Saturday, August 18, 2007

The OPEC of Health Care: The AMA

I have written several posts on convenient, low-cost, consumer-friendly, market-driven, walk-in health care clinics in retail stores like Wal-Mart, Walgreens, and CVS, go here, here, and here. This trend seems to me like one of the most promising solutions to the status quo of high-cost, consumer-unfriendly, non-market-driven health care in the U.S.

As I have asked before, which group do you think would be the most vocal in its opposition to this trend of market-driven health care? Well, of course it's the "OPEC of Health Care": the American Medical Association, trying to protect its cartel, see the WSJ article at the link below. Well, at least one member of the AMA's cartel is open to market-driven health care, see his letter below which appears in today's WSJ:

Your article "States Boost Scrutiny of Drugstore Clinics" (Personal Journal, Aug. 9) identifies a key problem confronting American health care today: opposition to change from the medical establishment. Many state regulators and physician groups, including the American Medical Association, oppose retail health clinics, which provide easy access to low-cost health care in retail settings. These clinics, with care provided by nurse practitioners, are emerging because of a shortage of primary-care doctors, which is forecast to worsen in the next 20 years; the emergence of higher deductibles and higher co-pays, forcing consumers to bear more of the cost of care and to become smarter health-care shoppers; and the rising number of medically uninsured, who, studies show, are willing to pay for care, but not at the exorbitant rates charged by emergency rooms and urgent-care clinics.

Medical literature consistently shows that care provided by nurse practitioners is comparable to that provided by physicians. In all of the major retail clinic chains, nurse practitioners use evidence-based treatment protocols and state-of-the-art software to standardize care.

A constant refrain of those opposed to retail health clinics is that continuity of care will suffer. Continuity isn't interrupted, however, if a patient tells his primary-care doctor that he went to a retail health clinic on a Sunday to have his poison ivy treated for $35 after waiting five minutes, when the alternative is to go to the local ER, wait as long as eight to 10 hours, and pay more than $300.

~J. Kevin Shushtari, M.D. and Chief Hospitalist, Hospital Internists of New London, New London, Conn.

China: Everyday Low Prices, Why Complain?

This is the state of U.S.-China trade relations: China keeps selling cheap stuff to American consumers and businesses, the Americans aren’t selling so much to China (but plenty to other parts of the world). The U.S. is demanding that the Chinese charge more for its products, and the Chinese are refusing.

~Tim Harford, in an excellent article disucssing his trade deficit with his babysitter

MP: Another way to think of the U.S.-China trade relationship, is to imagine that China is actually Wal-Mart and the U.S. is actually Target. Here it goes:

Target (U.S.) complains that the prices that Wal-Mart (China) is charging American customers are too low (currency is undervalued) and therefore the low prices (undervalued currency) are "unfair." To address the situation, Congress tries to pressure Wal-Mart (China) to raise its prices (appreciate its currency) for American consumers, and Wal-Mart (China) refuses, saying that its "everyday low prices" (everyday low currency) are in its best interest and its American consumers' interest. Congress then threatens to impose a special sales tax (import tariff) on Wal-Mart's (China's) products, and raise prices of Wal-Mart's (China's) products in the so-called "interest of fairness"?

Point A: Which is the only group that would support such a policy? Of course, Target (U.S. manufacturers), Wal-Mart's (China's) main competitor.

Point B: What is the consequence of the special sales tax (import tariff) on Wal-Mart's (China's) products? Higher prices for American consumers.

Point C: If we raise prices for American consumers with special sales taxes (import tariffs), are they worse off or better off? Worse off, of course.

Point D: National borders are just imaginary lines, and trade between U.S. and China involves a buyer and seller on different sides of an imaginary line called a national border, which is really no different than trade involving a buyer and seller on different sides (or the same side) of an imaginary line we call a state border, county border, city border, etc. If you support trade between your state and another state, you should support trade between the U.S. and China.

Quote of the Day - CSR: Picking 91 Million Pockets

It does not take an economics guru to conclude that diverting corporate assets away from activities that improve earnings endangers the financial well being of millions of Americans. About half of American households own stock. So, the pocket books of more than 91 million of our fellow citizens are tied to the fortunes of publicly traded corporations. Every dollar that is shanghaied from corporate coffers represents a hidden levy on shareholders, undermining their financial prosperity.

A quick Google search suggests that thousands of companies are joining the march toward corporate socialism. One critic claims that Nike spends about $10 million a year just staffing its Corporate Social Responsibility (CSR) program. After all, it costs cash to spend other people’s money. Reports must be written. Meetings attended. News releases issued. Croissants consumed.

While no one knows how many shareholder dollars are being spent each year on CSR, I suspect the bottom line would impress even the Congressional Budget Office. Think of CSR as the redistribution of prosperity away from those who have invested their savings in the stock market and toward those people or things that the unelected non-government organizations of the world consider worthy.


~Nick Nichols, Corporate Social Responsibility: Picking 91 Million Pockets

Friday, August 17, 2007

Ignore Those Who Complain of Trade Imbalances

As a general rule of thumb, experience has taught me that anytime somebody talks about an "imbalance in trade," or says they support "fair trade" instead of "free trade," it's pretty much guaranteed that either: a) they really don't know what they're talking about and don't really understand international trade, and/or b) they have told only a partial, incomplete story about trade. In either case, it would be a pretty good assumption that you can safely dismiss and ignore their comments.

Or as George Mason economist Don Boudreaux advises today in Cafe Hayek, "ignore anyone who complains that trade is "imbalanced." I have never encountered any such complaint that makes even a whiff of economic sense."

Professor Boudreaux is responding to complaints by UAW President Ron Gettelfinger's in yesterday's WSJ that "the U.S. and South Korea have a huge imbalance in auto trade."

As Don points out, GM and Ford have HUGE "trade imbalances" with their workers, just like most of us have with all of our employers (they buy more of our labor services than we buy of their products or services), and just like the "trade imbalances" most of us have with our dry cleaners, grocery stores, restaurants, cell phone companies, gas stations, banks, Amazon.com, Starbucks, etc. (we buy more from them than they buy from us).

Bottom Line: Any time somebody uses terms like "fair trade," or "trade imbalances," be extremely skeptical of what follows, because it will almost always be some kind of protectionist trade policy (e.g. tariffs on imports) to "balance trade" and make it more "fair."

#1 Song on Any Day, 1950-2007

What was the #1 song on the day you were born, the day you turned 18, the day you got married, or any day from 1950-2007 (in the U.S., UK or Australia)? Find out here.

Growing Pay Gap:Union Leaders Gain, Workers Lose

During the toughest economic times for organized labor in decades, union leaders are more likely to keep their jobs and get raises than the members they serve. A Detroit News analysis (Labor Bosses Don't Share Workers' Pain) revealed a growing pay divide between labor bosses and the rank and file who pay their salaries with their dues.

Decrease in Michigan union membership since 2002:
-14.2% (see chart above, click to enlarge)

Decrease in Michigan jobs at union halls since 2002: -1%

Increase in amount each union worker pays since 2002 to support union payroll costs: +21% (see chart above)

Increase in pay gap since 2002 between Michigan's 50 top-paid labor leaders and union workers: +$18,000

Average pay of Michigan's 50 top-paid union officials in 2007: $186,000

Number of labor officers and staffers in Michigan earning more than $100,000 in 2006: More than 1,000

Average pay of labor officers and staffers vs. the average Michigan union worker: More than 2X

Salaries of two secretaries at Local 659 in Flint: $101,000 and $95,000


Chart of the Day: World Cannabis Laws

The chart above (click to enlarge) shows how marijuana laws vary around the world.

Note: When it comes to cannabis, the U.S. (most states) is more of a police state than even Russia or Iran. For example, smoking pot in Iran is technically illegal but enforcement is next to nothing.

We arrest 1.7 million Americans annually for drugs (including marijuana), and will spend about $50 billion this year on the "War on Drugs." See the "Drug War Clock" here (updated every second) - we've spent about $30 billion so far this year on that war... By comparison, the War in Iraq cost $50 billion during the first full year (2003), increased in each of the following years, reaching about $100 billion in 2006.


Thursday, August 16, 2007

The Market Imposes a $2.75 Billion Fine on Mattel

Mattel stock price, March-August 2007
Mattel vs. S&P500, March-August 2007:
The discipline of the market can be strict, swift and severe. Mattel's stock price has dropped by almost 24% since late May (see chart above), largely due to two separate recalls of Chinese-made toys, which represents a $2.75 billion penalty for Mattel in the form of a loss of market value from about $11.45 billion in late May vs. $8.7 billion today (even accounting for the overall recent decline in stock prices (red line is S&P500), Matell (blue line) has fallen even further).

See related Forbes article here.

Bottom Line: Market competition is often the ultimate regulator. Who needs the FTC and FDA when you've got the market imposing immediate fines and discpline?

U.S. Companies With Global Sales Perform Better

From today's Financial Times (paid subscription required):

When Isaac Merritt Singer set up a branch of his sewing machine maker in Paris in 1855, he probably did not think he was blazing a trail U.S. companies would still be following more than 150 years later. Singer's expansion in France turned the New York-based company into the first US multinational, pioneering a business model that would be adopted by other icons of American capitalism, from Ford to Standard Oil to General Electric.

But perhaps the most important legacy of Singer's daring move was that it worked: within six years of the French opening, foreign sales had exceeded US revenues. It is a lesson not lost on today's corporate leaders (see chart above, many U.S. MNCs have half to two-thirds of sales overseas).

As the U.S. economy is squeezed by a housing slump and credit turmoil, a gap has opened up between companies with large overseas operations and those focused on the domestic market. The second-quarter results season drawing to a close has provided the starkest evidence yet of this trend.

Over the past three months, blue-chips such as General Electric, the conglomerate, IBM, the technology giant have hitched a ride on a global economy growing faster than the U.S. By contrast, companies that depend on domestic sales such as Wal-Mart and Home Depot, the do-it-yourself chain, have released disappointing results and gloomy predictions.

"U.S. companies are in the midst of an unprecedented boom in global earnings," wrote Joseph Quinlan, chief market strategist for Bank of America, in a recent note to clients. "The second-quarter earnings season was a tale of two earnings: robust overseas earnings . . . versus weak/soft domestic earnings".

This dichotomy has been reflected in U.S. stock markets, particularly during the past few weeks as investors have run for cover from domestic woes. After monitoring more than 40 stock-picking techniques, Merrill Lynch analysts concluded that buying shares in S&P500 companies with the highest percentage of international sales was the second-best performing investment strategy this year.

Bottom Line: U.S. companies with a higher percentage of foreign sales are stronger, more stable and more diversified, compared to companies that rely only, or mostly, on domestic sales. Just another underappreciated benefit of globalization.


Craigslist: Definitely Not Your Ordinary Company


Craigslist is one of the most popular websites in the U.S. (currently ranked #9 by Alexa), getting 8 billion page views per month. But you'd never know it by its world headquarters (see picture above), its staff (only 26 employees), or its business model - it doesn't want to maximize revenues or profits, and refuses to take advertising.

See a 5-minute Forbes.com video of Craigslist's CEO Jim Buckmaster.

Thanks to Sanil Kori.

George Will On Bernanke's Minimalist Fed

Every improvident loan requires an improvident borrower to seek and accept it. Furthermore, when there is no penalty for folly -- such as getting a variable-rate mortgage that will be ruinous if the rate varies upward -- folly proliferates. To get a mortgage is usually to commit capitalism; it is to make an investment in the hope of gain. And if lenders know that whenever they go too far and require inexpensive money the Federal Reserve will provide it with low interest rates, then going too far will not really be going too far.

The Federal Reserve's proper mission is not to produce a particular rate of economic growth or unemployment, or to cure injuries -- least of all, self-inflicted ones -- to certain sectors of the economy. It is to preserve the currency as a store of value -- to contain inflation. The fact that inflation remains a worry is testimony to the fundamental soundness of the economy, in spite of turbulence in a small slice of one sector.

Happily, Chairman Ben Bernanke's Federal Reserve remains committed to minimal management, which is what government does best.

~George Will from his most recent column

Related Quotes:

"If you protect a man from folly, you'll soon have a nation of fools."
~William Penn

"If you make the world safe for idiots, you'll have a world of idiots."
~Author unknnown

Updates

1. More on India At 60, a special report from Forbes, via Club for Growth.

2. More on world beer prices, check out the "Price of a Pint" database of beer prices in 137 countries, thanks to Ray Titus.

Wednesday, August 15, 2007

Smart (Market-based) vs. Dumb (Flat-Rate) Pricing

Most residential and commercial customers still pay their electric utility a flat rate (national average of 9 cents per kilowatt hour) multiplied by the kilowatt hours they use. That 's an example of a "dumb grid."

But with a smart grid in place, a utility can restructure rates, and then offer all its customers products that allow either the customer, or the utility, to control usage based on demand and hourly rates.

For example, maybe you 'd be ready to put off running your dishwasher until 3 a.m. if you could do it with electricity costing 5 cents a kilowatt hour, instead of 25 cents during the day at times of peak demand.

Read more about the increasing use of "smart grids" in Forbes.com.

Happy 60th Birthday INDIA!

"India is, the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend, and the great-grandmother of tradition. Our most valuable and most instructive materials in the history of man are treasured up in India."

"In religion, India is the only millionaire......the One land that all men desire to see, and having seen once, by even a glimpse, would not give that glimpse for all the shows of all the rest of the globe combined."

~Mark Twain (American Author, 1835-1910)


Read about the history of India's Independence Day here.

Read a list of reasons why you should be "Proud To Be An Indian."

Read news about India's Independence Day in "The Hindu" here.


Read Indian professor
Ray Titus' Buyer Behaviour blog here.

Read about what 60 years of independence has meant for India's financial and capital markets here.

Adjusted for purchasing power, India's economy is the world's 4th largest, and will probably surpass Japan this year to become the 3rd largest economy, behind only the U.S. and China.


Look Out Big Mac, Now There's a World Beer Index

The average Indian has to work more than 6 hours to earn enough money to buy a beer, whereas it takes a U.S. worker only 10 minutes, and an Italian worker only 9 minutes, according to a beer affordability index compiled by global beer giant SAB-Miller. Based in South African, SAB-Miller is one of the world’s largest brewers, with brewing interests and distribution agreements in over 60 countries across six continents.

Read a news report here. Read a previous post on the Big Mac Index here, and a previous post on iPod parity here.

Thanks to Sanil Kori.

Tuesday, August 14, 2007

Quotes of the Day: Why Socialism Fails

1. Socialize the individual's surplus and you socialize his spirit and creativeness; you cannot paint the Mona Lisa by assigning one dab of paint to a thousand painters.

~William F. Buckley, Jr.

2. Everything that is really great and insipiring is created by the individual who can labor in freedom.

~Albert Einstein

Overwhelming Evidence: Good Old Days Are Now

The chart above is from a 1995 Reason Magazine article "The Good Old Days Are Now," by W. Michael Cox, senior vice president and chief economist at the Federal Reserve Bank of Dallas.

Forget what you've heard in the media about "working harder and getting further behind." Most Americans today have both more leisure and better goods than they did even 10 or 20 years ago, and most of us certainly live at a much higher standard of living than our grandparents or great-grandparents, despite the fact that many people today mistakenly think their standard of living is declining.

Exhibit A: Look at the evidence in the chart above, and consider that further improvements have been made since 1990. We now live longer, start to work later in life and work much less annually (1,562 hours annually in 1990 vs. 3,069 hours in 1870), spend 30% less time working around the home vs. 100 years ago, retire earlier, have an increasing number of years in retirement (expected time in retirement was 0 years through all of human history until the last quarter century or so), experience 3X as much waking leisure now compared to our ancestors in the 1800s, etc. etc.

According to Dr. Cox, "Being distracted by the myth of declining living standards isn't getting us anywhere. The evidence is overwhelming. On average, Americans are better off than ever before."

Just ask yourself: would you be willing to trade the life you lead today, with your current income and with all of the modern conveniences, all of the new and improved products like computers and cell phones, all of the medical advances, for the life of your great-grandparents? I sure wouldn't, and I think the people who would trade their standard of living today for their grandparents' would be the rare exception.


The Fed's Undeserved and Unnecessary Attention

A lot of attention is paid to the Federal Reserve's monetary policy, especially its ability to frequently change its target for short-term (overnight) rates, the "Federal Funds Rate."

As the chart above shows (click to enlarge), the target rate for the Fed Funds has ranged from a high of 6% in early 2001, to a low of 1% in 2003-2004, and now back up to 5.25% since July 2006. But notice how relatively stable both the 30-year mortgage rate and the 10-year T-Note rates have been, fluctuating in range of only about +/- 1% while the Fed Funds has fluctuated in a range of +/- 5%. Notice also how the Fed Funds rate has been above the 10-year T-note rate in 2001 and for the last year and a half, and below the 10-year bond rate by 3% in 2003-2004, with almost no effect on the 10-year bond rate in either case.

Bottom Line:
1) The Fed has very little control over long-term interest rates at horizons of 10 years or more, unless expectations of future inflation change significantly, which they apparently haven't.

2) Long-term investment decisions are made based largely on long-term rates (10 years or longer), not short-term overnight rates (Fed Funds).

3) The Federal Reserve's influence on the economy is probably significantly overstated, since it only moves overnight rates around without changing long-term rates.

4) Undeserved attention paid to the Fed injects unnecessary uncertainty into the economy, as Wall Street and Main Street engage in excessive "Fed watching."

5) We'd probably be better off with an inflation target, like Canada, New Zealand, Australia, European Union and the U.K.

Monday, August 13, 2007

Gas Prices Fall, But You Won't Hear Much About It

Gas prices in Michigan are now below $2.50 in some areas, check prices here, and the national average has fallen from $3.24 to $2.76 per gallon, or about 15%, in the last two months (see chart above, click to enlarge).

Notice in the graph above that gas prices are about the same today ($2.76 per gallon) as two years ago, and there have been alternating periods of rising and falling gas prices between a low of $2.10 and $3.24. However, there are 480,000 hits for a Google search of the term "rising gas prices," but only 33,000 hits for a search of the term "falling gas prices." So even though gas prices have fallen and risen with about the same frequency over the last two years, there is about 14.5X as much attention paid by the media to rising gas prices compared to falling gas prices. (Most of the Google hits are for news reports.)


Record Tax Receipts, Shrinking Budget Deficit

Surging, record tax receipts of $2.116 trillion continued to shrink the federal deficit through the first 10 months of the fiscal year, the Treasury Department reported last Friday (see middle chart above).

Since Oct. 1, when the fiscal year began, the government has run a deficit of $157.3 billion, sharply narrower than the $239.6 billion in the year-earlier period. The White House predicts that the deficit this year drop to $205 billion, which will be the lowest deficit in 5 years, both in absolute dollars, and as a percent of GDP (see bottom chart above).

According to the WSJ, "So far this year, individual income taxes are up 11.4% to $965 billion (see top chart above), with much of the increase stemming from taxes on investments and other sources of income more important to the wealthy. Receipts from these so-called nonwithheld taxes are up 13.5% so far this year. Corporations also helped to fill the coffers, with corporate tax receipts up 10.5% so far this year to $289 billion."

MP: What happened to the "tax cut for the rich?" Aren't these data more consistent with a "tax hike for the rich?"

Yes, There's Still a Large Pay Gap.... For MEN Now!

From the NY Times (subscription required):

"Young women in New York and several of the nation's other largest cities who work full time have forged ahead of men in wages, according to an analysis of recent census data.

A recent study shows that women of all educational levels from 21 to 30 living in New York City and working full time made 117 percent of men's wages, and even more in Dallas, 120 percent (see chart above for NYC, 1970-2005, click to enlarge)."

Why the pay gap..... for MEN?

"Women have been graduating from college in larger numbers than men, and that many of those women seem to be gravitating toward major urban areas. In 2005, 53% of women in their 20s working in New York were college graduates, compared with only 38% of men of that age. And many of those women are not marrying right after college, leaving them freer to focus on building careers."

MP: Just wondering if Representative Carolyn Maloney (D-NY), who represents NYC and has long been an advocate of gender equity, will be as concerned about this pay gap for NYC men as she has been when there was a pay gap for women?

Other news stories appear
here in the Star Tribune, and here in the Gothamist.

(Thanks to Sanil Kori)

Carpe Diem's Back!!

1. I'm back blogging now after a break for a few days to give 8 hours of lectures during the weekend residency for the Business Economics course in UM-Flint's NetPlus! MBA program.

2. Even without any new posts for a few days, web traffic to CD was heavy over the weekend because of a link to a previous CD post on Slate.com. I think that CD post set a record for the most number of comments on a single CD post: 55.

Carpe Diem!