such accounts until retirement account contribution limits get lowered.
What I want to know: Once the US sovereign debt crisis develops to an acute crisis stage will most of the account balancing be done by tax increases, spending cuts, or inflation?
Writing in Foreign Policy Paul Miller offers the most realistic portrait of Afghan President Hamid Karzai.
But Karzai is acting fairly rationally given the constraints and pressures he faces. He is head of a government that for most intents and purposes does not function, no matter what he decides. He faces an insurgency that seems to have staying power and an international force that does not. He faces a parliament that is unwieldy at best, openly hostile at worst. He "appoints" governors who likely still have their own private armies (which he lacks), who often wield more effective power than he does, and who only recently took sides in a ruinous civil war -- the renewal of which is always a tacit threat hanging like a Damocles Sword over Karzai's head. Karzai faces an impossible balancing act.
Afghanistan probably can not be ruled by any group other than a bunch of Muslim clerics - and even they would rule only weakly. Afghanistan's people have loyalties to extended family and tribe (due to consanguineous marriage) that are so strong that there's little loyalty remaining to give to a central government. So Western attempts to conceptualize Karzai as a Western leader and analyze his moves and failures (and corruption) by Western standards totally miss the boat.
But in response, Karzai does not have many options. His "decisions" don't actually change reality so much as they express intent or exhibit symbols. In the face of his many challenges, almost the only tools he has are words. If he wants to protest air strikes or home raids, he makes dramatic statements about a "foreign occupation." If he feels threatened by conservatives and warlords, he starts to burnish his Islamic credentials and sound populist rhetoric. If he believes the Taliban are winning and the international community is withdrawing, he threatens to switch sides. None of these words stem from real beliefs so much as they simply reflect whichever pressure Karzai feels most urgently at the moment.
Read the whole post. It underscores how little the United States can hope to accomplish in Afghanistan other than waste blood and money.
Caption: "The Carmina Quartet (Matthias Enderle, violin 1, Susanne Frank, violin 2, Wendy Champney, viola & Stephan Goerner, violoncello) plays the fourth movement ("Fandango") from Boccherini's Guitar Quintet G. 448 in D Major. With Rolf Lislevand, guitar and Nina Corti, castanets."
You can go to that web page and click on other performances of the same piece.
I think we need the uplift of music as we ponder the economic, political, and societal problems of the day. Got any other suggestions for video music postings?
Tyler Cowen points to a Foreign Policy article he wrote with Jayme Lemke: 10 Percent Unemployment Forever? Why the good news about the economy doesn't necessarily mean that jobs are coming back anytime soon.
As time passes, it is harder to avoid the notion that a lot of those old jobs simply weren't adding much to the economy. Except for the height of the housing boom -- October 2007 through June 2008 -- real GDP is now higher than it has been in the entirety of U.S. history. The fact that the United States has pre-crisis levels of output with fewer workers raises doubts as to whether those additional workers were producing very much in the first place. If a business owner fires 10 people and a year later output is almost back to normal, it's pretty hard to make the argument that they were doing much in the first place.
They argue that during good times employers were reluctant to invest the effort to identify and lay off the least productive workers and that employers feared the morale effects of doing so. I'm skeptical about the latter explanation. Seems like other perverse internal incentives prevented the needed lay-offs. I've seen organizations that should have cut back even more than they ended up doing so that they could partially replace some workers with better new hires. The result would have been much higher productivity.
Automation and outsourcing have created a large subpopulation that is not worth the cost of hiring, training, insuring, and managing. The management cost is a really big one. A highly motivated talented worker requires far less management labor to keep them busy. If you've never managed people look for an opportunity to try it and see what I mean. Many of the simple highly repetitive tasks that require less management oversight (once you screw on one bolt just keep doing the same the next time a nut and bolt show up in front of you) have been automated and no longer are human jobs.
In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves -- and arguably bad for society at large -- but it simply doesn't damage profits much. It's a cold, hard reality, and one that we will have to deal with, one way or another.
Note that labor market regulations that make it hard to screen and hard to fire people effectively raise the threshold for how productive you have to be to get a job. If employers could more easily try out lots of workers with lower skills and questionable motivation then disappointing results would be easier to deal with by firing the disappointments. But lighter labor market regulation would just delay the rise of zero marginal product workers.
In a recent article at the Singularity Hub Drew Halley reports on other economists who see automation as pushing up unemployment.
Are robots creating a jobless recovery? A recent forecast by the UCLA Anderson School of Business echoes a common refrain in economic circles: as the economy recovers, jobs might not. The report, released last week, expects that the nation’s GDP will continue to pick up steam next year, but that unemployment will likely remain above 9% for most of 2011. Among their reasons for slow job growth? Automation.
Robots, big server software, web interfaces, very cheap labor in south Asia, and other factors are cutting demand for marginal workers in America and other Western nations.
Edward Leamer, the director of the forecast, told the LA Times: “If you have nothing to offer the job market that cannot be supplied better and cheaper by Robots, Far-away Foreigners, Recent Immigrants or Microprocessors, expect it to be exceedingly difficult to find the job to which you aspire, and plan on doing low-wage service work at the end of a long and painful road of diminished aspirations, no matter what your diploma may suggest.” Not exactly a beacon of hope, Leamer.
American immigration policy ought to be radically changed to a highly skilled-based set of qualifications and illegal immigration should be stopped and reverse. That would slow the growth of the problem of unemployable people.
See how the higher income people pay far more in taxes. This suggests an obvious solution to the government financing crisis. Anyone see what it is?
In 2005, the richest 13.5% of California taxpayers (or those earning more than $100,000) paid 83% of all income taxes. Capital gains from the top 5% of taxpayers accounted for $100 billion out of the $111 billion in total capital gains reported.
“Those revenues rise and fall dramatically with the stock market, resulting in California’s unstable and volatile revenue stream,” the state Controller wrote.
After careful consideration of Reihan Salam's first post on "Threshold Earners" (people who stop working so hard because they have enough money) and his comment about fellow elite university grads (he's a Harvard alum) who choose occupations that do not maximize their earning potential or wealth generation capacity I began to see a deep problem in American society which I had previously missed.
Why is America no longer doing as well as it should? Why have wages for the lower classes stagnated for decades? The answer: Many of the smart potential big income earners, company builders, and potentially excessively high taxpayers are shirking their duties. All those non-profit organization directors with MBAs from Harvard who lecture us about what we ought to do about Africa, medically uninsured mothers, and countless other causes are failing to pay their share of taxes. When Marx said "from each according to his ability" (or was it Lenin?) what did these Ivy Leaguers think he was talking about? Running an NGO? Nope. Profit, profit, capitalistic profit.
What can we do about this problem? People choose higher paying jobs in part to get better working conditions. This suggests an obvious solution to our massive government deficits and looming unfunded entitlements disaster: Make lower salary jobs for higher IQ workers so unpleasant that people will be forced into higher paying jobs that generate more tax revenue. If you've got a degree from Princeton or Yale and you aren't bringing in $100k per year by the time you are 30 then your taxes should go up. Why hasn't anyone else thought of this idea?
And another thing: "Threshold earners" are increasing income inequality by making the upper class much too small. If they went for making far more money then the upper class would become so big it'd become the middle class.
Next time you hear someone morally posture as superior because they are a teacher or a writer or an NGO fund raiser refuse to grant them the moral high ground. Lecture them right back and demand they stop hurting our society with their selfish career choices that generate no wealth. If they went into the private sector and earned big bucks starting companies and leading existing companies to greater success their spending and job creation would skyrocket and the unemployment rate for our poorest sectors of society would plummet. Costs of government social programs would plummet while government tax revenues would surge.
This might sound like biting social commentary and sarcastic barbs at our intellectual elite. But it has the added virtue of being true.
Update: I see from comments I've got to hit my point with a sledge hammer: The lower paying jobs I am referring to are the ones taken by smarter people who could earn much more in more productive jobs: managers at do-gooder foundations, NGOs, the United Nations (maybe not so low paid), theater directors, and other jobs that require lots of brains but do not pay well. The problem we have is that lots of smart Ivy Leaguers pass up on the opportunity to make more money and do more useful work as engineers, engineering managers, pharmaceutical lab managers, factory designers, nanotech researchers, and other occupations key to the most wealth-producing parts of the economy.
If you have an Ivy or even second tier college degree and you are, say, director or fund raiser for a museum or librarian at some college or city library or administrator for an obsolete bricks-and-mortar college you are basically dodging the most productive sectors of the economy. This selfish choice of careers has two negative impacts on the rest of society:
Smart avoiders (smart shirkers? that sounds even better) mostly pose as morally superior SWPLs. But let us call them what they really are: massively callously selfish. Their pursuit of psychic income (pleasurable intellectual work in low stress occupations) enables them to evade real taxes on real income and reduces their contributions to the rest of society.
Dennis Mangan points to a NY Times article on Europeans who educated themselves in parasitic subjects and then found there aren't enough jobs available for parasites.
“They call us the lost generation,” said Coral Herrera Gómez, 33, who has a Ph.D. in humanities but still lives with her parents in Madrid because she cannot find steady work. “I’m not young,” she added over coffee recently, “but I’m not an adult with a job, either.”
She can not find steady work teaching humanities. The government isn't taxing the more productive enough to subsidize the smart shirkers. The NY Times article describes people who have trained to be government bureaucrats who can't get any smart shirker jobs. I say great news! Europe needs large cut-backs in shirker jobs to force people into less shirky jobs.
Dennis Mangan thinks the era of easy jobs is over.
See, these young people thought they could get degrees in easy subjects, ones that required of them no math or science, no finance or engineering or technology courses, and then they could just cruise through life with a government job and retire at age 55 or whatever. Those days are over, just as they shortly will be in the states.
I am not so optimistic. Governments will shrink, but not nearly enough. Plus, foundations and NGOs (non-governmental organizations), and quite a few other pockets of jobs for the self indulgent will survive. Those who work in the most productive jobs will have to keep carrying not just the less able but also the too large ranks of the less willing.
China in a massive real estate bubble? Mish Shedlock points to a Daily Mail piece on empty Chinese cities as seen from satellite pictures and ground-based pictures. I did not realize just how many such cities stood empty.
Michael Mandel, concerned about knowledge capital depreciation due to transfers to developing countries, points to a December 2009 Harvard Business Review blog post by Dick Nolan about how Boeing has transferred key airplane design knowledge to potential future competitors.
To finance the development of the 787 and secure global orders, Boeing agreed not only to outsource an unprecedented amount of the plane’s parts to partners in Europe, Japan, and China, but also to transfer to them unprecedented know-how. Before the 787, Boeing had retained almost total control of airplane design and provided suppliers precise engineering drawings for building parts (called “build to print”). The only exception was jet engines, which have long been designed and manufactured by suppliers such as GE, Rolls-Royce, and Pratt & Whitney.
The 787 program departed from this practice. Boeing effectively gave Tier 1 suppliers a large part of its proprietary manual, “How to Build a Commercial Airplane,” a book that its aeronautical engineers have been writing over the last 50 years or so. Instead of “build to print,” Boeing provided suppliers with performance specifications for parts and components and collaboratively worked with them in the design and manufacturing of major components such as the wing, fuselage section, and wing box
Airbus caved in to Chinese government mercantilism even more than Boeing.
Both Boeing and Airbus continue to share know-how for building advanced airplane parts with Chinese suppliers. And while Boeing has resisted transferring the system-integration knowledge needed to perform final assembly to the Chinese, Airbus has caved: It recently completed a jointly owned final assembly plant in China.
So the Chinese will become low cost builders of commercial aircraft. One of the few areas where the United States runs a big trade surplus will end up going the same route as so much of American industry. Sigh.
Mandel sees more rapid knowledge spread as slowing Western economic growth. Retired Intel CEO Andy Grove says manufacturning outsourcing is costing us a long term competitive advantage. The scale of the technological challenge posed by the Chinese has not sunk thru to US policymakers or the US public. We need to raise our game.
Aircraft are the single biggest category of US exports accounting for about $75 billion in exports in 2009. Given that the United States runs a very big deficit the US needs continued success in aerospace exports. The Wikileaks of US diplomatic cables show the US State Department is heavily involved in negotiating aircraft sales to assorted nations around the world.
Even so, Medicare’s spending on physician services per beneficiary rose 61 percent, an average annual compound rate of 5.4 percent a year.
The difference between the tiny increases in physician fees and the large increase in spending on physician services reflected, of course, a sizable increase in the volume of physician services per Medicare beneficiary. It grew by 46 percent over the period, at an average annual compound rate of 4.3 percent a year.
Take that government-funded Medicare spending per person going up faster than inflation and add in a rapidly aging population. We can not afford this.
About 13 percent of the population today is 65 or older; by 2030, when the last of the baby boomers are 65, that rate will have grown to 18 percent. In addition to testing the sustainability of entitlement programs like Social Security, this wholesale redefinition of old age may also include a pervading sense that life has been what might technically be called a “bummer.”
The US government deficit is already beyond the Bernholz warning limit on fraction of spending funded by debt. Historically, countries that breach this limit suffer from hyperinflation.
In his famous book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz demonstrated that hyperinflations resulted whenever 40 per cent or more of government expenditures were financed by money creation (resort to the printing press). In 2009, approximately 42 per cent of US government expenditures were financed by some form of credit. So the prospect of hyperinflation, however remote that may appear to be at the present time, cannot be ignored.
We aren't going to soon do a combination of large tax increases and large spending cuts to bring sanity to the US government's books. The best bet is on continued massive fiscal irresponsibility. We are not even lucky enough for this to be the only thing going wrong on an epic scale in America.
Imagine you were on the bridge of the Titanic and an iceberg was spotted with enough time to avoid it. But the captain, crew, and passengers said "It will cause us too many inconveniences to change course and our ship can plow right thru that iceberg and keep going". That's America.
In order for the European Union's common currency area to survive it must become even to a greater extent a Euro Transfer Union (ETU) that takes from the rich countries and gives to the poor countries. But there is a limit to how far the wealthier countries will go. So will the ETU break down?
In the long run, taxpayers in the wealthier countries may balk, said Jörg Krämer, the chief economist at Commerzbank in Frankfurt.
“In the beginning people may say that a transfer union is a price you have to pay so that the euro survives,” Mr. Krämer said. “Fine. But the perceived costs of a transfer union may go up over time. There may be a time when the voters say, ‘We don’t want this.’ ”
I expect Peak Oil to put too large a strain on the ETU and force at least a partial break-up. Check out PIIGS bond spreads over Germany. The market it starting to build up for the next phase of the crisis.
Looking at the future of the Euro Simon Johnson basically says more ETU is the next step.
Step 1: Agree on greater fiscal integration for a core set of countries. This will not be full fiscal union but some greater sharing of responsibilities for each other’s debts. There is much room for ambiguity in government accounting and great guile at the top of the European political elite, so do not expect something completely clear to emerge.
But Germany will end up underwriting more liabilities for the European core; its opposition Social Democratic Party and the Greens are pushing Chancellor Angela Merkel in this direction, calling her “un-European.”
But Johnson's third step has Greece falling out of the Euro zone, possibly along with Portugal or Ireland. He can't rule out Spain or Italy either. I repeat: Peak Oil will amp up the size of the bad debts and cut the revenue flows to fund them. So some countries will get ejected from or run away from the Euro.
Johnson then says something scary but it sounds right to me: Then comes the American government, burdened by massive debts, under attack by the financial markets.
And when the financial markets are done with Europe, they will come to test the fiscal resolve of the United States. All the indications so far are that our politicians will struggle to get ahead of financial market pressure.
We will not get the fiscal sobriety needed to save us. The 2010s are going to be a long running series of financial crises.