Saturday, March 20, 2010

Health Insurance Monopoly: Myths vs. Facts

Fact #1: "America’s Health Insurance Plans (AHIP) is the national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans. Our member companies offer medical insurance, long-term care insurance, disability income insurance, dental insurance, supplemental insurance, stop-loss insurance and reinsurance to consumers, employers and public purchasers."

Fact #2: "About 55% of those insured receive their insurance from a “self-insured” employer, where the employer acts as the insurer, rather than from a traditional insurance company. These "self-insured" employers often hire other firms, including insurance companies, to help administer the plans (they handle paperwork and form networks with doctors and hospitals). While employees often naturally think that the insurance company named on their insurance cards is providing the coverage, employers determine the details of coverage – from benefits to what premium the employee contributes – and they are responsible for putting aside money to cover employee medical costs.

The self-insured market consists of thousands of employers acting as insurance providers and competing for workers based on the salary they pay and the benefits they offer. Over 900 companies handle the administration of self-insured plans, with fees typically running three to eight percent of the total cost of insurance, depending on the employer’s size."

Fact #3: Definition of Monopoly: "A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition. In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare."

Myth #1, From the White House: "The health insurers’ monopoly is so strong that they can continue to jack up rates as much as they like – even if it means losing customers – and their profits will continue to soar under the status quo."

Myth #2, from President Obama: "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, just one company controls almost 90% of the market. Without competition, the price of insurance goes up and the quality goes down."

Fact #4: "Given that self-insured firms cover over half of the people insured in those states, the total market share for the largest five insurers would average closer to 30% than 75%."

Conclusion: How can an industry with 1,300 firms possibly be described as a "monopoly" (one seller)?

Quotes of the Day: Libertarians

1. "Libertarians are conservatives who still get high."
~Drew Carey

2. "Libertarians are liberals who like markets."
~Will Wilkinson

Cartoon of the Day: Self-Execution

Gary Garvel, on the possible, pending Pyrrhic Victory.

Words of Wisdom on Markets

"The market is not perfect. It is run by humans who make mistakes. But the same humans run government where they make different, often more costly, mistakes for which the public pays.

Capitalists make errors, but left alone, markets punish such errors."

Economist Alan Meltzer writing in the Wall Street Journal, via Scott Grannis

Fact of the Day: 200 Million Transactions Per Week

Wal-Mart serves customers and members more than 200 million times per week at 8,400 retail units under 53 different banners in 15 countries, and employs more than 2 million associates worldwide.

Why Canada Avoided a Mortgage Meltdown

From my AEI colleague Alex Pollock writing in yesterday's WSJ about America's "homeownership mantra," and how government intervention and public policy contributed to our housing troubles and mortgage meltdown, and why Canada was able to avoid both and achieve a higher rate of homeownership in the process:

"Suppose we agree that we would like our society to have widespread home ownership and a property-owning citizenry. Does it take government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac with implied taxpayer guarantees, tax advantages for the interest paid on home mortgages, and government pressure for "creative" mortgage lending to achieve this?

The Canadian experience shows that it doesn't."

See my related article "
Due North: Canada’s Marvelous Mortgage and Banking System."

Friday, March 19, 2010

Spending on Clothing and Footwear Falls Below 3% of Disposable Income for First Time in U.S. History

Americans spent almost $326 billion on clothing and footwear in 2009 (data here), which as a share of disposable personal income (data here), was the lowest ever in U.S. history, at only 2.98%. Spending on clothing as a share of income has fallen in 20 out of the last 22 years, from 4.78% in 1988 to less than 3% in 2009. Compared to 1950 when spending on clothing was 9% of income, spending last year was less than one-third that amount, and compared to spending on clothing of 6% of income in 1970, spending last year was half of that share.

In other words, clothing is now cheaper than at any time in history, when measured as a share of disposable income. And there's a better selection of clothing now, at higher quality, and with options available today like no-iron fabrics and washable silk that have become increasingly available in recent years. And when it comes to footwear, I don't think anybody would argue that the selection and quality today are far ahead of past decades - just think of the athletic footwear options today vs. Chuck Taylor Converse All-Stars, which were at one time "state-of-the-art" and were only available in two colors (black and white) until 1966.

The chart below explains the falling cost of clothing and footwear as a share of disposable income, by displaying the CPI for Clothing (data here) and the CPI for All Items (data here). Since 1992, prices in general have risen by 57%, while prices for clothing have fallen by 8.5%. With significantly falling prices in real terms, clothing has become more and more affordable almost every year, requiring smaller shares of our income, which has freed up disposable income that can now be spent on other consumer goods (think electronics, travel, entertainment, etc.).

Bottom Line: As a direct result of increased global competition, advances in technology, and increased worker productivity, clothing is cheaper today both in inflation-adjusted prices and as a share of disposable income. We have more clothing today per person than any previous generation (think of the number and size of closets in a typical 1930s, 1940s or 1950s era home), and the clothing and footwear are cheaper and better than ever, contributing to a gradually rising standard of living for the average American.

Famous American Brands No Longer Made in USA

Newsweek slideshow, including Chuck Taylors, Fenders, Etch-a-Sketch, Levis, some American flags (only 1.5% due to protectionism), NBA uniforms, etc.

Thursday, March 18, 2010

Silicon Valley Guilty of "Technology Manipulation"

Congressman Mike Michaud urges Treasury Secretary Tim Geithner and Commerce Secretary Gary Locke "to immediately address the growing problems associated with China’s continued currency manipulation."

Don Boudreaux responds:

"After you’ve succeeded in denying Americans access to the lower prices and larger quantities of goods made possible by Beijing’s current monetary policy, will you and your colleagues take similar action against Silicon Valley? After all, firms there famously engage in technology manipulation, which – by improving the productivity of nearly every industry in the economy – essentially (as you would say) subsidizes production of countless industries and imposes tariffs on the outputs of workers who compete with these advanced techniques. Such advanced techniques present an insurmountable barrier to the ability of many such workers to continue in their old jobs."

Congressional Approval Close to Record-Low of 16%

Gallup -- "Americans hold Congress in far less esteem than they do the president -- 16% approve and 80% disapprove of the job Congress is doing, according to the latest update from a March 4-7 Gallup poll. That is just two points off the record-low 14% Gallup measured in July 2008. Gallup has been measuring congressional approval since 1974."

Obama Gallup Approval Rating Below Jimmy Carter

Gallup Poll: Jimmy Carter, March 10-13, 1978 (Source).

Gallup Poll: Barack Obama, March 18, 2010 (Source).

Are There Gender Differences in Achievement? Yes

The answer is Yes, especially for reading, according to the Center on Education Policy's latest study, which found that:

1. In math, there was no consistent gender gap in 2008. Rather, there was rough parity in the percentages of boys and girls reaching proficiency at all three grade levels. The percentages of boys and girls scoring proficient in math tended to be similar, with boys edging out girls slightly in some states and girls doing slightly better in other states. No state had a difference in math between boys and girls of more than 10 percentage points.

MP: Actually, the authors might want to check their math on this finding. If you look at the
results by state for math proficiency at the high school level, you'll see that the percent of males with math proficiency exceeded females in 26 states, which is more than double the number of states in which females outperformed males (12). For the other states, there were either no gender differences (7 states) or data weren't available (5 states).

2. In reading,
girls outperformed boys in 2008 at the elementary, middle, and high school levels. Higher percentages of girls than boys scored at or above the proficient level on state reading tests at grade 4, grade 8, and high school; in some states, these gaps exceeded 10 percentage points.

MP: Actually, if you look at the
reading results here, you'll see that girls outperformed boys: a) in ALL states, and b) at EACH of the three levels (elementary, middle, and high school). In 30 different cases, the gender gaps in favor of females exceeded 10 percentage points!

From the conclusion:

"Consistent with other recent research, our analysis of state test results by gender suggests that the most pressing issue related to gender gaps is the lagging performance of boys in reading. In many states, the percentage proficient for girls is more than 10 points higher than the percentage proficient for boys. Researchers and state officials might investigate ways in which the school environment may be changed to better address the needs of boys."

MP: For some reason, and I could be wrong, but I just don't think this will get as much attention as the underrepresentation of women in engineering doctoral programs, even though this involves millions of boys in every state and at every level of education. And I doubt it will be described as "a persistent gender gap that is a national crisis and one that will prove to be deeply detrimental to America’s global competitiveness."

Am I wrong or too cynical?

Steve Forbes: We Have a Fixed Currency IN the US

Steve Forbes at about 2:46 talking about China's fixed ex-rate at 6.83 Yuan per dollar since the summer of 2008:

"Fixed currencies - we should be in favor of them, because it makes life easier. We have a fixed currency between California and New York, and it's a good thing."

Greg Mankiw's view on China's currency.

"Critics of China say it is keeping the yuan undervalued to gain an advantage in the international marketplace. A cheaper yuan makes Chinese goods less expensive in the United States and American goods more expensive in China. As a result, American producers find it harder to compete with Chinese imports in the United States and to sell their own exports in China.

There is, however, another side to the story. The loss to American producers comes with a gain to the many millions of American consumers who prefer to pay less for the goods they buy."

Median CPI Inflation Falls 17th Month: Record Low

According to a report released today by the Federal Reserve Bank of Cleveland, the median Consumer Price Index was virtually unchanged at 0.0% (0.5% annualized rate) in February. The "median CPI" is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data in the monthly CPI report from the Bureau of Labor Statistics' (BLS).

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was unchanged in February. The CPI less food and energy increased 0.1% in February. Over the last 12 months, median CPI inflation was 0.8% compared to CPI inflation of 2.1% (see chart above).

According to the Cleveland Fed:

"Federal Reserve policymakers are always on the lookout for inflation (i.e., a general increase in prices), and they use a variety of measures to gauge inflation trends. One such measure is the Consumer Price Index (CPI) published by the BLS.

The CPI measures changes in the prices of a number of goods and services—things like gas, rent, groceries, and clothing. However, the prices of some of these items—such as food and energy—are volatile; they can change a lot from month to month, based on supply and demand. So the BLS also publishes a measure of “core” prices that excludes food and energy prices. Researchers at the Federal Reserve Bank of Cleveland and Ohio State University devised a different way to get a “core CPI” measure—or a measure of underlying inflation trends. It’s called the Median CPI.

To calculate the median CPI, the Federal Reserve Bank of Cleveland looks at the prices of the goods and services published by the BLS. But instead of calculating a weighted average of all of the prices, as the BLS does, the Cleveland Fed looks at the median price change—or the price change that’s right in the middle of the long list of all of the price changes. According to research from the Cleveland Fed, the median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy." (emphasis added)

MP: Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI is certainly not now showing any signs of inflationary pressures.

In fact, the decrease in February's median CPI to 0.8% from 1.0% in January was the 17th consecutive monthly drop in median CPI inflation, and the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (historical data here). Therefore, as I reported before, it would seem that a stronger case could be made right now for deflation, than making a case for inflation.

Scott Grannis looks at the Producer Price Index and makes the case here that "inflation is alive and well."

Leading Economic Index Increases for the 11th Consecutive Month, First Time in Almost Six Years

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.1% in February, following a 0.3% gain in January, and a 1.2% rise in December.

Says Ataman Ozyildirim, Economist at The Conference Board: "The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment."

MP: The LEI has increased now in every month since last April, marking 11 straight monthly increases in the index for the first time since mid-2003 to mid-2004, almost six years ago.

Wednesday, March 17, 2010

Steinem Laments Elusive Equality for Women

From Reuters: "As she turns 76 next week, a message to all those confident young American women from pioneering feminist Gloria Steinem: For all the advances in women's rights in the past 40 years, equality remains a distant hope."

Exhibit A:

The Gender Degree Gap and The Great Mancession

The chart above shows the dramatic gender shift over time in college degrees (data here). In 1949, men earned 76% of all college degrees, i.e. men earned 317 degrees for every 100 degrees earned by women. By 1981, women earned 50% of all college degrees, and in almost year every since then have increased their share of all degrees to the current level of 58.61%, which is down slightly from the peak of 59.06% in 2007. The 60-year trend may now have stabilized at 59% of all college degrees earned by women and 41% earned by men, or 144 degrees earned by women for every 100 degrees earned by men.

The chart below shows the difference in the monthly male unemployment rate and female unemployment rate back to January 1948. For all months above the red zero line, the male jobless rate was higher than the female rate, and for all months below the red line, the female rate was higher than the male rate. For 249 consecutive months between December 1959 and August 1980, the female jobless rate was below the male jobless rate. In other words, for more than ten years, there was never a single month when the male jobless rate was higher than then female jobless rate, and that's quite a record.

During the last four recessions, the male unemployment rate has always exceeded the female jobless rate, but only by about 1% in the recessions of 1982, 1990-1991 and 2001, which is nothing compared to the historic 2.7% peak male-female jobless rate gap in August 2009 (11% for males vs. 8.3% for females).

For the 32-year period between 1948 and 1979, the average male-female jobless rate gap was -1.21% in favor of men (lower male unemployment rate compared to female unemployment), and for the 30-year period from 1980 to 2010, the average jobless rate has been 0.187% in favor of women (lower female unemployment rate compared to male).

Hypothesis: As college degrees have shifted gradually in favor of women over the last sixty years, and especially since 1981 as women got a disproportionately higher and higher share of all college degrees year-by-year, women have become both better-educated than men on average, and also better protected against unemployment, especially during recessions (see chart above of jobless rates by education). In other words, the Great Mancession of 2008-2009 was directly related to men's decreasing share of college degrees, and therefore greater exposure to unemployment, especially during the Great Recession.

Comments welcome.

Intrade Odds for Obamacare Drop from 70% to 35%

Intrade. I'm not sure what's going on here, any ideas?

(HT: Matt Bixler)

Update: It's back up to 70% (2:33 p.m. EDT)?

Southern California Home Sales Increase for 20th Month, Median Prices Increase for Third Month

From DQNews:

"Southern California home sales in February were above year-ago levels for the 20th month in a row as buyers continued to snap up bargain properties with government-backed mortgages and tax incentives. The median price paid for a home rose on a year-over-year basis for the third consecutive month.

A total of 15,359 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was virtually unchanged from 15,361 in January, and up 0.8% from 15,231 in February 2009.

“It’s possible the stars won’t line up this way again for many years. With prices and mortgage interest rates this low, the cost of ownership is about as low as we’ve seen it in decades,” said John Walsh, MDA DataQuick president.

The median price paid for a Southland home was $275,000 last month, up 1.3% from $271,500 in January, and up 10% from $250,000 for February 2009. Foreclosure resales accounted for 42.3% of the resale market last month, up from 42.1% in January, and down from 56.7% a year ago, which was the all-time high."

One Nation Over Gas: A Gasified U.S. Economy

From The Economist, an excellent article about how an unconventional glut of natural gas in America is shifting the balance of power in the world’s gas markets:

"North America now has an unforeseen surfeit of natural gas. The United States has enough gas under its soil to inspire dreams of self-sufficiency. Other parts of the world may also be sitting on lots of gas. Those in the vanguard of this global gas revolution say it will transform the battle against carbon, threaten coal’s domination of electricity generation and, by dramatically reducing the power of exporters of oil and conventional gas, turn the geopolitics of energy on its head.

A gasified American economy would have profound effects on both international politics and the battle against climate change. Displacement of oil by natural gas would strengthen a trend away from crude in rich countries, where the IEA believes demand has already peaked as a result of the recent spike in oil prices. Another consequence of the energy market’s bull run, the unearthing of vast new supplies of gas, could bring further upheaval. If the past decade was characterised by the energy-security concerns of consumers, the coming years could give even the world’s powerful oil producers reason to worry, as a subterranean revolution shifts the geopolitics of global energy supply again."

Tuesday, March 16, 2010

Almost 1 out of 3 Physicians May Leave Medicine

From a survey of physicians conducted by The Medicus Firm in December 2009, and appearing in the latest issue of the New England Journal of Medicine:

"If health reform passes without the public option, 7.4% of physicians stated that they would quit practicing medicine, unless they were nearing retirement, in which case an additional 21.8% of the responsdents said they would retire early,
bringing the total loss of physician workforce to nearly one-third of physicians leaving medicine.

"What many people may not realize is that health reform could impact physician supply in such a way that the quality of healthcare could suffer," states Jim Stone, Managing Partner at The Medicus Firm's Dallas office. "Based on the physicians' responses to the survey, health reform could significantly intensify the effects of the physician shortage. Depending upon which version of the health reform bill passes, the reality is that there may not be enough doctors to provide quality medical care to all of these newly insured people."

Over 50% of physicians who responded predict that health reform would cause the quality of medical care to deteriorate in America. When asked how health reform could affect the quality of medical care, 40.7% stated it would "decline or worsen somewhat," while another 14.4% stated that the quality of medical care would "decline or worsen dramatically". If a public option is implemented as part of health reform, 64.1% of physicians predict that the quality of medical care in general will decline."

Quote of the Day: Jellied Spines Are Easily Moved

"The average member of Congress – House and Senate – is first and foremost only a self-serving inconvenience-minimizer who doesn't have a lot of principle they stand on in the first place. It doesn't take much to move a jellied spine, so they'll probably get their votes."

~Dick Armey speaking to the National Press Club yesterday, where he predicted that Congress will pass health care reform.

Obamacare Odds: From 40% to 70% in 14 Days

Intrade odds for Obamacare.

KBW Bank Index Up by 175% from March Bottom

As another sign of increasing stability and strength in the U.S. banking sector, the KBW Bank Index (^BKX) has closed above 50 for the last four days, and is trading today above 51 for the first time since November 13, 2008. From the March 2009 bottom of 18.62, the KBW Bank Index has increased by 175%.

Monday, March 15, 2010

Markets in Everything: 1) The Coffee Inhaler, and 2) "Emotionally Activated" Lip Gloss: Read My Lips

1. The Le Whif Coffee Inhaler, a lipstick-sized tube that contains a "breathable coffee powder," gives you a nice caffeine fix without all that drinking and swallowing messiness.

2. A
new lipstick has gone on sale that shows when women are in the mood for sex. The lip product changes from clear to deep crimson as the wearer feels more and more frisky. It works by reacting with a woman’s body chemistry.Each $18.50 tube comes with a color chart so men can figure out how aroused their partner is feeling.

HTs: Phillip Miller and Tim Dodson

More on the Sickeningly Sweet Deal for Big Sugar

From today's WSJ front page:
The gap between what Americans and the rest of the world pay for sugar has hit its widest level in at least a decade, breathing life into the battle over U.S. import quotas that prop up the price of the sweet stuff. For years, U.S. prices have been artificially inflated by import restrictions designed to protect American farmers. That has kept the price well above the global market (see top chart above - the U.S. beet sugar price has averaged more than twice the world cane price, data here, Tables 2 and 5).

But the difference between the two has ballooned recently, giving new impetus to U.S. sugar processors and confectioners to step up their long campaign to pressure the government to increase import limits.

About 85% of the sugar consumed in the U.S. grows domestically, with the rest imported from about 40 countries under a quota system and Mexico, which isn't bound by the program under a free-trade treaty. Within the quota, exporters get higher prices paid by U.S. buyers but are subject to stiff tariffs once that limit is exceeded.

Sugar growers have used their lobbying muscle to fend off any increase in quotas for decades. The efforts by big brands to ease imports are just an attempt to "boost profits," according to Phillip Hayes, a spokesman for the American Sugar Alliance, a trade group of cane and sugar-beet farmers.
MP: Oh, and the efforts by the American Sugar Alliance to be protected against more efficient foreign sugar producers with government price supports, domestic marketing allotments, and tariff-rate quotas are NOT an attempt to boost profits for the U.S. sugar growers?

The bottom chart above illustrates one of the major motivations behind the protectionism for U.S. sugar growers. According to the USDA (data here), more than half of U.S. sugar has historically come from sugar beets, which is almost 40% more costly to produce ($38.91 per short ton) than U.S. cane sugar ($28.28).

Bottom Line: The major source of inefficiency for producing domestic sugar in the U.S. is that a majority of our sugar is produced from sugar beets grown in Michigan, Minnesota and North Dakota, and beet sugar is twice as expensive as producing sugar from sugarcane, the standard method of producing sugar throughout the rest of the world.

If you're producing a standard globally-traded commodity using production methods that are twice as costly as your foreign competitors, you normally won't survive, or would have a pretty small share of the market. Unless of course, your industry has hijacked the political process and erected protectionist trade barriers like the U.S. sugar growers, getting a guaranteed 85% market share, along with other sweeteners like price supports. It's a sickeningly sweet deal for Big Sugar and its 4,000 domestic sugar beet producers, but a pretty sour deal for the rest of us - it cost us about $2.5 billion last year in higher sugar prices,
see CD post.

Talk is Cheap; Retail Clinics Already DO Bend the Cost Curve Down; Latest Example: $35 Physicals

From CPAC's 2010 Blogger of the Year, Ed Morrissey of Hot Air, "Retail Health Care and Reform":
With the ObamaCare bill approaching a final vote, this seems like a good time to remind readers that other options are available for reforming the cost structure of American medical care.

What are “retail health clinics”? Chances are, you’ve already seen them. These clinics have begun rapidly spreading to malls, big-box retail stores such as Wal-Mart and Target as concessionaires, and drug stores like Walgreens. Instead of hiding behind insurance co-pays, the clinics offer pricing up front to consumers, so that they can decide for themselves what to “buy” and how much they want to pay for service.

This is the same mechanism that works to keep prices down and supply consistent in other areas of health care that insurance plans do not traditionally cover. For instance, cosmetic surgery and Lasik rely entirely on consumer compensation. There are no third-party payers to get in the way of rationally allocating resources to demand. In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise.

If we want to reform care, bend the cost curve downward, and promote supply in the health-care industry, we need to learn the lesson from retail health clinics. The top-down reform proposed by Congress threatens to stop real reform and amplify everything that’s currently wrong with the system.
Bending the Cost Curve Downward, EXHIBIT A:

DRUG STORE NEWS -- Take Care Health Systems, which is owned by Walgreens, has announced that it now is offering camp and sports physicals at all Take Care Clinics nationwide. The clinics, located within nearly 360 Walgreens stores nationwide, are offering physicals for $35 through the end of September. The physicals are administered by nurse practitioners and, in select markets, physician assistants.

HT to Wright Truesdell for the Ed Morrissey link.

The Illusion of Reform

Robert Samuelson nails it in his column today, here are some excerpts:

WASHINGTON -- "One job of presidents is to educate Americans about crucial national problems. On health care, Barack Obama has failed. Almost everything you think you know about health care is probably wrong or, at least, half wrong. Great simplicities and distortions have been peddled in the name of achieving "universal health coverage." The miseducation has worsened as the debate approaches its climax.

Though it seems compelling, covering the uninsured is not the health care system's major problem. The big problem is uncontrolled spending, which prices people out of the market and burdens government budgets. Obama claims his proposal checks spending. Just the opposite. When people get insurance, they use more health services. Spending rises. By the government's latest forecast, health spending goes from 17% of the economy in 2009 to 19% in 2019. Health "reform" would likely increase that.

Obama's telling people what they want to hear, not what they need to know. Whatever their sins, insurers are mainly intermediaries; they pass along the costs of the delivery system. In 2009, the largest 14 insurers had profits of roughly $9 billion; that approached 0.4 percent of total health spending of $2.472 trillion. This hardly explains high health costs. What people need to know is that Obama's plan evades health care's major problems and would worsen the budget outlook. It's a big new spending program when government hasn't paid for the spending programs it already has."

MP: If total health spending is $2.472 trillion per year, that's about $6.8 billion per day and $283 million per hour. So the profits from last year of $9 billion of the 14 largest insurers account for about 32 hours of annual spending on health care or less than two days of the total spending. It's then all of the other costs that account for the rest of the 99.6% of spending and the other 363 days.

As I pointed out in a previous CD post, insurance companies are the messengers of higher health care costs, not the source of higher costs. Focusing on health insurance profits as a source of higher health care costs is a diversion from the real factors that lead to higher costs.

1.7% Industrial Production Gain: Highest in 2 Years

The Federal Reserve reported today that Industrial Production increased in February by 1.7% compared to the same month last year, the largest increase since the 2.2% gain in January 2008. The February gain followed a year-to-year increase in industrial production 0f 0.90% in January, marking the first time of two consecutive monthly gains since January-February of 2008, and reversing 21 months of negative annual growth from March 2003 to December 2009.
Other highlights:

1. On a monthly basis, industrial production edged up 0.1% in February compared to January, following a gain of 0.9% in January. Production was likely held down somewhat in February by winter storms in the Northeast.

2. The production of consumer goods fell 0.4% in February. The index for consumer durables fell 2.3%, while the index for consumer nondurables edged up 0.1%. The decline in consumer durables was led by a drop of 4.4% in automotive products; other major components registered small declines. Despite the decrease in February, the output of consumer durables was up 9.2% from its year-earlier level as a result of an increase of 27% in automotive products; the indexes for the other major components of consumer durables were below their year-earlier levels.

See related CD post from January highlighting the expected 69% increase in motor vehicle production in the first quarter of this year.

Empire State Index: Positive Reading for 8th Month

The Empire State Manufacturing Survey was released today and indicates that conditions for New York manufacturers continued to improve at a steady pace in March. Highlights include:

1. The General Business Conditions Index posted its eighth consecutive positive reading in March, following 15 consecutive months of negative readings (see chart). The General Business Index, at 22.9, remained close to its February level, with 43% of respondents reporting that conditions had improved over the month and 20% reporting that conditions had worsened. The new orders index shot up 17 points to 25.4, indicating that the pace at which orders were being placed had quickened significantly over the month.

2. Employment indexes climbed, suggesting that employment is continuing to expand. The index for number of employees advanced 7 points to 12.4, its highest level in more than two years, with 20% of respondents indicating that employment levels had risen in March and just 7% indicating that employment had fallen.

3. Future indexes strongly suggested that New York manufacturers expect conditions to improve further in the months ahead. The Future General Business Conditions Index rose to 54.3, with 64 percent of respondents anticipating better conditions over the next six months (see chart).

MP: "It's beginning to look a lot like recovery...."

Sunday, March 14, 2010

Colombia's Stock Market and Economy Boom While the Colombia FTA Languishes into A Fourth Year

President Obama recently outlined his plans to "help U.S. businesses double their export sales and add what he said would be 2 million more jobs at home during the next 5 years."

To help increase U.S. exports, it would seem like passing the Colombia Free Trade Agreement (FTA) would be a real no-brainer. It was signed in November 2006 and has now been languishing for 1,209 days waiting for Congressional approval, according to the
Latin America Trade Coalition, which has helped to organize support of the FTA from:

1. More than 1,200 American companies, associations, and chambers of commerce.

2. All of the leading U.S. business and agriculture associations, representing literally millions of workers, farmers, and companies in every major sector of the U.S. economy: manufacturing, technology, services and farming.

3. More than 400 state and local chambers of commerce.

4. More than 50 organizations representing producers of agricultural commodities from apples to zucchini.

5. The entire textile and apparel supply chain, from cotton growers and yarnspinners to textile and apparel manufacturers.

6. The editorial boards of almost every
major newspaper including the Wall Street Journal, LA Times, Washington Post, Miami Herald and even the New York Times ("We don't say it all that often, but President Bush is right: Congress should pass the Colombian free-trade agreement now. We believe that the trade pact would be good for America's economy and workers.").

As the Colombia FTA stalls into a fourth year with almost universal support from every part of the economy, who or what is holding it up?

Apparently just one group: U.S. labor unions and their Democratic enablers in Congress. With the
public support of unions at a 72-year low, it's amazing that they can still exercise such power to withhold thousands of jobs from fellow Americans by stopping FTAs with not only Colombia, but with Panama and South Korea as well.

Take just one example: Illinois-based, and major exporter Caterpillar laid off 20,000 workers last year, at the same time it was pushing for passage of the Colombia FTA. According
to IBD, "Without free trade, Caterpillar is stuck paying around $100,000 in tariffs for each earthmover it sells to Colombia, a big mining country that’s one of Caterpillar’s best markets."

The graph above shows Colombia's incredible booming bull market - Colombian stocks have more than doubled in the last year with a whopping 120% annual return, and the market has increased 8-fold since early 2004. This makes the failure to pass the Colombian FTA even more regrettable, since U.S. exporters like Caterpillar (and its thousands of laid-off workers) are missing out on the opportunity to gain from Colombia's booming economy.

If Obama was really serious about increasing both U.S. exports and U.S. jobs he would have pushed the Colombia FTA through already. At least he's been talking more about it lately, let's see how serious he really is about creating jobs (even if they're non-union) by passing the signed FTAs with Colombia, Panama and S. Korea this year. My prediction is a lot of talk, but no action.

Excessive Health Insurance Profits? Insurance Cos. Are the Messengers, Not Source of Higher Costs

Health Insurance Industry Ranks #10 by Profit Margin in the Health Care Sector

President Obama and Health and Human Services Secretary Kathleen Sebelius have recently launched attacks on America's health insurance for making "excessive profits," which they claim have contributed to rising insurance premiums and higher overall healthcare costs. As I have pointed out, the heath insurance industry currently ranks #88 for profit margin (profits/sales) by industry, data here.

The table above compares the profit margins for all of the sixteen separate industries in the health care sector (
data here for the most recent quarter), and shows that Health Care Plans (health insurance companies) ranks #10 out of 16, behind nine other more profitable health care industries, including four drug industries, medical instruments, medical laboratories, and medical equipment.

As Larry Schreiber, president of Anthem Blue Cross and Blue Shield in Wisconsin, said recently "Insurance is expensive because health care is expensive."

So while health insurance companies are an easy political target to take the blame for rising health care costs, it's a little unfair to single them out when even many other health care industries are much more profitable. Health insurance companies are just the messengers of higher health care costs, not the source of higher costs.

Focusing on insurance company profits distracts the public from the real problem with health care, pointed out by John E. Calfee in the Wall Street Journal:

"Health insurers operate in a market in which party one (the patient) is told by party two (the doctor) what products and services to consume, while party three (the insurance firm) pays the bill, and more often than not, party four (the employer) bears the financial risk of cost overruns. That's a tough business environment in which to make money without offending someone."

Are Women Better Investors Than Men?

What Many Men Missed: 1-year returns of 53.2% for the S&P500, and 46.8% for the DJIA( click to enlarge)

From the NY Times, "How Men’s Overconfidence Hurts Them as Investors":

"Men and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.

The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago (see chart above).

Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said. Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.

Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times."