Archive for October, 2009

Health Reform-Again !

Friday, October 30th, 2009

UPDATE: I didn’t expect malpractice reform to come out of the House but I didn’t expect a poison pill for tort reform either.

Well, buried in the 1,990 pages of the House health-care bill that was released on Thursday by Pelosi is a provision in Section 2531 that provides incentive payments to states that provide “an alternative medical liability law” that prevents or prompts “fair resolution” of disputes. However, no such incentive will be paid to any state that limits “attorneys’ fees or impose caps on damages.

Thus, California’s 34 year old cap on non-economic damages in MICRA would preclude it receiving any incentive payment, what ever that is.

The Pelosi bill has now been dumped on the House and is due to be voted on in a little more than a week. It is insanely expensive. The The CBO score is even hedged by doubts.

Those longer-term projections assume that the provisions of H.R. 3962 are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the “sustainable growth rate” mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress. The bill would put into effect (or leave in effect) a number of procedures that might be difficult to maintain over a long period of time. It would leave in place the 21 percent reduction in the payment rates for physicians currently scheduled for 2010. At the same time, the bill includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care).


It contains a number of bad ideas and one lie. First the lie. In 1997, Congress passed a law that said Medicare costs had to remain within the CPI or they would cut doctors’ reimbursement. It didn’t and they didn’t. Every year, Congress would pass a bill that suspended the rule for one year. By now, the cuts in doctor reimbursement, if implemented, would be about 25%. Harry Reid tried to pass a separate “doc fix” bill last week in the Senate and it didn’t pass. The idea was to reverse the 25% cut in reimbursement but keep it out of the Finance Committee bill to keep the CBO estimate below a trillion dollars.

At issue was the sustainable growth rate, a Medicare formula that’s called for physician payment cuts in almost every year of the last decade, threatening seniors’ access to care and leaving Congress to step in with temporary fixes — effectively kicking the can down the road. Sponsored by Sen. Debbie Stabenow (D-Mich.), the bill would have eliminated the formula once and for all, allowing Congress to establish a new method of updating doctor payments that better reflects the cost of treating Medicare patients.

“This is about strengthening and protecting Medicare,” Stabenow said just before the vote.

Wednesday’s vote means that Democrats will have to find another way to prevent a 21.5 percent pay cut from hitting Medicare doctors next year, likely with a temporary patch that will eliminate the cut but keep the formula in place. The Senate Finance Committee bill includes a one-year band-aid, at a cost of just under $11 billion.

Why is this a problem ?

Medicare reimburses physicians substantially less than private insurers. Medicare pays hospitals and doctors, respectively, 71 percent and 81 percent of private rates. For doctors seeing Medicare patients, this is often barely enough to break even. For hospitals, the Medicare payments don’t even cover the cost of seeing patients — meaning that hospitals actually lose money on Medicare patients. The sheer size of the federal government essentially transforms negotiations into “a take it or leave it” proposition that allows Medicare to get away with such stinginess. Providers would be better off negotiating with the mafia.

Actually, the Medicare reimbursement varies by specialty, being better for primary care and worse for specialties that are expensive. Some areas get about 20% of charges. That is down from 80% or more 30 years ago.

The House bill puts the cost of the “doc fix” at zero. Just one more lie.

Another bad idea is extending Medicaid eligibility to 150% of the poverty level. Few doctors accept Medicaid now anyway. More and more are dropping Medicare. What else is in there ?

How about loans for veterinary students ?

Fun Fact: Page 1255 of the bill makes veterinary students eligible for federal grant funding, including scholarships and loan forgiveness. There is $283 million in spending authorized under these sections – meaning we could be spending hundreds of millions to pay for veterinarians while we have a deficit of over $1 trillion.

For a clue about why this is in there:

“Division C” of a “comprehensive” reform of the health-care system should at least be skimmed. This section, starting on page 1209, called “Public Health and Workforce Development,” contains a hodgepodge of new programs, and reauthorizations and amendments to existing programs, each of which has a fairly direct line to some interest group that wants something from the federal trough. Many are just one step up from an appropriations earmark as examples of pork.

It goes on for 427 pages.

What would I do ? I’ve spent some time explaining what I think would be a good approach. I base a lot of this on the French System. It has had its problems but most of those stem from France’s economic problems. As Obama and the Democrats take us down the road to socialism, we will have similar problems with sluggish economy and government debt.

I’ve seen a couple of articles advocating some of these ideas but they can get too libertarian. For example, catastrophic insurance is the basis for any sensible system. Health savings accounts should be an important part of a reform but there are problems. Our present system has badly distorted the price of medical services. Both Medicare and private insurance have gone heavily to the concept of “discounts” in medical prices, both hospital prices and doctors’ fees. That is where $50 aspirin tablets come from. In the days of Blue Cross and when costs were not the issue, nobody cared about hospital prices. Blue Cross was a system that was based on the annual operating costs of hospitals. Individual items of service were not billed as such. It was not important to figure out how much the emergency department made or lost each month. The ICU didn’t even exist until the 1950s. Cash services like obstetrics were loss leaders. The prices were low because the hospital wanted that young family to get used to coming there for care. Ditto with the ER. Neither was expected to make money and nobody really did cash accounting to figure out what they cost.

The insurance companies started it. The commercial insurers, who had much of the industrial and union business, wanted prices. They were tired of paying what they feared were inflated daily room rate charges. Hospitals had no idea what these services cost them. To this day, hospitals are incredibly inefficient. The result was a crazy quilt of billed charges, many of which had nothing to do with costs. A second result has been intense pressure to reduce hospital stay. As a result, the daily charges have skyrocketed. Why ? The costs of a hospital admission are almost all incurred on one day, the surgery day or the day of admission when all the tests are done. If the hospital stay is five days, as was common 40 years ago, the costs get spread over all five days. Now, they are all packed into one day. The Europeans think we are crazy with the obsession to shorten length of stay. They are correct but here is no convincing Medicare or insurance companies. Same day admissions (also called AM Admits) for surgery began in the 80s and make no sense. It used to be that a patient for elective surgery came in the afternoon before, the prep and tests were done, and the patient got a good night’s sleep. Now, the patient gets up at 3 AM to come to the hospital, extra staff have to be present early in the morning and the risk of error is far higher. The cost, I’m sure, is about the same.

Anyway, the cash prices are so distorted that the HSA is almost useless unless the claim is processed through the insurance company.

Secondly, many older people will have a hard time paying for care if they haven’t been saving in their HSA for 20 years and they haven’t. There has to be a transition. My ideas about the French system would apply here.

I don’t know if these bills will actually pass. If they do, the taxes and regulation will dominate the first few years and I am not sure that we will not see another catastrophic care fiasco. I don’t know how it will end. Hopefully with nothing.

A sad day for freedom

Friday, October 30th, 2009

UPDATE: It may not be as bad as it first seemed. Zelaya has to be approved by the Congress that booted him out so maybe little Honduras outsmarted the Obama people.

Well, it seems Obama and his cronies have forced Honduras to back down and allow the nutcase Zelaya back into a power sharing arrangement in Honduras. This is disgusting but one more example of the radical leftist inclinations of this president. I have previously posted on this topic and am still puzzled by Obama’s attraction to this crazy man.

Maybe the real friends of Honduras can figure out Obama’s angle. There has to be one. There is no sane person who thinks this is good for Honduras.

Just for Tim

Wednesday, October 28th, 2009

I have added this post just for Tim who thinks he knows how the financial meltdown started.


How is that, Tim ? Does that make you fell better ?

Revisiting the history of the collapse

Sunday, October 25th, 2009

Last year, I posted a lengthy piece on the origins of the mortgage industry collapse and the role Congress played. I have since closed the post to comments to reduce spam. A reader found it and sent me an e-mail about a Frontline piece that is apparently full of lies. UPDATE: I should change this to say that it is not lying that is the problem but the inability of the writers to see the merits of a free market and a determination that only regulation, and by extension a command economy, can safely run the financial markets. Derivatives were not the problem. The problem was the inability to estimate risk because the GSEs, Fannie Mae and Freddie Mac, were pushing the envelope with government guarantees to their risky loans. Every step which should have warned of the risk was failing because the parties saw huge profits and, at the end of the day, a guarantee by the Treasury that nobody could lose. Moral hazard was rampant.

Typically, it blames the Bush people (actually Greenspan and shows Bush giving him a medal) even though the problems were begun under Clinton and Congress was the chief villain. Here is an example of Congress on the job. Note the tactic of hiding incriminating videos by claiming copyright violation. At least one is still visible.

Rush Limbaugh discussed it on his show and there is a link to the PBS show.

Ladies and gentlemen, they had to do what they were told. The federal government created policies that made them make these loans to people who couldn’t pay them. That’s what the subprime mortgage crisis is all about. The architects of that are Bill Clinton, Barney Frank, Chris Dodd, and a whole bunch of other minor bit players. ACORN’s involved, ACORN’s running around hassling banks if they don’t make loans to people. So now, after following mandated policy, federal law, the Community Redevelopment Act under Carter, it was put on steroids in the late nineties with Clinton and the bunch and that thing forced the banks to make these loans. And so these banks, after following orders, are now being blamed for the problem.

My point in my post was that both parties contributed and those who tried to warn or to rein in the out-of-control Fannie and Freddie were punished or warned of punishment. Ms Born was warning but she did not see that the real risk was government intervention in markets (Fannie/Freddie) not deregulation.

Or consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP’s bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.

On another occasion, he was invited to a meeting with the Democratic mayor of Racine, which is in his district, though he wasn’t sure why. When he arrived, Mr. Ryan discovered that both he and the mayor had been invited separately — not by each other, but by a Fannie lobbyist who proceeded to tell them about the great things Fannie did for home ownership in Racine.

When none of that deterred Mr. Ryan, Fannie played rougher. It called every mortgage holder in his district, claiming (falsely) that Mr. Ryan wanted to raise the cost of their mortgage and asking if Fannie could tell the congressman to stop on their behalf. He received some 6,000 telegrams. When Mr. Ryan finally left Financial Services for a seat on Ways and Means, which doesn’t oversee Fannie, he received a personal note from Mr. Raines congratulating him. “He meant good riddance,” says Mr. Ryan.

Yes, this was a bipartisan scandal and PBS (government funded, of course) tries to avoid the truth and blame Bush and Greenspan. Why not ? Everyone else that is government funded does. Greenspan missed the impending crisis but the PBS program missed it too.

Tea Parties and NY 23

Saturday, October 24th, 2009

UPDATE #4: What is the world record for breaking campaign promises ? Answer: one hour.

Amazing. Next year should be interesting in NY 23. Of course the district is destined to be broken up after the next census so that makes it OK to play the voters for rubes.

UPDATE #3: Newt, give it up.

UPDATE #2: It now seems that Newt Gingrich, who has opposed Hoffman has been passing along misinformation and may have been lied to.

UPDATE: More from NRO on the debate within the party.

I’ve been interested in the tea party movement since last March. We had a tea party demonstration in Mission Viejo on April 15 and I posted about it. My impression all along has been that this is a libertarian movement and the social conservatives who attend are mostly there about taxes and deficits.

I have also been very interested in Sarah Palin, although I was disappointed by her weaknesses in interviews last year. Some of that was poor preparation and some was the suddenness of her ascent to the national stage. I have read a good deal about Margaret Thatcher and learned that, once she became part of Ted Heath’s government, she embarked on a crash course of coaching on issues. She was not the Iron Lady immediately. I’ve also been interested in some tendencies on the part of Sarah Palin toward libertarian positions on issues. She was demonized by the media last year as a fundamentalist but some of her actions as governor were misrepresented.

Now, we have a stark challenge to the Republican establishment. The old guard party moguls chose a candidate in the New York 23rd Congressional district who embodies most of the concerns we have had about the deterioration of the Republican Party. Michelle Malkin can certainly be over the top but the issues she raises are real.

Scozzafava is an abortion rights advocate who favors gay marriage.

These are not the hot button issues for me that they are for Michelle. Still, most Republicans are on the other side.

It would be one thing if Scozzafava balanced that social liberalism with fiscal conservatism. But as a state assemblywoman, she voted for massive tax increases, Democratic budgets and a $180 million state bank bailout. She also supported the trillion-dollar federal stimulus package — which every House Republican voted against.

This is more serious. The House Republicans were unanimous. Would she have been the symbolic yes vote for Obama ?

More troubling, Scozzafava in past elections has embraced the ballot line of the Working Families Party — a socialist outfit whose political DNA is intertwined with scandal-ridden ACORN. ACORN and the WFP have shared office space in New York City, Arkansas and Illinois.

ACORN head Bertha Lewis, a close Scozzafava friend and political supporter, wears a second hat as vice chairman of the WFP. The WFP has been listed in ACORN documents dating back to 2000 as an “affiliate.”

This is a lot more serious. ACORN and WFP are socialist organizations riddled with fraud and foot soldiers of the Democratic party. Others have pointed out that the NY Republican Party is different, as in far to the left of the national party. Still, why should we have Republicans like this to confuse the message to the voters?

Scozzafava isn’t even a very good candidate.

Scozzafava’s problems as a candidate aren’t limited to ideology. She simply rubs people the wrong way. The Siena poll reported that–by a 16-point margin–voters who had seen her commercials found that the ads made “them less likely to support her.” “Let me tell you something,” Scozzafava says at the conclusion of her seven-minute speech at the Elks Lodge. “The best revenge in all of this–because it’s been ugly and nasty, my family has been personally attacked, I’ve been attacked, there’s been lies–that the best revenge in the end is to win.”

I experienced firsthand Scozza-fava’s politics of personal revenge at the Elks Lodge event. After I persisted in asking her questions about card-check, taxpayer-funding of abortion, and whether her pledge not to raise taxes meant she’d vote against any health care bill that raised taxes, her husband–a local union boss–called the police.

Then something startling happened. A guy named Doug Hoffman appeared and got the nomination of the NY Conservative Party. The Conservative Party has been the statewide reaction to the left of center GOP in New York for years. They even elected a Senator, James Buckley, brother of William F. Hoffman began to attract support. I sent an e-mail to Instapundit suggesting this was not a bad thing. He posted it. What I said was:

Glenn, the Republicans are upset at the tea partiers in NY 23 for backing Hoffman but that will be a nice test. The election is only for one year so little is lost if the Democrat wins a split race. But, if Hoffman wins, they will have to start to take the movement seriously instead of trying to co-opt them. First, I think the tea parties are libertarian, not “right wing.” That’s what I’ve seen in Mission Viejo, where we have turned out 500+ on each occasion.

This will be a very important race, more so than Virginia or New Jersey which are old line pols running on both sides.

I do wish Hoffman’s donation software was better. I tried to give him money and couldn’t.

I was able to donate later on a second try. Now, what is happening ?

Sarah Palin endorsed him.

Uh oh.

Minnesota governor and potential GOP presidential candidate Pawlenty seems to be dithering. That won’t help.

He says he will “probably” endorse Hoffman. Governor, we don’t need more presidential dithering. Personally, I think Hoffman will win. What does that mean ?

I think it means that the tea party movement is not a Republican phenomenon. Republicans can join but they have to adopt some principles, a rare event in the past decade. We probably don’t have a worse political class now than in past eras. The difference is that Congress has far more power over our economy than ever before, with the exception of war time.

When asked about this confrontation with the GOP, Dana remarked that Tea Partiers were not going to be co-opt by the Republican Party, but were rather in the process of taking it over. Bill Hennessy praised Ed Martin (R), who is running to unseat Russ Carnahan (D-MO) in MO-03, for taking a stand in support of Doug Hoffman. Bill called on other Missouri Republicans to do the same. Paul Curtman, who is running for state rep in Missouri’s 105th, was there to support conservatism and Doug Hoffman.

Which is the tail and which is the dog? I am convinced the tea party movement is a resurgence of the Perot phenomenon of 1992. I’m not the only one.

In 1992, the incumbent president, George H.W. Bush, was a disappointment to his party’s base and a pariah to the Democrats. Government seemed to have lost its grip. The deficit became a massive issue, a symbol of out-of-control government. The hangover of Cold War sacrifices, the S&L bailout, runaway crime, huge trade deficits, the long-term trend of manufacturing decline and, of course, the recession contributed to the sense that America desperately needed to get its house in order.
Ross Perot, a quirky Texas billionaire, tapped into that anxiety perfectly. Western, pro-business, no-nonsense, pro-choice and pro-gun, culturally conservative but with little interest in culture-war issues, he managed to thread the needle between both parties. He also benefited enormously from the fact that his independent bid for the presidency was seen by the press as an indictment of both the incumbent Republican and the “Reagan deficits” that Democrats and the media had been denouncing for years. At one point, Perot led in the polls, and if he hadn’t dropped out and then rejoined, he might have done even better than his historic 19 percent of the popular vote.

I was ready to vote for Perot until he imploded in a series of weird complaints about threats to his family.

The tea-party protesters are in large part the heirs of Perotism, and they are being subjected to the same insults. Liberal commentators are deaf to the tea partyers’ disdain for both political parties, preferring to cast the protesters as a deranged band of birthers and racists or hired guns of a Republican “AstroTurf” campaign.

Meanwhile, as National Review’s Ramesh Ponnuru has argued, the Democrats have convinced themselves that the moral of Clinton’s failed health care push is not that he was wrong to try, but that he was wrong not to cram it through against popular opposition.

President Obama promised a “new era of fiscal responsibility,” but he’s governing as if exploding the size of government is what Americans want, polls be damned. The Democrats’ budget games and giveaways amount to poking the angry Perotista beast with a stick.

If the GOP can convincingly align with and exploit the growing Perotista discontent, it very well might ride to victory on a tsunami the Democrats can’t even see.

Yes, but can the party that nominated Dede Scozzafava figure that out ? Minnesota seemed to figure it out with Michelle Bachman.

The pay czar

Thursday, October 22nd, 2009

UPDATE: I told you so.

‘‘I can see a situation, subject to funding constraints, of senior bankers moving en masse as a team or possibly setting up a boutique themselves,’’ Nick Hellen, a partner at Executive Access, an executive search firm based in Hong Kong, told Reuters.

The financial crisis wiped out many hedge funds around the world, and the industry is expected to shrink this year to 2005 levels, but those making money have plenty of pulling power.

Most hedge funds function on a 2-and-20 model, meaning employees earn 2 percent of assets they manage, regardless of the firm’s success or failure. They also get to keep 20 percent of profits if the fund is making money and is above a minimum level of investment returns known as the high-water mark.

For example, Artradis’s two main funds have combined assets under management of about $3.5 billion and returned 27 percent and 35 percent, respectively, last year, according to the company. That means a potential return of more than $200 million for the two funds in a firm of fewer than a dozen fund managers.

So while President Obama wants to set up a $500,000 cap on top executive pay at companies receiving taxpayer money, executives working for successful hedge funds can still earn several million dollars a year.

Obama has announced that the income of executives from bailed-out companies will be cut as much as 90%.

Responding to the furor over executive pay at companies bailed out with taxpayer money, the Obama administration will order the firms that received the most aid to slash compensation to their highest-paid employees, an official involved in the decision said on Wednesday.

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.

Some executives, like the top traders at A.I.G., will face tight limits on their pay. In addition, the top-paid employees at all the affected companies will face new limits on their perks.

The plan will also change the form of the pay to align the personal interests of the executives with the longer-term financial health of the companies. For instance, the cash portion of the executives’ salaries will be slashed on average by 90 percent, and the rest will be replaced by stock that cannot be sold for years.

I expect that this action will lead to an exodus of talented executives from these companies.

it would have no direct impact on firms that did not receive government bailouts or that have already repaid loans they received from Washington. Therefore, it is unclear how much effect, if any, the plan will have on the broader issues relating to executive compensation, income inequality and the populist animosity toward Wall Street and corporate America.

One thing it may do is to teach businessmen that getting in bed with government leaves a hangover. The threat of such an action goes back to last year and led to an early exit for many young traders who left for greener pastures. This part is hilarious:

the White House, which has come under attack from conservatives for giving the government what they consider too large and intrusive a role in the economy, has also made clear that it has no intention of seeking to impose any broad-based caps on executive pay.

Oh, OK. So they aren’t going to micromanage these firms, eh ?

The White House has proposed, for instance, giving shareholders a nonbinding vote on the pay of top executives.

It has also proposed that compensation committees of boards, as well as compensation consultants, be more independent.

And it will propose that the companies under review divide the function of chairman and chief executive between two executives. Many of these proposals have been introduced in legislation by Senator Charles E. Schumer, Democrat of New York.

Well, that certainly clears it up. Well, what could go wrong ? How about an exodus of the best talent?

Boutique investment firms and top hedge funds are slowly lapping up the cream of global banking talent as the financial crisis forces banks to cut staff and limit the pay of their top risk-takers, Reuters says.

From Singapore to New York, leading traders and sales chiefs are making the switch as government pressure piles on Wall Street and European banks to cut multimillion-dollar bonuses.

‘‘The firms that still have a lot of assets under management, the hedge funds that have not been hit by redemptions, they are still picking up some of the money-makers from the big banks,’’ Pernille Storm at Hudson, an executive search firm in Singapore, told Reuters.

Singapore’s largest hedge fund, Artradis, said this month that it had hired a high-profile risk trader from Royal Bank of Scotland Group and a Credit Suisse executive based in New York, while Fox-Pitt, Kelton, an investment advisory firm, recently picked up five people from banks including Merrill Lynch and HSBC to focus on Asia.

In London, UBS lost two senior European investment bankers last month to the boutique Close Brothers, another to Lazard and at least three energy bankers to Lexicon Partners.

In the United States, where the credit crisis led to the failure of Lehman Brothers, the fire sale of Bear Stearns and the takeover of Merrill Lynch, the trend is even more visible.

Earlier this month, Moelis, an investment banking boutique, said it had hired Chris Ryan, former global head of credit fixed-income at UBS, as a managing director in New York, its second high-profile hire in a month.

UBS, the world’s biggest wealth manager, has cut thousands of jobs globally but ‘‘continues to hire selectively,’’ a spokesman in Hong Kong told Reuters.

Boutiques have also been expanding their clout globally, highlighted this week in Asia when Evercore Partners, an American mergers-and-acquisitions boutique, announced a strategic partnership with Citic Securities of China.

‘‘It’s possible for boutiques to actually hire top talent, which was almost impossible for them while the market was going ballistic from 2005 to the middle of last year,’’ Thomas Hester, head of equity at Fox-Pitt, Kelton, told Reuters.

Yes, Obama sure knows how to be a capitalist, doesn’t he ? Well, maybe that isn’t his talent. I’ll grant you that top GM executives may have a problem finding new jobs but that is another problem altogether. That was years in the making and the unions killed those companies. The financial services industry will just kill off New York City and Schumer will never understand what he helped do.

The economy

Tuesday, October 20th, 2009

UPDATE #2: Congress has a solution. Put ACORN in charge of lending standards. That will fix it.

UPDATE: More on he effect of the Stimulus Bill, or lack of it.

The economy still feels like it is very weak in spite of some talk about the recession being over. Here is an interesting analysis of the unemployment picture.

U.S. employment continues to decline, albeit much more slowly than at the beginning of 2009.
Declining more slowly is not the same as increasing. The President’s team wanted to trumpet good news as early as possible and they jumped the gun. A few weeks ago they had to adjust their message (again) to a less optimistic one. This was a communications mistake, not a policy one.

Employment growth will return. We just don’t know when, and the when is critical economically and politically.
Most forecasters expect a strong Q3 GDP number, to be released Thursday, October 29th. The two big questions are: (1) will that GDP growth be sustained through 2010, and (2) will it translate into job growth? The fiscal stimulus is temporary, and needs to translate into job growth and consumption growth to be sustainable.

The GDP growth is artificially inflated by massive outflows of money from the Fed and the “Stimulus” bill of last February. A similar effect might be obtained, with less corruption and misallocation, by pushing bales of money out of helicopters over the cities.

It is normal for employment not to grow at the beginning of a recovery. As demand for their products begins to increase, employers typically make their employees work longer hours before hiring new workers. Once the increased demand looks stable and predictable, and once the current workforce is working as much as they can, then employers start hiring. First you increase hours per worker, then you increase the number of workers.

There is a fallacy here, although not by the author of the blog post. Small business creates a very large proportion of the jobs in this country. The huge industrial corporations of the 1950s are mostly gone. Small business knows well that the Obama Administration is the enemy of small business. I don’t see small business expanding while he is president.

I recommend watching two numbers:

1. the unemployment rate – It was 9.8% in September. Most economists consider about 5% to be “full employment.” When will it begin to decline, and how long will it take to regain full employment?

2. the net change in payroll employment – This was –263,000 in September. First this needs to turn positive. Second, since the labor force grows with population, this number needs to reach +100K to +150K per month to keep up with population growth and keep the unemployment rate constant. Finally, it needs to exceed this range for the unemployment rate to decline toward 5%.

The press is paying a lot of attention to a third statistic, the U-6 measure of unemployment + underemployment. It’s an interesting and politically significant statistic, because it’s so much bigger than the traditional unemployment rate metric. But so far I don’t think it tells us a lot more about the trends than the above two metrics.

I will begin to feel good about the employment picture when we have had two consecutive months of payroll numbers >100K. At the same time you would expect the unemployment rate to start declining. I think the most important question you can ask an economic forecaster right now is, “When do you think the unemployment rate will begin to decline?”

I don’t see anything positive until this administration is gone, or at least until Nancy Pelosi is no longer Speaker.

I generally treat economic forecasts more than 12 months out as wild guesses. This year I have shortened that window to 6 months. I don’t think anyone has a clue what the employment picture will look like 9 or 12 months from now.
This uncertainty makes it hard for businesses to plan.

I’ll say ! The health care bill is another giant anchor around the neck of the economy.

Consumer spending is about 70% of GDP, and the most important determinants of consumption are (1) how many people are working and (2) are their paychecks going up?

Some on the right argue the fiscal stimulus is not helping increase economic growth. That’s silly. The government is pushing hundreds of billions of dollars out the door. At least in the short run, that’s going to increase GDP growth. We should see some of that effect in the Q3 GDP numbers nine days from now. The fiscal stimulus should continue to help increase GDP growth above what it otherwise would have been into and through most of 2010, especially in the first half.

I believe the stimulus is helping boost GDP growth now above what it otherwise would have been, but that it is too late, poorly designed, and horribly inefficient and wasteful. They are getting some bang, but their bang-for-the-buck and effectiveness are terrible.

I can do no better than to quote one of his commenters:

In an otherwise astute posting, you have one great silliness. It is silly to think the government can take a dollar out of the economy by borrowing, put the dollar back into the economy by spending, and conclude there’s a new dollar in the economy. Even in new math, plus one, subtract one, leaves a big zero.

I can’t improve on that. They are borrowing all the money they are spending.

Another great comment:

The recklessness, waste and fraud of the stimulus process (along with the various and sundry examples of gross incompetence and the effort to ram health care and climate disasters down our throats) has badly frightened small businesses around the country. When assessing the impact of the stimulus bill (or rather Obama’s fiscal policy — passed and proposed), an accurate accounting should also factor in the devastation caused by the fear produced thereby. FDR’s demonization of business in the 1936 campaign resulted in negative net investment and caused the Depression to relapse. Just as FDR’s rhetoric had investors heading for the hills, Obama’s policy efforts are causing prudent entrepreneurs to hunker down for the coming storm.

Obama has caused millions of people to anticipate massive problems in the future. These expectations are the biggest issue in the economy today.


Take a look at this chart. It is the Dow Industrials adjusted for gold price.

During the latest period since 1980 the Gold to Dow ratio saw an incredibly consistent trend upward to a peak of 44 in July of 1999 and has since experienced a consistent downward leg to the current ratio of about 9 ounces of gold to the Dow.

Given the historical trends, it is likely the Gold to Dow ratio will again hit the 1-2 range within the next few years.

This is the real story. I just hope we don’t end up like Argentina. The chart is hard to read but the bottom was 1980. Here is another, easier, chart.


These charts are from the Sagflation Blog. Look at 1980.

Anyone who has not read Amity Schlaes’ book, The Forgotten Man, will be excused to go read it and come back.

Cultural dropouts.

Monday, October 19th, 2009

Victor Davis Hansen has another timely column today. This one is on dropping out of the popular culture. Some of this is age, of course, but one comment really struck me.

Dr. Hanson, you are not alone in your withdrawal from the post-modern.

I do not own a television, no longer read any print journalism, and the radio antenna on my car was snapped off three years ago by vandals and I haven’t bothered to replace it. The only reason I am even vaguely familiar with the current crop of celebrities comes from standing in supermarket checkout lines and glancing at tabloid magazine covers. In the recent Rush Limbaugh-NFL dustup, I was shocked to learn that the Rams aren’t in Los Angeles anymore. The only movie theatre complex in my community went under this summer, and I didn’t know it for months.

I watch old studio system-era movies on DVDs. I plug my iPod to my car stereo as I drive and listen to music no longer welcomed on a radio station’s playlist. I’m reading a lot more these days: histories, novels and poetry.

What makes this all slightly sad, slightly humorous is that I write for the entertainment industry (thankfully not the Hollywood portion of it). Only the fact that the verities of life are eternal even in fiction and that online social networking (Facebook, Twiter, etc al.) allows me direct contact with my actual audience affords me the ability to still function in near-isolation.

I feel like Edward Grey sometimes. The lights seem to be going out all over Western culture, and I wonder if they will be lit again in my lifetime. The boomers’ lifelong goal of completely obliterating their parents’ world is nearing completion.

It may be that people like you and I are doing the right thing by withdrawing. We are the monks cloistering ourselves in our monasteries with our Latin texts ahead of the coming darkness preserving the old knowledge for the better days that will surely come. And unlike those medieval monks, we have the world’s libraries at our fingertips and the samizdat of the web to connect us in our isolation.

Tho’ much is taken, much abides; and though
We are not now that strength which in old days
Moved earth and heaven; that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.

Wow ! I feel almost exactly that way.

Last night, I watched Red Dawn, the new super duper edition. I had always been annoyed at the ending of that movie. After the brothers, Patrick Swayze and Charlie Sheen, had been killed, the narrator’s voice came on and said “The war ended, as wars always do.” I thought that was a very weak and pusillanimous ending for a war movie. In the Collector’s Edition I watched last night, the ending is different ! The weak comment is gone. I suspect some studio wuss added it after the film was finished. Now it’s gone. Enjoy.

The Erector Set

Sunday, October 18th, 2009

Glenn Reynolds today has a link to Lionel Trains in the anticipation of Christmas. I had Lionel trains and eventually had HO gauge trains, as well. When I had sons old enough to play with trains, I built an elaborate train set in my garage. Then I learned that southern California is not the place for toy trains. The boys were outdoors all the time and the train set gathered dust.

Another toy that kids today will never have the chance to enjoy is the Erector Set. There is still a small source for this toy but the glory days of the Erector Set were long ago. The toy was invented by A.C. Gilbert in 1913. The story is interesting. Gilbert was a Yale Medical School graduate and had also won a gold medal, for the pole vault, in the 1908 Olympic Games. He had a new design bamboo pole that he used in his winning vault and he sold these, as well as other toys.

Like many residents of New Haven, Connecticut, he often took the train to New York City; and on one trip in 1911 he was inspired with what would be the most popular of his dozens of inventions.

Watching out the train window as some workmen positioned and riveted the steel beams of an electrical power-line tower, Gilbert decided to create a children’s construction kit: not just a toy, but an assemblage of metal beams with evenly spaced holes for bolts to pass through, screws, bolts, pulleys, gears and eventually even engines. A British toy company called Meccano Company was then selling a similar kit, but Gilbert’s Erector set was more realistic and had a number of technical advantages — most notably, steel beams that were not flat but bent lengthwise at a 90-degree angle, so that four of them nested side-to-side formed a very sturdy, square, hollow support beam.

Gilbert began selling the “Mysto Erector Structural Steel Builder” in 1913, backed by the first major American ad campaign for a toy. The Erector set quickly became one of the most popular toys of all time: living rooms across the country were transformed into miniature metropoles, filled with skyscrapers, bridges and railways. Those kids who already owned a set would beg Santa annually for an upgrade, aiming for the elusive “No. 12 1/2” deluxe kit that came with blueprints for the “Mysterious Walking Giant” robot. It is difficult for anyone under the age of 35 today to appreciate just how popular the Erector set was for over half a century.

Now, it happens that I have a personal connection to the Erector Set. In the early 1970s, a patient was referred to me with an esophageal stricture. He was in his 90s and had been told he was too old for a major operation like that. He and his wife had emigrated from England in 1913 and he was looking for a job as an engineer. He met A.C. Gilbert who was having trouble selling his new toy. Gilbert had invented the Erector Set and had built a few samples of what could be constructed using the new kit of materials but the set consisted of lots of perforated metal pieces and machine screws and nuts.


Gilbert needed someone to build sample structures using the set and write instructions on how to build them. He took the job and spent years working on new designs and instruction books. The first Christmas after he began work for Gilbert, the giant New York City department stores, Macy’s and Gimbel’s, wanted sample structures to help sell the toys. My patient built a huge suspension bridge that crossed over the cash registers, which in those days were arranged like the check-out lines in today’s supermarkets. The bridge was over 20 feet long. As soon as the first store saw his bridge, they wanted one just like it. For years, he worked for Gilbert and, when I knew him, he had been retired to San Clemente for years.

He and his wife were in good health with the exception of this stricture that was so tight that he could only swallow liquids. He subsisted on apple sauce and other pureed food that would not pass through the stricture until he jumped up and down while standing against the wall. He had been told he was too old and his only option was some sort of feeding tube. Needless to say, he was skinny and the operation seemed to be feasible to me. Larry Mathis was his GP and Larry and I decided to try to fix his stricture. At surgery, his esophagus was so tight that it split when I tried to dilate it from below. There is a procedure called a Thal Patch. It is used to close esophageal perforations such as traumatic tears and ruptures, like the Boerhaave’s Syndrome. In this case, I had created the hole in the esophagus by tearing open the stricture. The surgery worked and he recovered very well.

A few years later, he presented with symptoms of acute cholecystitis but at surgery I found a cancer of the colon next to the gallbladder. About a year later he died of the cancer, having nearly reached the age of 100.

A.C. Gilbert also invented a number of other toys that were Christmas traditions for half a century. They included chemistry sets, physics sets and even a nuclear radioactivity set that included a Geiger counter. I had several of these, including the radioactive set. Those were the days before TV when children played with educational toys that were not so self-conscious about it.

Do Muslims have jobs ?

Saturday, October 17th, 2009

I know some Muslims must have jobs but I wonder about these young men who appear on TV threatening terrible punishment for anyone who insults the prophet. Do they have jobs ? I mean real jobs ? I understand that most in England and France are on welfare, or The Dole as they call it in England. Do they have businesses ? Real businesses? Or do they just exist on the guilt and largess of the western society they have parasitized ?

I really don’t know.

Are there Muslim societies where the young men actually, you know, work ?