Archive for June, 2010

The Tyranny of the Credentialed

Wednesday, June 30th, 2010

There is an interesting post today on the blog of Ambrose Evans-Pritchard at the Telegraph. Why is it that we get better coverage of the US economy and government from British newspapers than our own ? Don’t bother to answer as that question has an obvious answer (aside from economic illiteracy of US writers). A junior member of the Federal Reserve Board economics staff, Kartik Athreya, senior economist for the Richmond Fed, has written a ridiculous letter complaining that economics blogs should be suppressed because the bloggers do not have economics PhDs.

“Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.”

I especially like how he invites ridicule by emphasizing the quality of his own education at U of Iowa.

“The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.”

Yes, we can’t have incoherent of misleading statements flying about the internet. I would include the statements of Nobel Prize winning economist Pail Krugman who wants to spend much, much more but who am I to question such an expert ?

“Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns.”

I won’t argue with that. Nuclear physics is hard, too. Even Medicine can be difficult at times. Mr Evans-Pritchard (not doctor), however, has some strong opinions that, I suspect, do not agree with Dr Athreya’s.

The current generation of economists have led the world into a catastrophic cul de sac. And if they think we are safely on the road to recovery, they still fail to understand what they did.

Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.

They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of “inflation targeting”. Have they all forgotten Keynes’s cautionary words on the “tyranny of the general price level” in the early 1930s? Yes they have.
They allowed the M3 money supply to surge at double-digit rates (16pc in the US and 11pc in euroland), and are now allowing it to collapse (minus 5.5pc in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher’s “Debt Deflation causes of Great Depressions”? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred.

The present policies of this administration are based on the recommendations of credentialed idiots like this letter writer and they scare the hell out of me.

The error was for the Fed to buy the bonds from the banking system (and we all hate the banks, don’t we) rather than going straight to the non-bank private sector. How about purchasing a herd of Texas Longhorn cattle? That would do it. The inevitable result of this is a collapse of money velocity as banks allow their useless reserves to swell.

Nicole Gelinas, in her book, After the Fall blames credit rating agencies and lack of regulation but she also writes that there was a brief period when an auction of non-performing assets was begun and could have set prices for the Mortgage backed bonds but this was short circuited by the Fed paying the banks full price in TARP. That ended the auction since who would sell for less than par when Uncle Sam was there paying retail ? Then, it turned out no one could decided what the retail price was since it was obvious the bonds were worth a quarter or less of the face value. The auction approach might have worked but it was aborted by government intervention, once again !

The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin.
The root error of the modern academy is to pretend (and perhaps believe, which is even less forgiveable), that economics is a science and answers to Newtonian laws.

Here is the take-home lesson, as they say in medical school; Economics is NOT a science.

Economics should never be treated as a science. Its claims are not falsifiable, which is why economists can disagree so violently among themselves: a rarer spectacle in science, where disputes are usually resolved one way or another by hard data.
It is a branch of anthropology and psychology, a moral discipline if you like. Anybody who loses sight of this is a public nuisance, starting with Dr Athreya.

It sounds like economics shares some problems with climate science.

Working with tools.

Sunday, June 27th, 2010

UPDATE: It now appears that a plumber in Kansas has provided a major design improvement to the BP oil well cap. He designed a cap using a flange arrangement similar to that used in high pressure hotel sewage lines. Once again, American ingenuity to the rescue as the tool user saves all the PhDs from their mishap.

I have previously posted my concern about the low status of manual arts in the educational and vocational fields in this country. This also applies to science but to a lesser degree. That previous post was obviously prior to the encounter between Barack Obama and Joe the Plumber.

One major point is the fact that Joe is making $250,000 a year at that point. How many law school graduates made that much in 2008?

Even in the field of innovation, it does not require a PhD to innovate in design or manufacturing. The basic problem, to me, seems to be the lack of manual skills with tools. People who make things, or can fix things, are the bedrock of a society that needs to design and manufacture quality objects. There is even a connection to the ability to do science. I wonder how many engineers cannot take apart and reassemble the things they design or work on. The same applies to surgery. Manual dexterity should be a basic requirement for the surgeon.

Today, there are a lot of unemployed people with useless degrees who would be better off learning plumbing or auto repair. In World War II, we benefited from the technical skills of the American soldiers who had learned to work with tools and many of whom could fix cars. The solution to the hedgerows of Normandy was an American army sergeant who devised a hedgerow cutter for the front of the Sherman tank. His name was Curtis G Culin and he was one of the heroes of World War II.

Dwight D. Eisenhower as President of the United States, in a January 10, 1961, speech to the American Society of Mechanical Engineers:
There was a little sergeant. His name was Culin, and he had an idea. And his idea was that we could fasten knives, great big steel knives in front of these tanks, and as they came along they would cut off these banks right at ground level – they would go through on the level keel – would carry with themselves a little bit of camouflage for a while. And this idea was brought to the captain, to the major, to the colonel, and it got high enough that somebody did something about it — and that was General Bradley — and he did it very quickly. Because this seemed like a crazy idea, they did not even go to the engineers very fast, because they were afraid of the technical advice, and then someone did have a big questions, “Where are you going to find the steel for all this thing?” Well now, happily the Germans tried to keep us from going on the beaches with great steel “chevaux de fries” – big crosses, there were all big bars of steel down on the beach where the Germans left it. And he got it – got these things sharpened up – and it worked fine. The biggest and happiest group I suppose in all the Allied Armies that night were those that knew that this thing worked. And it worked beautifully.

One of the reasons I like Neville Shute’s novels is because he has that theme in several of them. One, titled “Round the Bend” has as its theme the development of a new religion among men who work on airplanes. It is set in Asia and concerns the religions of Asia such as Islam, Hinduism and Buddhism. The chief character is an airplane mechanic who teaches other mechanics that to do a careful, flawless job in working on an airplane is the same as praying. His interpretation of Islam (The novel was written in 1951) becomes extremely popular in the Persian Gulf region as the imams see this as a new view of religion that attracts the young men who have become interested in mechanics and science and have drifted away from traditional life. His new creed is equally popular with Buddhists and Hundus, all of them aircraft mechanics and pilots. The resulting increase in quality of the work is appreciated by the airlines and he becomes a cult figure.

Like many of Shute’s novels, the engineer, even without a degree, is the hero. I wish we had more of this. Shute knew what he was writing about as he was a successful aeronautical engineer who had owned his own company. I titled my other post, The Manual LIfe. I wish it was more appreciated.

“Until we see a divergence from the patterns of 1929…”

Thursday, June 24th, 2010

How do you like that quote ? It comes from a CNBC piece on whether we will have a “double dip” recession. I am very pessimistic about the economy and will be as long as Obama is in office and has a Congress in the control of Democrats. The Democratic Party once understood economics but those days are gone. The “Baby Boom” generation seems to live in a fantasy world of their own making.

But Gluskin Sheff economist David Rosenberg also took up the 1930 theme in his daily analysis Thursday. He, too, noted the crash in 1929 was followed by the rally in 1930, followed by asset deflation, credit collapse, a natural disaster, geopolitical disagreements and threats, low interest rates, high gold prices and several other common characteristics.

The two analysts differ somewhat on how dire things could get for the stock market-Zimmerman is far more bearish-but both see troubling signs in the surging bond demand.

“At current yield levels (1.9% on the 5-year?), the Treasury market is screaming deflation,” Rosenberg wrote. “If it is right, not only is the consensus estimate of a new peak in corporate earnings in danger, but so is the key 1,040 technical threshold on the S&P 500.”

The yield on the benchmark 10-year note has slipped below 3.10 percent and is trending towards levels not seen since the March 2009 stock market lows.

Even as the government continues to pile up debt and deficits and supply keeps raining on the debt markets, investors are unwilling to walk away from the safety bid.

“That shows two things: People are concerned about safety and there’s no demand for credit,” Zimmerman says. “It’s demand for credit that drives the 10-year rate higher and it’s demand for safety that drives it lower. Evidently the world doesn’t like what it’s looking at.”

This analysis does not mention the poisonous atmosphere of the Obama administration for business. Even an election that devastates the Democratic majorities in both houses may not protect us as once free of the need to appeal to independents, Congress may go on a spree of bad left wing legislation.

Spending could re-explode in a lame-duck Congress because all decisions on how much to spend next year have been delayed. Neither house of Congress has adopted a budget resolution (for the first time since 1974), and none of the appropriations bills have even cleared a subcommittee.

Retiring House Appropriations Chairman David Obey (D, WI), typically a staunch defender of following regular order, could see his final year blemished if the spending is rolled up into omnibus bills with who-knows-what policy riders tacked on.

A lame-duck session would offer a last-gasp chance to enact some form of carbon tax, energy tax, cap-and-trade, or requirement that utilities must use politically-correct wind or solar power rather than more consumer-affordable fossil fuels. Or card-check measures. Or the Employee Non-Discrimination Act. Or any of a multitude of provisions that now cannot pass on their own but could be stuffed into a massive last-gasp hard-to-stop appropriations omnibus.

A stake through the heart of this malignant Congress may not even do the trick.

The 1929 crash was followed by a gusher of spending and protectionism by Hoover, a good Progressive. Roosevelt actually ran against Hoover from the Right in 1932. Of course, he then flipped and followed a Progressive agenda until World War II pulled us out of the Depression.

Remember another component of the world wide Depression was a series of defaults by European countries on their war debts.

Sort of like the Euro crisis today.


Friday, June 18th, 2010

We had a mini-firestorm yesterday after the House energy committee had BP CEO, Tony Hayward (now ex-CEO), in for a ritual beating. Joe Barton, a Texas Congressman and an honest man (as well as far better qualified to comment on the oil spill than 95% of his colleagues) apologized to BP for the disgusting treatment they had received from the Obama administration.

If you listen to what he says, there is nothing that I see as untrue. What really outrages me, is the behavior of the Republican leadership of the GOP in the House. They threatened him with loss of his position as ranking member. They ordered him to apologize for his remarks. This is truly outrageous.

Of course, the White House, showing that they can move quickly on issues that matter to them, immediately attacked Mr Barton. I am not surprised at their reaction. What would you expect them to say, knowing Barack Obama as we do now? Joe Biden, the Vice-President, attacked Mr Barton with considerably more skill than Obama and his usual minions. Biden has had decades to develop his skills in lying.

Later that day, under enormous pressure, Joe Barton apologized. Unfortunately, I cannot find the You Tube version of that statement but I have heard it and can reassure conservatives that his backing down was not of the cowardly variety but he maintained the truth of his earlier statement and apologized for the “misconstruction” of his statement. Of course, those misconstruing it, did so purposefully.

The scene we have witnessed the past few weeks is one of incompetence by our government (The Coast Guard stopped oil removal by barges because they could not verify the presence of life jackets on board) and grandstanding by Congressmen with a very weak connection to the science of the situation. Congressman Barton has BS and MS degrees in Engineering and has served as a consultant to the oil industry before his Congressional career. He is uniquely well qualified to judge the present situation. He represents a district heavily involved in the oil industry. What do you expect ?

I can understand the administration trying to mitigate the image of their incompetence. What I cannot accept is the reaction of Congressman’s Barton’s colleagues in the GOP leadership. That is disgusting. I got a call from the Republican Party an hour or so ago. I gave the lady calling a piece of my mind on this issue. I did it politely but I hope it registers. If Congressmen Boehner and Cantor can’t do better than this, I wonder how much difference it makes who is in the majority.

Maybe Mr Barton could have phrased his comments more artfully but IT WAS THE TRUTH !

The 2010 Bermuda Race starts Friday.

Tuesday, June 15th, 2010

UPDATE: The results are in and Sinn Fein lost their chance for the third consecutive overall win.

Place, Yacht, Owner, Origin, Results (ORR(Cls, Div) / IRC(Cls, Div))
Class 1 (11 Boats) – St. David’s Lighthouse Division
1. Belle Aurore, Cal 40, R Douglas Jurrius, Oxford, MD, 1, 3 / 1, 8
2. Sinn Fein, Cal 40, Peter S. Rebovich, Sr., Metuchen, NJ, 2, 7 / 2, 10
3. Gone With The Wind, Cal 40, William M. LeRoy, San Francisco, CA, 3, 8 / NA, NA

Gone With the Wind is a San Francisco Cal 40 trucked to Newport, RI for the race. Pretty good showing as Cal 40s sweep the class.

The last two Bermuda Races, the east coast’s premier sailing event, were won by Sinn Fein, a 45 year old Cal 40. Peter Rebovich, the owner and skipper, is almost as old as I am and yet he manages to keep winning. Here is a nice column by John Rousmanier on the team and their boat. The only other boat that has won two consecutive Bermuda Races was the famous Finisterre, sailed by Carlton Mitchell. Finisterre won the third consecutive race, a feat never equaled. Maybe this year.

Afghanistan and Pakistan

Sunday, June 13th, 2010

UPDATE #3: The new issue of Rolling Stone (Not out yet) has an article about General McChrystal and his aides who contemptuous of President Obama and his people such as Richard Holbroke and the Ambassador Eikenberry. All hell has broken loose in the White House and McChrystal has been called back to Washington to explain.

UPDATE #2: This may be old news being pushed by the administration in a bit of cheer leading. The original studies were published in 2007. This sort of thing may be the reason.

UPDATE: It now appears there are large deposits of minerals, especially Lithium, in Afghanistan. Given the neighbors of the country, I doubt this will be a benefit for a very long time, if ever.

A month or two ago I suggested it is time to get out of Afghanistan. There are serious problems with any effort to build a modern nation in Afghanistan. It has no assets in terms of natural resources or a history of a middle class. It is also a part of the sphere of influence of Pakistan which is frustrating our efforts by supporting the Taliban at the same time it is giving lip service to our war on the same entity. The fact is that the Taliban is a creature of Pakistan’s ISI, the intelligence service of the country which is more Islamist than the supposed democratic government.

India, which is our natural ally in the region, is reporting that the ISI is supporting them almost openly.

ISI provides funding, training and sanctuary to Taliban in Afghanistan on a scale much larger than previously thought, a report claims and suggests that the spy agency may be backing the insurgents to undermine Indian influence in the war-torn country. The report by the London School of Economics (LSE), based on interviews with nine Taliban commanders in Afghanistan between February and May this year, says the support for the Afghan Taliban was “official ISI policy”.

The IED explosives that resist detection by mine detectors are supplied to the Taliban by Pakistan. These IEDs are now the principle tactic of the Taliban.

“They have conducted less direct fire attacks from the winter into this spring, and they’re using more IEDs, suicide vests and potentially a car bomb,” he said.

As an example he cited last month’s suicide attack against the US-operated Bagram air base outside Kabul, and a suicide car bombing by the Taliban the previous day which killed at least 18 people, including six NATO troops – five U.S. and one Canadian.

The Bagram attack “was really not one that I think could have achieved success in terms of penetrating the base itself,” Scaparrotti said.

Yet it sparked hours of battles, left an American contractor and 10 militants dead, and highlighted the increasing sophistication and relentless pace of the conflict in which the Taliban are waging an insurgency to overthrow the U.S.-backed government of President Hamid Karzai.

It is now known that Pakistan, through the ISI, is now paying families of suicide bombers 200,000 Pakistani Rupees, about $1,000. This was a tactic of Saddam Hussein when he provided $25,000 stipends to the families of Palestinian suicide bombers. In a society where young men have few options for successful careers in real work, the sums are a real incentive.

“Although the Taliban has a strong endogenous impetus, according to Taliban commanders the ISI orchestrates, sustains and strongly influences the movement,” wrote author Matt Waldman, a fellow at Harvard University.
“They say it gives sanctuary to both Taliban and Haqqani groups, and provides huge support in terms of training, funding, munitions, and supplies. In their words, this is ‘as clear as the sun in the sky’.”
Waldman said the ISI appears to exert “significant influence” on strategic decision-making and field operations of the Taliban and controls the most violent insurgent units, some of which appear to be based in Pakistan.
Insurgent commanders claimed the ISI — an acronym for Inter-Services Intelligence directorate — was even officially represented, as participants or observers, on the Taliban supreme leadership council, he said.
The report alleges that Pakistani President Asif Ali Zardari himself had assured captive senior Taliban leaders that they were “our people” and had his backing. He had apparently authorised some to be released from prison.
The study drew an angry reaction from the Pakistani military.
“It is a part of a malicious campaign against the Pakistan army and the ISI,” Pakistan army spokesman Major General Athar Abbas told AFP.

The enemy we are fighting in Afghanistan is actually Pakistan and our aid to Pakistan is being used to fund our enemy in the field. This is worse than Vietnam where the enemy had sanctuary in supposedly neutral territory. Here, the enemy has sanctuary in our putative ally. We need to recognize this and get out. The enemy is Pakistan and our ally is India.

The recent expulsion of Michael Yon from Afghanistan is part of the delusion we are under in what is happening.

The intention was to write a detailed dispatch on the 3-17th Field Artillerly. Unfortunately, General Stanley McChrystals’ crew broke an agreement I had with the Army to stay until 5/2 Stryker Brigade Combat Team leaves Afghanistan, and so the research on this dispatch was not completed. However, there are some nice nighttime photos and so this dispatch is more about Canons than cannons.

He has incurred the displeasure of General McChrystal. The battle for Kandahar has been delayed and will probably not be successful. The expulsion of the best battlefield reporter we have is suspicious and suggests an effort to conceal the truth.

This is a political war on nearly every level. Though this will almost certainly be our most deadly year so far, violence is often a minor aspect of the struggle, while in some places combat is—by far—the most prevalent feature. Insofar as combat, our plans do not include serious fighting within Kandahar City, though soon after publication of this dispatch fighting will erupt in nearby areas. BfK is more of a process for both sides than a set battle. The Taliban are succeeding in their process to take Kandahar, and we wish to reverse that process.

The war is going to bring heavy casualties and I do not see the value of the struggle as we have committed to leaving next year, which makes the effort even less worth the cost.

The Vague President

Saturday, June 12th, 2010

I’ve tried to leave Obama alone for a while, partly because it is so enervating to think about him. Mark Steyn, however, seems to have the best view of him that I’ve seen. I need to read “Dreams From My Father.” My daughter, a surprise Obama supporter, gave me the other book he is alleged to have written but I had no interest in reading a campaign book by a man who had never done anything but run for office.

I did read a couple of books about him during the campaign and so was not surprised by how he has performed in office. I use the term “performed” advisedly.

Mark Steyn:
Anyway, a couple of years back, Michael Ignatieff, a professor at Harvard and previously a BBC late-night intellectual telly host, returned to his native land of Canada in order to become prime minister, and to that end got himself elected as leader of the Liberal party. And, as is the fashion nowadays, he cranked out a quickie tome laying out his political “vision.” Having spent his entire adult life abroad, he was aware that some of the natives were uncertain about his commitment to the land of his birth. So he was careful to issue a sort of pledge of a kind of allegiance, explaining that writing a book about Canada had “deepened my attachment to the place on earth that, if I needed one, I would call home.

Gee, that’s awfully big of you. As John Robson commented in the Ottawa Citizen: “I’m worried that a man so postmodern he doesn’t need a home wants to lead my country. Why? Is it quaint? An interesting sociological experiment?”

I think this is a key insight of Steyn’s. Obama has a vision of what he wants to do but it doesn’t exactly fit reality. Since Harvard professors rarely get to run anything more complicated than a seminar, there has been very little testing of Obama’s ideas. A San Francisco County Supervisor, a year or so ago, suggested that entire US Military be dismantled so the money could be spent on social programs. Now, there is a motion for debate. Mr Sandoval is actually a government official, of San Francisco it is true, but still he does have a hand in running something. That is the sort of thing that probably runs through Obama’s mind although he is just smart enough to know not to mention it.

More Steyn:

Many Americans are beginning to pick up the strange vibe that, for Barack Obama, governing America is “an interesting sociological experiment,” too. He would doubtless agree that the United States is “the place on earth that, if I needed one, I would call home.” But he doesn’t, not really: It is hard to imagine Obama wandering along to watch a Memorial Day or Fourth of July parade until the job required him to. That’s not to say he’s un-American or anti-American, but merely that he’s beyond all that. Way beyond. He’s the first president to give off the pronounced whiff that he’s condescending to the job — that it’s really too small for him and he’s just killing time until something more commensurate with his stature comes along.

He gives the air of a citizen of the world but, when the truth slips out (How do they say that in Austrian ?), he really hasn’t been anywhere except Hawaii and Indonesia. He speaks none of those languages that he scolds Americans for not speaking. It is all a sort of pose.

No doubt my observations about Obama’s remoteness from the rhythms of American life will be seen by his dwindling band of beleaguered cheerleaders as just another racist, right-wing attempt to whip up the backwoods knuckle-dragging swamp-dwellers of America by playing on their fears of “the other” — the sophisticated, worldly cosmopolitan for whom France is more than a reliable punchline. But in fact my complaint is exactly the opposite: Obama’s postmodern detachment is feeble and parochial. It’s true that he hadn’t seen much of America until he ran for president, but he hadn’t seen much of anywhere else, either. Like most multiculturalists, he’s passed his entire adulthood in a very narrow unicultural environment where your ideological worldview doesn’t depend on anything so tedious as actually viewing the world.

Here is the key. Obama has adopted the airs of a cosmopolitan without actually, you know, knowing anything or being anywhere.

You don’t need to go anywhere, or do anything: You just need to pick up the general groove, which you can do very easily at almost any college campus.

This Barack Obama did brilliantly. A man who speaks fewer languages than the famously moronic George W. Bush, he has nevertheless grasped the essential lingo of the European transnationalist: Continental leaders strike attitudes rather than effect action — which is frankly beneath them. One thinks of the insistence a few years ago by Louis Michel, then Belgian foreign minister, that the so-called European Rapid Reaction Force “must declare itself operational without such a declaration being based on any true capability.” As even the Washington Post drily remarked, “Apparently in Europe this works.”

Apparently. Thus, Barack Obama: He declared himself operational without such a declaration being based on any true capability. But, if it works for the EU, why not America? Like many of his background here and there, Obama is engaged mostly by abstractions and generalities. Indeed, he is the very model of a modern major generalist. He has grand plans for “the environment” — all of it, wherever it may be.

Steyn is able to capture the essence of Obama here. We are now being taught that it doesn’t matter if we go places no country has ever gone before. We will stimulate the economy by borrowing. This is a bit like paying a bill with a credit card. It doesn’t get us anywhere but maybe it will keep the bill collector away another month. The BP oil spill is another such example. Obama is all about politics and the next election. He rails on and on about “British Petroleum” years after it changed its name and the British people, our most loyal ally, fume about it week after week. Who cares if their pensions, invested in BP shares, are destroyed? Obama needs a scapegoat. Years from now, the litigation will be settled and it will probably be resolved that it was all an accident and BP has no special liability beyond the usual business and civil liability.

However, our relationship with England will be changed forever. Obama has fantasies about mistreatment of his father in Kenya by the British, fantasies that cannot be confirmed, and so he hates the British. And we are along for the ride, whether we like it or not. His lack of economic understanding, typical of the left who had been kept from governing this country until now, will lead to ruin. Thus images can kill.

Victor Davis Hansen has an excellent piece today on the same topic.

How not to reform health care.

Friday, June 11th, 2010

The academic world of health care likes the Obama health “reform” act. They are now figuring out how it will affect healthcare since it is a slapdash combination of pork barrel projects and untested assumptions. For example, it uses all the old command and control theory to deal with utilization and cost.

For years, the debate over health care has rested on the assumption that the uninsured should be brought into the health-care system the rest of us use. But what if something like the opposite is true? What if the best way to help the uninsured is to make the health-care delivery system they already use — the St. Elsewhere model — better, more efficient, and more affordable — in short, more like the VA? And what if, eventually, the rest of us could join that system?

Longman says the first step is covering the uninsured, particularly low income people. We’re on that path now with the passage of health reform. But we don’t have to put all the newly covered people into the current strained fee for service system and Medicaid. He proposes creating the “Vista Health Care Network” (VistA is the name of the VA’s electronic medical record system). Invite the “St. Elsewheres” and individual doctors to join an integrated delivery system to serve the newly insured. Like the VA, it would have a team approach, use health IT and comparative effectiveness protocols. Doctors would be salaried, and rewarded for quality not quantity. In other words, it would be what has now become known as an “accountable care organization.”

This is the standard fantasy of the political left. If we could just get rid of those evil profits and monetary incentives, everyone would adopt the virtues of the Utopia. Marx said “to each according to his need and from each according to his ability.” That may work well in religious communities where everyone is concerned with salvation. It doesn’t work in the real world, as anyone who studied the Soviet Union or Cuba should attest.

Longman predicts many struggling hospitals would see it as a lifeline. “Reimbursement rates would be set much higher than in Medicaid, and when combined with the efficiency in the VA model of care, they’d be high enough to guarantee the solvency of participating providers.”

Does anyone really believe that ?

The hospitals that take Vista’s offer would have to radically change the way they do business. They’d have to join the twenty-first century and integrate health IT into the practice of medicine. They’d have to embrace the VA’s safety culture. They’d also have to shed acute care beds and specialists and invest in more outpatient clinics in which, for example, diabetics could learn how to manage their disease, or people with high blood pressure could join smoking-cessation and exercise programs.

Where would the sick people go, if not to the hospital ? The graveyard ?

As with the VA, there would also be much more emphasis on integrated mental health-care and substance-abuse programs. Also as with the VA, doctors who work for these hospitals would be salaried and earn bonuses for effective performance (keeping their patients well). No longer would doctors have financial incentive to engage in overtreatment.

Yes they would have an incentive to under treatment. Sort of like the Netherlands ER doctors who give emphysema patients a lethal injection of morphine rather than admit them to the hospital. A doctor who admits an emphysema patient with respiratory failure is fired. Period. NO appeal. Everyone knows the rules. Except the families.

There is another opinion, well summarized in another medical blog. His posts are heavily embellished with humor that not all will appreciate. His ideas, however, are right on the money.

Until quite recently, DrRich counted himself among the stalwarts of scientific strict constructionism. He was truly dismayed that the NIH and some of our most well-regarded academic centers (under the guise of wanting to conduct objective “studies” of alternative medicine) have lent an aura of respectability and legitimacy to numerous bizarre ideas and fraudulent claims masquerading as legitimate medical practices. To DrRich, such developments were yet another clear and unmistakable sign of the End Times.

Furthermore, DrRich (a well-known paranoid when it comes to covert rationing) saw a more sinister advantage to the official and well-publicized support that government-funded institutions were giving to the alternative medicine movement. Namely, fostering a widespread impression among the unwashed rabble that alternative medicine is at least somewhat worthwhile (and plenty respectable) advances the cause of covert rationing. That is, the more you can entice people to seek their diagnoses and their cures from the alternative medicine universe, the less money they will soak up from the real healthcare system. With luck, real diagnoses can be delayed and real therapy put off until it’s far too late to achieve a useful outcome by more traditional (and far more expensive) medical means.

I think there is some truth to this. Chiropractors, for example, have made good use of the myth that their services are far cheaper than conventional medicine and therefore a money saver. The legislators who vote for these “money saving” changes in the law have never spent much time looking at the house size of chiropractors compared to MDs. In the Workers Compensation world, I have seen a case in which a disabled worker received 900 chiropractic treatments in one year.

Rather than a term of opprobrium, “alternative medicine” may actually be our most direct road to salvation. Indeed, DrRich thinks that far from damning alternative medicine, we should be blessing it, nurturing it, worrying over it, in the precise manner that a mountaineer trapped in a deadly blizzard would worry over the last embers of his dying campfire.

What turned the tide for DrRich was a recent report, issued by the U.S. Centers for Disease Control and Prevention, estimating that in 2007, Americans spent a whopping $34 billion on alternative medicine. That’s $34 billion, for healthcare (in a manner of speaking), out of their own pockets.

The implications of this report should be highly encouraging to those of us who lament the impending creation of a monolithic government-controlled healthcare system, and who have been struggling to imagine ways of circumventing the legions of stone-witted, soul-eating bureaucrats now being prepared (Sauron-like) to descend upon us all, doctor and patient alike.

This is why DrRich has urged primary care physicians to break the bonds of servitude while they still can, strike out on their own, and set up practices in which they are paid directly by their patients. Such arrangements are the only practical means by which individual doctors and patients can immediately restore the broken doctor-patient relationship, and place themselves within a protective enclosure impervious to the slavering soul-eaters.

This is the lesson to be drawn. We’ll see how many physicians take the hint. The seriousness of the trend is suggested by the efforts of the government, especially in Massachusetts, to make private practice of medicine illegal.

DrRich has speculated on various black market approaches to healthcare which could be attempted by American doctors (and investors) should restrictive, government-controlled healthcare become a reality. But now, thanks to the success of alternative medicine, there is a direct and straightforward path for American primary care physicians to re-establish a form of now-long-gone “traditional” American medicine, replete with a robust doctor-patient relationship, right out in the open – the kind of practice where patients pay their doctors themselves.

Simply declare this kind of practice to be a new variety of alternative medicine. Likely, PCPs will need to come up with a new name for it (such as “Therapeutic Allopathy,” or “Reciprocal Duty Therapeutics”), and perhaps invent some new terminology to describe what they’re doing. But what’s clear is what they will be doing is so fundamentally different from what PCPs will be doing under government-controlled healthcare as to be unrecognizable, and nobody will be able to argue it’s not alternative medicine. In fact, it will seem nearly as wierd as Reiki.

There is a novel suggestion.

Associated Press’ Unintentional Humor About Tom Campbell

Wednesday, June 9th, 2010

By Bradley J. Fikes

The humor comes courtesy of AP writer Don Thompson, with a wistful good-bye to the political career of Tom Campbell, defeated Tuesday for the Republican senatorial nomination to face Barbara Boxer this fall.

Campbell says it’s sad that a moderate like himself can’t get nominated, because the primary system is “stacked” against those in the middle of the road. And from the tone of his article, Thompson agrees with Campbell.

The unintentional humor appears in the third graf of Thompson’s article, which says this:

“Campbell stumbled on all the Republican defining issues—abortion, guns, gay marriage and taxes—as he lost the GOP nomination to former Hewlett-Packard Co. chief executive Carly Fiorina.”

Campbell stumbled on key GOP issues

Campbell stumbled on GOP issues

Since Campbell disagrees with all issues key to GOP voters by Thompson’s own account, that would appear to put Campbell more in line with the Democratic Party. So why didn’t Campbell run as a Democrat?

And courtesy of Thompson, Campbell keeps digging himself a deeper hole, using the most self-aggrandizing and fatuous comparisons:

After his latest loss, Campbell wondered if even Abraham Lincoln and 19th century statesmen Daniel Webster and Henry Clay, known as the great compromisers, could win election in today’s harsh partisan environment. He worried that voters are turning from veteran politicians like himself just as their experience is needed to heal the economy and fight unconventional wars.

Lincoln, Webster, Clay . . . and Tom Campbell. More from Thompson on this latest political giant:

Campbell has difficulty in Republican primaries because his social views are the opposite of most Republican voters. He favors abortion rights and gay marriage, and has supported state tax increases in the past. He alone among the three Republicans in the U.S. Senate race opposed letting people on the federal government’s “no-fly” list buy guns.

Abortion rights and gay rights are indeed contentious issues for Republicans. Some Republicans do win office supporting one or the other, because they are for limited government in other areas. Campbell doesn’t offer that. His record of support for tax increases and a dubious restriction on gun rights made the mixture unappetizing for both the social conservative and the libertarian conservative factions of the GOP.

Thompson’s capsule description of the “no-fly” list gun ban proposal by Sen. Frank Lautenberg, (D-N.J.), fails to point out the serious constitutional issues at stake, as described by the libertarian magazine Reason:

His bill, the subject of a recent Senate hearing, gives the attorney general the power to block gun sales to anyone the government suspects of being a terrorist. Never mind the obstacle known as the Second Amendment, which according to the Supreme Court protects an individual right to own guns for personal use.

Someone arrested, tried, and found guilty of a crime loses that particular freedom. But Lautenberg’s bill would strip the right from many people without forcing the government to show they’ve done anything wrong.

It’s not entirely clear what it takes to be tagged in the government’s terrorist watch list, which includes more than a million names and has been plagued with errors. “How you get on is a mystery, and how you get off is extremely difficult,” says Mike German, a former FBI agent now with the American Civil Liberties Union.

A 2009 evaluation by the Justice Department’s inspector general found that many nominations “were processed with little or no information explaining why the subject may have a nexus to terrorism.” The FBI also “did not consistently update or remove watch list records when appropriate.”

If you get put on the list by mistake, you may find yourself permanently exiled to the Twilight Zone. The program under which innocent Americans may challenge their designation “does not always provide meaningful solutions,” according to the inspector general of the Department of Homeland Security.

Don Thompson’s story reads like a big wet kiss for Campbell from an admiring reporter. But on closer inspection, it turns out to be something far less attractive.

This is my own opinion, and does not necessarily reflect that of my employer, the North County Times newspaper in San Diego and Riverside counties.

The coming economic crash

Monday, June 7th, 2010

Arthur Laffer has a powerful column today in the Wall Street Journal. He, of course, was the author of the “Laffer Curve” that led to supply side economics as the economic policy of Ronald Reagan.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

This is one effect that supply side economics, in its most basic form, should predict. Maryland passed a “Millionaire’s Tax” a couple of years ago and discovered that millionaires and their tax revenue disappeared.

But as the state comptroller’s office sifts through this year’s returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

That is supply side economics. The basic definition is narrow, that demand does not drive the economy but that economic activity is based on incentives for the producers. If you can make more money by producing widgets, you will do so. The principle difference from Keynesian economics is that the producers themselves, not government bureaucrats, make the decisions. This is Adam Smith’s Hidden Hand. Making more widgets will not necessarily cause consumers to buy them. It is up to the producer to recognize demand and fulfill it. Sometimes they will fail because they misread the market. That is their problem, not the government’s.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994.”

Even Hillary CLinton recognized the incentive and had her law firm bonus moved up to December 1992.

We saw this in 1992 when there was a bulge in income realizations late in the year as people anticipated higher taxes after the election of Bill Clinton. Hillary Clinton’s law firm, for example, distributed bonuses in 1992 that otherwise would not have been paid until 1993. While the number of people who have this much flexibility in timing their income this way is small, the same principle applies to all income earners. In the aggregate, the impact can be large.

We have seen the same phenomenon with the “Cash for Clunkers” program and with the cash incentive for first time home buyers, which ended on April 30. In both cases, purchases were moved up to take advantage of the incentive but the sales after the incentive expired plunged. No net increase in economic activity resulted.

Laffer discusses the Reagan tax cut of 1981.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

He doesn’t mention that the delay in implementation of the tax cuts was due to Bob Dole who, as Senate majority leader, rejected supply side economics and delayed the recovery. The result was a big loss for Republicans in the 1982 election. The election this fall is being compared to the 1982 election but there is a huge difference. The Reagan loss was due to the delay in tax cuts and economic recovery. This year, the loss will be due to anticipation of Obama’s policies that have not yet taken effect. Once they are in force, things will get worse, a lot worse.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

This might be dismissed as partisan rhetoric except that Laffer predicted the 1981 to 83 effect of delaying tax cuts.

Next year will be a bad year for the US economy. I have read an investment letter since 1977. It is called The Dow Theory Letter and it has been written by Richard Russell since the 1950s. I wish I had taken all his advice but, fortunately, I have taken some. Twice, he has sent an unscheduled warning to subscribers. Each time, it was a warning of a major drop in the stock market. Once was in 1987, a month before the 25% market drop in one day. The second time was two weeks ago. He told his subscribers to sell all their stocks. He also said that, by the end of the year, the America we know would be changed beyond description. I think there may be a bit of hyperbole in that statement but I would sell all my stocks if I still had any.

We have not yet seen the Obama policies in effect. The economy has made some tentative moves in the direction of recovery. That will end once the Obama policies take effect. I have made adjustments in my life, including selling my house. I wonder how many others are doing the same thing ?