Archive for December, 2008

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The medical crisis is here

Monday, December 15th, 2008

The NY Times has an article about the impending doctor shortage that should finally end the myths about doctors but won’t. In 1993, the Clinton health plan was rejected by a public that was pretty satisfied with its health care, no matter what the single payer enthusiasts say. I was still in practice and, while the burden of bureaucracy was growing, medical practice was still pretty satisfying.

The year before, I had finally bought an office computer system. I have been a computer user since the PC first appeared. I was a programmer and engineer before I went to medical school but, in those days, unless you had a job in a big company, computers were something you saw in the movies, like “2001, A Space Odyssey.” A surgical practice did not need the primitive computer billing programs of the 1980s as they were directed to a high volume of small charges. Surgeons tend to see fewer office patients and many of those office visits do not generate charges (or didn’t then), at least for general surgeons. The office patients were either new patients, who might not be charged separately for the visit if they were scheduled for surgery, or post-op patients whose visit was included in the global fee for the surgery. I also had a policy, adopted from the surgeon with whom I had been first in practice, of not charging post-op cancer patients. In fact, I rarely charged post-op patients at all on the theory that, if they had a problem, I wanted to see them again and wanted to put as few obstacles to another visit as possible. This avoided potential dissatisfied patients and it established a relationship that patients usually do not have with the surgeon. They knew who I was and might come back with a new problem. General surgeons rely on referrals and it was helpful to have the satisfied patient know my name if something came up in the future.

I finally bought a computer billing system (It cost $36,000 plus the computers) because they had gotten more sophisticated and, by 1991, I had 276 contracts with various insurance companies and HMO organizations. That was the era of the “HMO without walls.” Insurance companies and for-profit HMOs had learned that they could sign contracts with individual doctors, or with groups of doctors, and use these contracts to control costs. The contracts were complicated and many had different provisions that had to to be tracked or there could be a refusal to pay or even a penalty. In one instance, I found that sending a patient to the closer medical lab for a wound culture resulted in a $500 dollar fine for me from the HMO. The lab fee was $36. The result of that incident was that I refused to see HMO patients in my second office in San Clemente, even if the patient lived in San Clemente. I could not rely on my office staff to always get the patient to the correct lab or x-ray office.

The second consequence of this incident, and others like it, was that I bought the computer and linked it to the other office. This way, my staff could enter the patient’s insurance information and get a list of all the rules for that particular HMO or PPO. Since I left practice in 1994, it has only gotten worse. For primary care physicians, it has gotten a lot worse. Fees have been cut and bureaucracy has increased. I am now part of that bureaucracy for the Workers Compensation system, as I do reviews of cases that are not being treated within guidelines established for this system. The reason why there are such complex guidelines is the amount of fraud and waste in the system, now much reduced since the reforms began five years ago in California.

What has been the result for the nation as a whole ? Primary care physicians have been less well paid and have been deluged with bureaucracy. As a result, they have been leaving the field. I tell medical students that, if they plan to enter primary care, they should get an MBA as they will be managing nurse practitioners and physician assistants. More and more of the primary care is being delivered by these “physician extenders.” Some physicians are natural managers. Many don’t go to medical school to do this and they simply avoid the field or retire early if possible.

We’ll see if Obama and the people around him recognize this. They strike me as a bunch of theorists and academics who will not understand this problem.

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Posted in health reform | 4 Comments »

The Bailout

Sunday, December 14th, 2008

UPDATE: The UAW has been putting out talking points. Here is a rebuttal of them

This morning the talk shows focused on the failed bailout proposal and, of course, the UAW and the Democrats are blaming “Republican hatred of unions.” I have previously posted my opinion about who is at fault and Megan McArdle seems to agree with me.

I’m hearing the truly bizarre argument that the UAW didn’t scuttle the negotiations; it was the Republicans unreasonable insistence that they cut their wages to levels comparable to that of their competition. After all, the UAW was perfectly willing to negotiate their compensation package–in 2011, when their current contract expires.

And I think that’s perfectly reasonable. We’ll just wait until 2011 to give them the money, then.

I couldn’t have put it better myself. Of course, the Democrats and their allies are lying about the opponents of the bailout.

On ABC’s “This Week” this morning, Paul Krugman repeats the left talking point that Senator Bob Corker led the opposition to the auto bailout because he’s the “Senator from Nissan.”

I saw Senator Levin say on Face the Nation that Senator Corker was OK but “The Republican Leadership” refused to compromise. The compromise was to allow the UAW to continue business-as-usual until 2011. There would either be no GM by 2011 or there would be another 200 billion in federal subsidies already paid out by then. GM has 52 billion in current debt obligations and is losing money every week. The UAW wants the British Leyland solution.

British Leyland, a car company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business. All that is left of the company now are memories of cars like the Triumph, and a painful lesson in the limited effectiveness of bailouts.

One word of warning for Obama and the Democrats: The British Leyland fiasco was nearly the last straw for the British people with the Labour Party. Two years later, they elected Margaret Thatcher’s Conservatives.

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Posted in Europe, financial, politics | 1 Comment »

More on how the financial crisis happened

Saturday, December 13th, 2008

I am still reading about why the financial meltdown occurred. This piece in the Weekly Standard strikes me as another piece of the puzzle.

[W]e ought to recall that there was one candidate who did foresee our predicament with considerable accuracy when it still lay far in the future. Ron Paul, in almost every speech he made during the Republican primaries, spoke of bubbles, reckless credit growth, and the “unsustainability” of present policy. So why isn’t there more demand for the common-sense solutions he put forward? Because common sense is not much use in a financial panic.

I think Ron Paul had some loopy ideas but he did have one good point. Every time the government gets involved in business or the financial markets, it screws things up. That is the fundamental divide between Republicans and and Democrats. When I see someone make a derogatory remark about free markets, I know I am seeing a Democrat, no matter what protestations follow.

This article refers to an 1873 book on banking that is still in print and sounds pertinent to the present discussion. Walter Bagehot, the author, was the editor of The Economist in the 19th century.

Lombard Street was published in 1873, seven years after the sudden collapse of Overend, Gurney & Co., a bank that lost £11 million, spread panic among investors, sparked a run, and became “the model instance of all evil in business.” The crisis made such a deep impression on British finance and government that the country did not have another bank run for 141 years–not until Northern Rock collapsed in the summer of 2007. (English investors must have longer memories than American ones.

He goes into the issue of moral hazard and the dilemma faced by a central bank which, if it offers to be “the lender of last resort” will stimulate the sort of reckless behavior that requires such intervention. I submit that the Mexican bailout of 1995, presided over by Robert Rubin when he was Clinton’s Secretary of the Treasury, was the event that led to the present crisis more directly than the Congressional foolishness about affordable housing.

This analysis suggests that international bailouts encourage governments to engage in such risky behavior, just as deposit insurance encouraged weak U.S. banks to engage in risky behavior, worsening the failures and raising the costs to taxpayers.

In Bagehot’s book, the fact that the Bank of England, as lender of last resort, was acting contrary to basic rules of financial prudence, and even contrary to law, could not alter its responsibility in the crisis.

The worst was that the bank could carry out its necessary duties as a lender of last resort only by breaking the law. The basis of the bank’s operating procedure–and of its soundness–was the Bank Act of 1844. We would call it a regime of sound money. It included stringent caps on the ratio of notes issued to reserves held. These caps were hewed to when the economy was running smoothly. Yet at the time Bagehot was writing, a quarter century later, the law had already been suspended three times. Not just that. “No similar occasion has ever yet occurred,” Bagehot wrote, “in which it has not been suspended.” So the law on which the solvency of the British nation rested was ironclad, except when someone felt a need to break it.

Stranger still, never did the Bank of England acknowledge its duty as the lender of last resort. Some of its governors even denied that any such duty existed. Bagehot thought the bank should come clean about what it really was:

There should be a clear understanding between the Bank and the public that, since the Bank hold our ultimate banking reserve, they will recognise and act on the obligations which this implies–that they will replenish [the reserve] in time of foreign demand as fully, and lend it in times of internal panic as freely and readily, as plain principles of banking require.

But there was a reason for the central bankers’ dissembling. If the bank ever acknowledged a duty to rescue banks by generous extensions of credit, it would create a form of moral hazard.

This is what happened with the Mexican bailout. The banks that were headed by Rubin’s friends were “too big to fail.” That event led straight to today’s crisis. Yes, Congress was foolish but that is always true of Congress. A more sober consideration is whether this is a fundamental failing of democracy.

Read the rest of the article. I have already ordered the book.

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Posted in financial | 4 Comments »

Intelligent Design

Thursday, December 11th, 2008

I have been mildly tolerant of the whole Intelligent Design movement under the theory that, as long as religious people accept the principles of evolution, I don’t care if they believe the fundamental rules were designed by God. In fact, being an agnostic, I kind of think of God that way. The Maker of Rules.

The creationism thing does seem to be getting more aggressive, however. There was a movie out last summer called Expelled , which seems to be a rather mean spirited attack on science, biological science anyway. I’ve not been happy with some of this, and I’m not the only one. In 2005, there was a full scale trial on the merits of Intelligent Design and the judge is interviewed here in a very nice article and summary of the case.

The conclusion is that Intelligent Design, rather than a way to link a Creator with the evolution of life, is just creationism in a new package. It is extremely cynical for people as intelligent as Ben Stein to get mixed up in this and I would very strongly advise the Republican party to keep this stuff at arm’s length. It came up a bit with Sarah Palin’s nomination although it seems that she did NOT advocate creationism in the classroom. She did suggest that it could be mentioned. Alaska has a lot of fundamentalist families and I can see where that was an attempt at compromise.

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Posted in education, science | 8 Comments »

Is Blagojevich crazy ?

Thursday, December 11th, 2008

There is some speculation that Governor Blagojevich must be crazy to have been so brazen in his telephone conversations when the possibility of wiretaps had to be considered. He even seemed to dare the authorities to wiretap his conversations.

Here is a good discussion of his mental state. I have had some experience with psychotic and sociopathic patients. A few years ago, one of my medical students was assigned to interview a patient in the County Hospital who was diagnosed with manic depressive psychosis. In the chart of this patient was a letter from his brother warning doctors that the patient was so convincing in his story, and so well organized in his psychotic delusion, that someone who did not know him could easily be deceived. The story he told was that he was a businessman who was on his way to Korea to close a ten million dollar deal. He had reservations on KAL for five days from now and was in the hospital because of a misunderstanding with his family. He was absolutely convincing. Fortunately, there was also confirmed evidence that he had attacked his mother and other relatives and was psychotic.

I don’t know if Blagojevich is a well organized manic psychotic but the arguments in that article I linked are also compelling. He comes from a culture where corruption is a way of life. Obama comes from the same culture and has had close associations with Blagojevich, an association which will now be denied.

I tend to the sane conclusion.

Former Assistant United States Attorney Bill Otis also invokes his professional experience to answer the question:

No, he’s not nuts. Having been an AUSA for a long time, one thing I noticed is that normal, honest people have difficulty understanding how criminals think. (This shows up, for example, in the death penalty debates I do, where abolitionists simply don’t grasp the heartlessness and cruelty that some killers display. It’s simply beyond their experience).

Blago’s world is merely corrupt; it’s not insane. To him, a Senate seat is not a public trust, it’s a commodity. It has a price, and the most efficient mechanism for determining that price is to put it on auction, which is what he did. Far from being insane, it’s perfectly clear-headed — just venal. Mortgage markets should operate as well.

I tend to agree. There will be lots of disinformation and he might even choose an insanity defense in an attempt to get off without jail. It will be interesting to see what happens. Here is another analysis by an informed observer.

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Posted in medicine, politics, Uncategorized | 6 Comments »

Illinois politics

Wednesday, December 10th, 2008

UPDATE: The stories about Obama and Blago are are disappearing from even the cached sites. It’s another memory hole.

I grew up in Chicago and, even as a teenager, was aware that nothing happens in Chicago that isn’t politics. I remember a friend of my father who was ill and needed to be hospitalized. The next step was not to take him to the emergency room; it was to call the alderman’s office to have him admitted to Cook County Hospital. That way, he wouldn’t be bothered with a doctor demanding to examine him, for example.

In David Freddosso’s book, The Case Against Barack Obama, he tells one story of a job applicant appearing at a city office looking for a job. He is asked, “Who sent you?” When he replies that he just showed up hoping to apply for a job, he is told, “We don’t want nobody that nobody sent !” It is all about who sent you.

After the Second World War, my cousins returned from overseas and my parents had parties for them as they returned. Many of their friends came to those parties and marriages resulted in some cases. One of those marriages was between Frank Flanigan, whose father had been chief of detectives in PHiladelphia, and Pat Neary, whose father was an Inspector in the Chicago Police Department. Pat and Frank were very close to my parents as I grew up. Frank was well known as almost the only honest policeman in Chicago. Since policemen’s salaries were kept low to weaken their resistance to bribery, Pat and Frank had some lean years. Frank’s superiors respected his integrity and, to get him away from areas where his honesty would get him into trouble, he was assigned to the “hit and run” section of traffic enforcement. There, he founded one of the first modern crime labs and the conviction rate for hit and run felonies was high enough to result in a feature story in Life Magazine in the early 1950s.

Frank finally was rewarded after a scandal hit the Chicago PD. In 1959, a burglary ring was found within a Chicago police precinct. The scandal finally led to reform of the police department. Orlando W Wilson, a professor of criminology and former police chief, was brought in to take over the force and clean it up. He discovered Frank and made him chief of homicide. Frank served honorably in the position until retirement and then continued a second career as chief investigator for the Coroner’s Office of Cook County.

The point of that little story is to point out how difficult it was to be an honest man in any position in the City of Chicago.

In the years when I was growing up in Chicago, the rest of the state was relatively honest compared to the city but that wasn’t saying much. Generally, “downstate” was run by Republicans and Chicago was run by Democrats. The last Republican Mayor of Chicago was in 1931. The balance of power shifted from time to time between Cook County, the Chicago area, and the rest of the state. The present Mayor is the son of another long-term Mayor. Both men stayed out of legal trouble by avoiding personal greed that would subject them to unwelcome legal attention. They were interested in power and happy to stay in the city. They had no higher ambitions.

This is the atmosphere in which Barack Obama rose in politics. I have previously written about this. More here. A cast of characters. His education background, and his science inclinations.

Now we have the Blagojevich story with all its uncomfortable ramifications for the President-elect. He has already been caught in a lie.

The Blagojevich Timeline: Everything Fits Easily Except Obama’s Monday Denial. Most people have misunderstood the timeline of the Blagojevich Senate scandal. Pretty much everything fits except Barack Obama’s statement yesterday that he knew nothing about it.
If we didn’t have Obama’s denial to contend with, the actions of all the parties, including those purporting to speak for Obama, are consistent with Obama and his staff learning about Blagojevich’s corrupt plans on Monday, Nov. 10.

Obama’s guru has been quoted acknowledging that the transition team had talked to the governor about who would be appointed to take Obama’s Senate seat.

While insisting that the President-elect had not expressed a favorite to replace him, and his inclination was to avoid being a “kingmaker,” Axelrod said, “I know he’s talked to the governor and there are a whole range of names many of which have surfaced, and I think he has a fondness for a lot of them.”

Then, Obama comes out and says something that is not true. Note how he catches himself to avoid another lie.

On Tuesday, Dec. 8, Obama denies personal knowledge of the corrupt proposal.

“I had no contact with the governor or his office and so we were not, I was not aware of what was happening.”

This seems to be a man who will lie when the truth would serve as well. Maybe he is worried about this.

Blagojevich’s buddies—the ones he still has left—surely aren’t amused. They must be wondering how long it will take for Blagojevich to crack under the federal weight and start singing about all his friends.

Get ready for four years of “The Chicago Way.” Unless, of course, there is a smoking gun under that rock.

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Posted in politics | 5 Comments »

Oh Oh Here we go

Friday, December 5th, 2008

The Smoot-Hawley Tariff has been given considerable “credit” for the Great Depression in history books going back to the 1940s.

One of the most hotly debated causes of the crash is the Smoot-Hawley tariff. Protectionists like Alfred Eckes and Pat Buchanan argue that it could not have affected the market because the law was not passed until 1930, long after the crash. Although this is true, much of the legislative activity took place in 1929. As economist Alan Reynolds convincingly demonstrated in National Review (November 9, 1979), actions favoring passage of the tariff bill correlate quite well with declines in the stock market during 1929, culminating on October 29.

The reason why the market crashed well in advance of the tariff becoming law is because markets are forward-looking, and quickly capitalize any policy that will impact on future profits.

President-elect Obama has made quite a bit of noise about protectionism, and at one point, an advisor, Austan Goolsbee, was sent to Canada to reassure them that it was just campaign talk. This resulted in a major flap and Goolsbee was shipped off to campaign Siberia.

Well, Obama is elected now and what is the situation?

Well, for one thing, Smoot-Hawley is being resurrected by Obama supporting economists.

How much of a boost to economic activity will a fiscal stimulus provide? For those who believe that we have entered a Keynesian world of shortage of aggregate demand–me included–the answer depends on the Keynesian multiplier.

Democrats are all Keynesians, of course. Republicans became supply siders under Reagan. The difference ? Keynes advocated spending and politicians like spending. That way they get to determine where the money goes.

Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion–quite a difference. Nice deal if you can get it.

In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do–but should we really care if the alternative is significantly lower growth and higher unemployment? More to the point, will Obama and his advisers care?

Spoken like Mr. Smoot and Mr. Hawley.

Protectionism will prevent US citizens, who get government handouts, from spending the money outside the country, for Japanese cars or Chinese toys, for example. A century ago, they called this “Mercantilism.” Mercantilism was an economic theory that advocated maximizing exports and minimizing imports. Carried to its extreme, the mercantilist country would keep accumulating money by beggaring its trade partners. China does this in part.

Megan McArdle doesn’t like it, but that may not be enough. People who think they can plan an economy are not easily convinced they are wrong. Witness the current consequences with Fannie Mae and Freddie Mac. The politicians and Obama have not accepted any blame for that fiasco yet.

The alternative to all this stimulus money being handed out is a tax cut. Why not cut the corporation and capital gains tax rates to zero for a couple of years ? The only problem I see with that is that it allows the people who pay taxes to determine what to do with the money. Politicians don’t like that.

UPDATE: Here is some sober comment on the zero interest t-bill auction this week. If people are buying t-bills at zero interest, the stock market may not be as much of a bargain as some people are saying. I expect it to go lower, a lot lower.

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Posted in financial, History, politics | 9 Comments »

The next big financial crisis

Wednesday, December 3rd, 2008

In 2001, The fallout from the Enron scandal led to new legislation that is creating a regulatory mess. T.J. Rogers has an explanation that is better than others I have seen. The legislation is called Sarbanes-Oxley and was written by Democrats early in the Bush Administration. The chance of anything useful being done about this in the new administration is approximately zero.

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Posted in financial, politics | 1 Comment »

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