http://online.wsj.com/article_email/SB124896891815094085-lMyQjAxMDI5NDM4MTkzNjE4Wj.html
http://dealbook.blogs.nytimes.com/2009/07/31/cuomos-bonus-peep-show/?emc=eta1
So, what we have here are nine "lenders" that got U.S. aid and paid out $1 million (or more) each to 5,000 employees. The nine "firms" had combined losses of nearly $100 billion. The government injected $175 billion into those nine "firms" through its Troubled Asset Relief Program.
Now, there are all sorts of caveats that fly fast and furious here. Goldman and JP Morgan Chase have already paid their money back...keeping "talent" is critical (what "talent"?)...but the issue is what are the stockholders paying for? At Citi, what were the CEO and his direct reports getting bonuses to do? What were we "incentivising"? We were obviously "incenting" the wrong things. So, you fail and what happens? You get a bail out from the government, a "bonus", and you get to run a "zombi bank": too big to fail and to incompetent to improve...what happened to "creative destruction"? To use a continuing example, without intervention, Citi would have failed...its good assets would have been purchased by JP Morgan Chase (which already had a plan to purchase Citi before the "crisis"), and less people would have been "unemployed" than the government's assumptions because Chase would have saved 50% of Citi anyway (the use of 50% is just for the sake of this good bank/bad bank example).
So, again we ask, what were we paying for?
Friday, July 31, 2009
Common Sense Health Reform
http://economix.blogs.nytimes.com/2009/07/31/a-common-sense-american-health-reform-plan/?emc=eta1
"It sounds more impressive to say that someone is narcissistic rather than a jerk" -
Dr. Susan Jaffe
Manhattan Psychoanalyst
"The study of narcissism is a growth industry in academia" -
Dr. Daniel Ames
Social/Personality Psychologist
Columbia Business School
One of the great writers of our time is Peggy Noonan who has an "opinion" column with the Wall Street Journal. Her 7/24/09 column on "ObamaCare" was occasioned by her reaction to President Obama's press conference on the subject. While I was thinking about how to include her thoughts in a "post" on the subject, Professor Uwe Reinhardt (of Princeton) came out with an excellent perspective on what's needed that includes Noonan's article. It's attached.
Professor Reinhardt has studied what he calls the nation's perpetual "national conversation" on health reform for over 30 years and he feels capable of summarizing what an American "common sense" approach would be. He lists 8 components to common sense health care, two of which follow:
#1 - Only patients and their own doctors should decide what clinical response is appropriate for a given medical condition, even if that response involves unproven clinical procedures or technology;
#3 - Rationing health care is un-American.
To read the rest, click on Dr. Reinhardt's blog (attached). His conclusion, after appropriate references to narcissism (where he implies a national cultural orientation toward self), is that the "simple common sense" of the American people is that any proposed health reform must not reduce the revenues of hospitals, lest some neighborhood hospital may have to close; or of doctors, lest some doctors might refuse to see patients; or of the manufacturers of health products, lest they are unable to innovate; or of anyone on the supply side of the health sector, lest they go out of business and have to lay off employees.
Finally, "simple common sense" dictates the sole and proper perspective any American citizen should have on health reform is this fundamental question: "What does the reform mean for me?"
Given Dr. Reinhardt's perspective, it is difficult to see how a congressional consensus can be created around any reasonable improvement in American health care. What gives me hope is that there are people out there who believe improvements can be made and want to make them. I continue to be honored that I have "members" who have signed up to follow what I write (and others who read as well), two of whom are committed to improved health care: one is starting medical school tomorrow and, ultimately, wants to found the best possible hospital (I suggest the Mayo Clinic model) - best wishes!!! And, one whose tireless energy in pursuit of building a combination health care complex is to be admired. Both are former students and both honor me by giving me some small credit for inspiring them.
As Paul Krugman has said, we will get improved health care before the year is over. What it will be, remains to be seen.
"It sounds more impressive to say that someone is narcissistic rather than a jerk" -
Dr. Susan Jaffe
Manhattan Psychoanalyst
"The study of narcissism is a growth industry in academia" -
Dr. Daniel Ames
Social/Personality Psychologist
Columbia Business School
One of the great writers of our time is Peggy Noonan who has an "opinion" column with the Wall Street Journal. Her 7/24/09 column on "ObamaCare" was occasioned by her reaction to President Obama's press conference on the subject. While I was thinking about how to include her thoughts in a "post" on the subject, Professor Uwe Reinhardt (of Princeton) came out with an excellent perspective on what's needed that includes Noonan's article. It's attached.
Professor Reinhardt has studied what he calls the nation's perpetual "national conversation" on health reform for over 30 years and he feels capable of summarizing what an American "common sense" approach would be. He lists 8 components to common sense health care, two of which follow:
#1 - Only patients and their own doctors should decide what clinical response is appropriate for a given medical condition, even if that response involves unproven clinical procedures or technology;
#3 - Rationing health care is un-American.
To read the rest, click on Dr. Reinhardt's blog (attached). His conclusion, after appropriate references to narcissism (where he implies a national cultural orientation toward self), is that the "simple common sense" of the American people is that any proposed health reform must not reduce the revenues of hospitals, lest some neighborhood hospital may have to close; or of doctors, lest some doctors might refuse to see patients; or of the manufacturers of health products, lest they are unable to innovate; or of anyone on the supply side of the health sector, lest they go out of business and have to lay off employees.
Finally, "simple common sense" dictates the sole and proper perspective any American citizen should have on health reform is this fundamental question: "What does the reform mean for me?"
Given Dr. Reinhardt's perspective, it is difficult to see how a congressional consensus can be created around any reasonable improvement in American health care. What gives me hope is that there are people out there who believe improvements can be made and want to make them. I continue to be honored that I have "members" who have signed up to follow what I write (and others who read as well), two of whom are committed to improved health care: one is starting medical school tomorrow and, ultimately, wants to found the best possible hospital (I suggest the Mayo Clinic model) - best wishes!!! And, one whose tireless energy in pursuit of building a combination health care complex is to be admired. Both are former students and both honor me by giving me some small credit for inspiring them.
As Paul Krugman has said, we will get improved health care before the year is over. What it will be, remains to be seen.
Wednesday, July 29, 2009
Private Equity Deals
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2300
According to the second annual conference at Wharton on private equity ("Navigating the Challenges Ahead"), summery data released this week by K@W, financial sponsors are scrambling to prepare for refinancings that will start coming onto markets in 2012. The article attached on "The Coming Wall of Refinancings..." refers to a panel discussion at that conference on what has to be done by private equity firms to get their portfolio companies viable in time for debt restructuring.
For some private equity firms, I see no hope. Cerberus comes to mind having, in 2007, obliged Daimler by "stealing" Chrysler from them for $7.4 billion (and a 20% ownership stake that Daimler kept until recently). Since Daimler had paid $38.4 billion for Chrysler at purchase in 1998, that deal has to rank as one of the worst ever. Cerberus, thinking that the dramatically lower price for Chrysler would allow a good return on the investment, also bought 50% of GMAC. That deal was literally made (with the $20 billion that Cerberus borrowed) two weeks before the credit markets froze up at the end of 2007. It was the last big deal. It proved that private equity firms could buy just about anything in loose credit markets and it gave Dieter Zetsche a chance to turn Daimler around. But, Cerberus was left holding the bag.
Jack Daly, managing director of Goldman Sachs' principal investment area, put the credit crisis in historical perspective, noting that 2007 and 2008 represent sharply different markets. In 2007, the market was robust, with easy access to credit, liberal loan covenants, and the possibility of a $100 billion buyout. By the end of 2008, everything was different. Quoting Daly, "Today, we have no credit market, life has changed, buyout multiples have dropped and deal volume is down 75% since 2007."
Private equity is an indicator of how business is doing overall so it is worth watching. Forced divestitures will provide opportunities for the leaner private equity firms to buy up desirable businesses. Major companies under pressure, such as AIG and Citigroup, will need to unload profitable businesses at valuations that will be attractive if they are going to survive.
According to the second annual conference at Wharton on private equity ("Navigating the Challenges Ahead"), summery data released this week by K@W, financial sponsors are scrambling to prepare for refinancings that will start coming onto markets in 2012. The article attached on "The Coming Wall of Refinancings..." refers to a panel discussion at that conference on what has to be done by private equity firms to get their portfolio companies viable in time for debt restructuring.
For some private equity firms, I see no hope. Cerberus comes to mind having, in 2007, obliged Daimler by "stealing" Chrysler from them for $7.4 billion (and a 20% ownership stake that Daimler kept until recently). Since Daimler had paid $38.4 billion for Chrysler at purchase in 1998, that deal has to rank as one of the worst ever. Cerberus, thinking that the dramatically lower price for Chrysler would allow a good return on the investment, also bought 50% of GMAC. That deal was literally made (with the $20 billion that Cerberus borrowed) two weeks before the credit markets froze up at the end of 2007. It was the last big deal. It proved that private equity firms could buy just about anything in loose credit markets and it gave Dieter Zetsche a chance to turn Daimler around. But, Cerberus was left holding the bag.
Jack Daly, managing director of Goldman Sachs' principal investment area, put the credit crisis in historical perspective, noting that 2007 and 2008 represent sharply different markets. In 2007, the market was robust, with easy access to credit, liberal loan covenants, and the possibility of a $100 billion buyout. By the end of 2008, everything was different. Quoting Daly, "Today, we have no credit market, life has changed, buyout multiples have dropped and deal volume is down 75% since 2007."
Private equity is an indicator of how business is doing overall so it is worth watching. Forced divestitures will provide opportunities for the leaner private equity firms to buy up desirable businesses. Major companies under pressure, such as AIG and Citigroup, will need to unload profitable businesses at valuations that will be attractive if they are going to survive.
Monday, July 27, 2009
Environmental Absolutism
http://online.wsj.com/article_email/SB10001424052970203946904574301221048374500-lMyQjAxMDA5MDIwNTEyNDUyWj.html
It is important to give Hillary Clinton credit for what she's done since taking over as Secretary of State. She's travelled around the world and "listened." And, while that might be muted laughter some can hear in DC emanating from her office at the State Department over the "ObamaCare" ship taking on water, Clinton's efforts on behalf of diplomacy for the U.S. have been exceptional. Her appearance on "Meet the Press" over the weekend was first class.
The article I've attached refers to the India stop on her tour when Jairam Ramesh, Environment Minister of that country, told her about the widespread Indian consensus that it is irresponsible to sacrifice economic growth benefiting hundreds of millions of mostly poor people for the sake of "environmental absolutism." While India's per capita GDP is at $1,000 and its energy industry is grossly inefficient, he explained that "emissions caps" are the wrong way to go. Caps would send prices on energy and other goods higher, not to mention the longer-term damage to economic growth.
And, as the editorial board of the WSJ points out (article attached - WSJ 7/24/09), Ramesh remarked that another cost India would have to bear, should his country not impose its own emissions caps, would be the cost of protectionist measures imposed by developed countries to shield their businesses from the costs of their own national emissions targets. The cap and tax bill that was recently passed by the U.S. House is explicit in proposing tariffs on goods from countries that don't follow the developed world's anticarbon line.
The Indian government recognizes the public would never be willing to shoulder the costs of emissions controls, and that it is unfair to ask millions of poor people to try.
So, let's choose: do we want economic growth or "environmental absolutism"? Do we want to impose a tax on GDP growth worldwide while we try to get out of the worst recession since the Great Depression?
It is important to give Hillary Clinton credit for what she's done since taking over as Secretary of State. She's travelled around the world and "listened." And, while that might be muted laughter some can hear in DC emanating from her office at the State Department over the "ObamaCare" ship taking on water, Clinton's efforts on behalf of diplomacy for the U.S. have been exceptional. Her appearance on "Meet the Press" over the weekend was first class.
The article I've attached refers to the India stop on her tour when Jairam Ramesh, Environment Minister of that country, told her about the widespread Indian consensus that it is irresponsible to sacrifice economic growth benefiting hundreds of millions of mostly poor people for the sake of "environmental absolutism." While India's per capita GDP is at $1,000 and its energy industry is grossly inefficient, he explained that "emissions caps" are the wrong way to go. Caps would send prices on energy and other goods higher, not to mention the longer-term damage to economic growth.
And, as the editorial board of the WSJ points out (article attached - WSJ 7/24/09), Ramesh remarked that another cost India would have to bear, should his country not impose its own emissions caps, would be the cost of protectionist measures imposed by developed countries to shield their businesses from the costs of their own national emissions targets. The cap and tax bill that was recently passed by the U.S. House is explicit in proposing tariffs on goods from countries that don't follow the developed world's anticarbon line.
The Indian government recognizes the public would never be willing to shoulder the costs of emissions controls, and that it is unfair to ask millions of poor people to try.
So, let's choose: do we want economic growth or "environmental absolutism"? Do we want to impose a tax on GDP growth worldwide while we try to get out of the worst recession since the Great Depression?
An Incoherent Truth
http://www.nytimes.com/2009/07/27/opinion/27krugman.html?emc=eta1
http://www.nytimes.com/interactive/2009/07/27/health/policy/20090728-health-table-graphic.html?emc=eta3
Watching television can sometimes be a privilege, as it was yesterday morning when Paul Krugman and George Will were part of a panel discussing the issues that face us in the U.S. During the part of their discussion that related to "health care", George Stephanopoulos took a vote on whether the panel thought a bill would be "passed" prior to the end of the year on health care. The vote was unanimous that a bill would be passed. That is the most important thing. Whatever the compromises and the arguments and the "costs", something will be done.
Having said that, I have attached today's post from Krugman on the conservative Democrats that are not making sense because they are looking for concessions that will basically doom the project. In that post, Krugman lists the four main pillars of health care reform: regulation, mandates, subsidies and competition. He defines regulation as the nationwide imposition of rules that would prevent insurance companies from denying coverage based upon medical history, or dropping your coverage when you get sick. This would stop insurers from "gaming the system" by covering only healthy people. While there are 3 health care bills working there way thru Congress (see my second attachment - "Impact of Health Care Measures"), it is the basic right not to be denied coverage, and/or not to be "dropped" from coverage that will survive in whatever form the final bill takes.
As the NY Times states in a separate editorial today, "It is true that the long-term goal of health reform is to get rid of the fee-for-service system in which patients often get very expensive care but not necessarily the best care. Virtually all experts blame the system for runaway health care costs because it pays doctors and hospitals for each service they perform, thus providing financial incentive to order excessive tests or treatments, some of which harm the patients."
That editorial goes on to say, "The AARP, the main body for older Americans, has praised the emerging bills and thrown its weight behind the cause. All this suggests to us that the great majority of Americans - those with insurance and those without - would benefit from health care reform."
Back to Krugman on TV yesterday, he completely dismissed the Congressional Budget Office (CBO) - the non-partisan budget arm of the House and Senate - testimony before Congress on the potential substantially increased costs of various aspects of health care reform. He said those estimates were ill-timed and inaccurate. Because of Krugman's personality (he has a consistent air of humility and deference to others) and his knowledge of the issues, nobody argued with him. George Will (a Pulitzer Prize winner and a powerful force) simply accepted that and moved on (as did everybody else on the panel). A little humility mixed with knowledge of the issues can go a long way. In Krugman's case, he sprinkles in a sense of humor which everyone appreciates.
So, we will get health care reform and some of the key much needed changes will be made. And, as we've said here in prior posts, and others are discovering, don't even assume that the needed improvements in health care coverage can be combined with lowering overall health care costs - you cover more people, it's going to cost you more.
http://www.nytimes.com/interactive/2009/07/27/health/policy/20090728-health-table-graphic.html?emc=eta3
Watching television can sometimes be a privilege, as it was yesterday morning when Paul Krugman and George Will were part of a panel discussing the issues that face us in the U.S. During the part of their discussion that related to "health care", George Stephanopoulos took a vote on whether the panel thought a bill would be "passed" prior to the end of the year on health care. The vote was unanimous that a bill would be passed. That is the most important thing. Whatever the compromises and the arguments and the "costs", something will be done.
Having said that, I have attached today's post from Krugman on the conservative Democrats that are not making sense because they are looking for concessions that will basically doom the project. In that post, Krugman lists the four main pillars of health care reform: regulation, mandates, subsidies and competition. He defines regulation as the nationwide imposition of rules that would prevent insurance companies from denying coverage based upon medical history, or dropping your coverage when you get sick. This would stop insurers from "gaming the system" by covering only healthy people. While there are 3 health care bills working there way thru Congress (see my second attachment - "Impact of Health Care Measures"), it is the basic right not to be denied coverage, and/or not to be "dropped" from coverage that will survive in whatever form the final bill takes.
As the NY Times states in a separate editorial today, "It is true that the long-term goal of health reform is to get rid of the fee-for-service system in which patients often get very expensive care but not necessarily the best care. Virtually all experts blame the system for runaway health care costs because it pays doctors and hospitals for each service they perform, thus providing financial incentive to order excessive tests or treatments, some of which harm the patients."
That editorial goes on to say, "The AARP, the main body for older Americans, has praised the emerging bills and thrown its weight behind the cause. All this suggests to us that the great majority of Americans - those with insurance and those without - would benefit from health care reform."
Back to Krugman on TV yesterday, he completely dismissed the Congressional Budget Office (CBO) - the non-partisan budget arm of the House and Senate - testimony before Congress on the potential substantially increased costs of various aspects of health care reform. He said those estimates were ill-timed and inaccurate. Because of Krugman's personality (he has a consistent air of humility and deference to others) and his knowledge of the issues, nobody argued with him. George Will (a Pulitzer Prize winner and a powerful force) simply accepted that and moved on (as did everybody else on the panel). A little humility mixed with knowledge of the issues can go a long way. In Krugman's case, he sprinkles in a sense of humor which everyone appreciates.
So, we will get health care reform and some of the key much needed changes will be made. And, as we've said here in prior posts, and others are discovering, don't even assume that the needed improvements in health care coverage can be combined with lowering overall health care costs - you cover more people, it's going to cost you more.
Dr. Doom Speaks
"There will also be 11% unemployment next year, and the recovery is going to be slow. It's going to feel like a recession even when it ends."
Nouriel Roubini (aka "Dr. Doom")
Professor of Economics, NYU
(One of the few economists that predicted last year's global economic crisis)
(CNBC.com 7/20/09)
Nouriel Roubini (aka "Dr. Doom")
Professor of Economics, NYU
(One of the few economists that predicted last year's global economic crisis)
(CNBC.com 7/20/09)
Friday, July 24, 2009
Economy Hits Bottom
http://online.wsj.com/article_email/SB10001424052970203946904574300290585964718-lMyQjAxMDA5MDIwNDEyNDQyWj.html
Best selling business author Jim Collins ("Good to Great", "How the Mighty Fall", etc.), as well as others whose opinions are well respected (Jeffrey Sonnenfeld, Associate Dean of the Yale School of Management, comes to mind), generally agree that the single most important trait to possess for success in business is: "humility" (especially for CEOs). That advice applies to most professions.
Alan S. Blinder is a Princeton University economist, a former Federal Reserve Board vice chairman, and an advisor to Democratic presidential candidates among other things. His change of position on free trade in 2007 became known as "Blinder's Shift" because he stepped back from the blanket endorsement of "free trade" associated with most economists (especially those who, like Blinder, have authored textbooks on the subject) to basically question Ricardo's "Theory of Comparative Advantage". One of the primary influences in changing his thinking (as with many of the rest of us) was Thomas L. Friedman and his 2005 book, "The World is Flat". Blinder's painstaking rankings of 817 Bureau of Labor Statistics occupations caused him to conclude that between 30 and 40 million U.S. jobs are "offshorable". Blinder now strongly advocates for retooling America's educational system so it trains young people for jobs likely to remain in the U.S.
So, Blinder had the humility to change his position on an important issue and to advocate for something that is much needed for the U.S. to compete in the world. Which brings us to today: Blinder's article in the WSJ ("The Economy Has Hit Bottom", 7/23/09, attached) gives us the good news in the bad news. He feels that we've hit bottom and that there's some good news in that. He sees the possibility that the third quarter could "surprise" on the up side (it will be up anyway, but Blinder means surprisingly up). Because of the extent of unemployment, there will be no "V Shaped Recovery", but there will be positive numbers coming in housing, auto, overall business investment, etc.
I respect Blinder for his skill and his humility. His article is worthy of note.
Best selling business author Jim Collins ("Good to Great", "How the Mighty Fall", etc.), as well as others whose opinions are well respected (Jeffrey Sonnenfeld, Associate Dean of the Yale School of Management, comes to mind), generally agree that the single most important trait to possess for success in business is: "humility" (especially for CEOs). That advice applies to most professions.
Alan S. Blinder is a Princeton University economist, a former Federal Reserve Board vice chairman, and an advisor to Democratic presidential candidates among other things. His change of position on free trade in 2007 became known as "Blinder's Shift" because he stepped back from the blanket endorsement of "free trade" associated with most economists (especially those who, like Blinder, have authored textbooks on the subject) to basically question Ricardo's "Theory of Comparative Advantage". One of the primary influences in changing his thinking (as with many of the rest of us) was Thomas L. Friedman and his 2005 book, "The World is Flat". Blinder's painstaking rankings of 817 Bureau of Labor Statistics occupations caused him to conclude that between 30 and 40 million U.S. jobs are "offshorable". Blinder now strongly advocates for retooling America's educational system so it trains young people for jobs likely to remain in the U.S.
So, Blinder had the humility to change his position on an important issue and to advocate for something that is much needed for the U.S. to compete in the world. Which brings us to today: Blinder's article in the WSJ ("The Economy Has Hit Bottom", 7/23/09, attached) gives us the good news in the bad news. He feels that we've hit bottom and that there's some good news in that. He sees the possibility that the third quarter could "surprise" on the up side (it will be up anyway, but Blinder means surprisingly up). Because of the extent of unemployment, there will be no "V Shaped Recovery", but there will be positive numbers coming in housing, auto, overall business investment, etc.
I respect Blinder for his skill and his humility. His article is worthy of note.
Thursday, July 23, 2009
Prioritizing
http://www.nytimes.com/2009/07/12/business/economy/12every.html?emc=eta1
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2297
When you go in to turn around a company, it is best to try to figure out what needs to be done first and heavily emphasize that by placing the needed people, capital and other appropriate resources on the problem - this would be as opposed to figuring out what's number 1, 2, and 3 in importance and spreading the best people out over those areas because that will get more accomplished. In most cases, if the latter of those two approaches is taken, failure at fixing number 1 is assured and numbers 2 and 3 never get fixed because it's "over".
If we might, for the moment, look at the "health care" initiative as one of the priorities the Obama administration feels needs to be addressed urgently, where does it rank? Is it number 1? No. I think that the Great Recession is number 1. So, have we diluted Obama's brilliant team of economists and other professionals by charging at this problem simultaneously with problem number 1? Worse, have we politicized the health care problem by suggesting (as Rom Emanuel has) that there is nothing like a crisis to get a lot of things done - especially when the President's approval rating is as high as it is/was. Oh, and we need to get the health care thing done by "August" - so let's rush the people who have to get that done (August is now out per an anouncement today).
I have attached Ben Stein's article in "Everybody's Business" (7/12 - NY Times) where he essentailly makes this point. It would appear that the administration is simultaneously seeking to end the recession (with, per Buffet/Krugman, not enough stimulus), discussing drastic changes to laws on foreclosures and energy use, and changing the health care system. As Stein says, whether or not we need to do something radical with energy, why do it right now? Do we need to take one of the few sectors that is working like clockwork through the recession - oil refining - and wring its neck by paying for pollution "cap and trade" credits? Why attack a healthy industry when so many other sectors are ill?
Assuming a more reasonable time frame for improving the health care system, since that has now been forced on the administration, some attention needs to be paid to one of the major "choke points" if millions of uninsured Americans will soon gain access to it: General Practice Doctors (GPs). The Wharton School's position, in conjunction with the University of Pennsylvania Hospital (K@W Another Hurdle to Health Care Reform...7/22/09), on this issue is very clear: there aren't enough GPs and it will take a while to produce them. According to The American Association of Medical Colleges (AAMC), even if the number of physicians in this field remained the same, there would be a shortage of 124,000 doctors of all types by 2025, although that number could climb as high as 159,000 should demand for doctors pick up along with wider insurance coverage.
Expanding health care opportunity for the currently uninsured needs to be thought about in the context of HOW the health care system will be able to provide that opportunity. If health care ranks number 2 in prioity, this issue probably has not been worked out yet. What are some of the other issues that have not been thought out?
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2297
When you go in to turn around a company, it is best to try to figure out what needs to be done first and heavily emphasize that by placing the needed people, capital and other appropriate resources on the problem - this would be as opposed to figuring out what's number 1, 2, and 3 in importance and spreading the best people out over those areas because that will get more accomplished. In most cases, if the latter of those two approaches is taken, failure at fixing number 1 is assured and numbers 2 and 3 never get fixed because it's "over".
If we might, for the moment, look at the "health care" initiative as one of the priorities the Obama administration feels needs to be addressed urgently, where does it rank? Is it number 1? No. I think that the Great Recession is number 1. So, have we diluted Obama's brilliant team of economists and other professionals by charging at this problem simultaneously with problem number 1? Worse, have we politicized the health care problem by suggesting (as Rom Emanuel has) that there is nothing like a crisis to get a lot of things done - especially when the President's approval rating is as high as it is/was. Oh, and we need to get the health care thing done by "August" - so let's rush the people who have to get that done (August is now out per an anouncement today).
I have attached Ben Stein's article in "Everybody's Business" (7/12 - NY Times) where he essentailly makes this point. It would appear that the administration is simultaneously seeking to end the recession (with, per Buffet/Krugman, not enough stimulus), discussing drastic changes to laws on foreclosures and energy use, and changing the health care system. As Stein says, whether or not we need to do something radical with energy, why do it right now? Do we need to take one of the few sectors that is working like clockwork through the recession - oil refining - and wring its neck by paying for pollution "cap and trade" credits? Why attack a healthy industry when so many other sectors are ill?
Assuming a more reasonable time frame for improving the health care system, since that has now been forced on the administration, some attention needs to be paid to one of the major "choke points" if millions of uninsured Americans will soon gain access to it: General Practice Doctors (GPs). The Wharton School's position, in conjunction with the University of Pennsylvania Hospital (K@W Another Hurdle to Health Care Reform...7/22/09), on this issue is very clear: there aren't enough GPs and it will take a while to produce them. According to The American Association of Medical Colleges (AAMC), even if the number of physicians in this field remained the same, there would be a shortage of 124,000 doctors of all types by 2025, although that number could climb as high as 159,000 should demand for doctors pick up along with wider insurance coverage.
Expanding health care opportunity for the currently uninsured needs to be thought about in the context of HOW the health care system will be able to provide that opportunity. If health care ranks number 2 in prioity, this issue probably has not been worked out yet. What are some of the other issues that have not been thought out?
Monday, July 20, 2009
Doctor Pay
http://economix.blogs.nytimes.com/2009/07/15/how-much-do-doctors-in-other-countries-make/?emc=eta1
Catherine Rampell's 7/15 post on the NY Times "Economix" blog addresses how much money doctors in other countries make. But, prior to doing that, she references Professor Uwe Reinhardt's recent post on "rationing doctor's salaries" - clicking on that post shows a perspective on the much discussed health care initiatives as well as what various specialists make relative to general practitioners: so, for example, the median annual net income of radiologists and cardiologists ($400,000) is more than twice that of family practitioners, internists and pediatricians (less than $200,000). He makes the point that, because of the nationwide lament over a shortage of American medical school graduates willing to enter the primary care specialties, Medicare may substantially increase the fees for primary care physicians.
Rampell's perspective on international physician compensation does an excellent job of setting up comparisons with doctors in the U.S., first with a bar graph and then with a trend line after an informative table using "purchasing power parity" as a guide to how those incomes translate to equivalence here. While doctors (and nurses) are paid more relatively in the U.S., the cost of their education is much more here than it is overseas.
The two pronged Presidential program of expanded (universal) health care coverage while reducing health care costs (which, in and of itself, may not make sense since covering a lot more people usually means a lot more costs - think about it) does not conflict with what doctors get paid. The data does not appear to show that doctors are the culprits in health care system cost increases over the years. In fact, consistent with Professor Reinhardt's perspective, some doctors may need to get paid more!
Catherine Rampell's 7/15 post on the NY Times "Economix" blog addresses how much money doctors in other countries make. But, prior to doing that, she references Professor Uwe Reinhardt's recent post on "rationing doctor's salaries" - clicking on that post shows a perspective on the much discussed health care initiatives as well as what various specialists make relative to general practitioners: so, for example, the median annual net income of radiologists and cardiologists ($400,000) is more than twice that of family practitioners, internists and pediatricians (less than $200,000). He makes the point that, because of the nationwide lament over a shortage of American medical school graduates willing to enter the primary care specialties, Medicare may substantially increase the fees for primary care physicians.
Rampell's perspective on international physician compensation does an excellent job of setting up comparisons with doctors in the U.S., first with a bar graph and then with a trend line after an informative table using "purchasing power parity" as a guide to how those incomes translate to equivalence here. While doctors (and nurses) are paid more relatively in the U.S., the cost of their education is much more here than it is overseas.
The two pronged Presidential program of expanded (universal) health care coverage while reducing health care costs (which, in and of itself, may not make sense since covering a lot more people usually means a lot more costs - think about it) does not conflict with what doctors get paid. The data does not appear to show that doctors are the culprits in health care system cost increases over the years. In fact, consistent with Professor Reinhardt's perspective, some doctors may need to get paid more!
Help Wanted
http://www.nytimes.com/2009/07/19/weekinreview/19uchitelle.html?emc=eta1
Louis Uchitelle has been writing for most of this decade (inclusive of at least one book that I know of) about the "unemployment equation" (my term). With the article I've attached, his distinguished perspective continues. Click on the "graphic" which accompanies the article (Jobs Lost and Gained During the Recession) to look at percent employment changes since December, 2007.
I have consistently told students since the fall of 2007 that we are headed for the worst job market since the Great Depression and that staying in school to add a degree would not be a bad investment. In addition, times like these show off great companies that continue to earn profits and grow (inclusive of grabbing market share from weaker companies): these are the companies to work for. That's why Booz Allen told "Fortune" in February of this year that they were planning on hiring 5,000 people in 2009. Properly done, adding an MS (Accounting) to an MBA does not take a long time and is currently highly prized by management consulting firms (like Booz). Undergrads can earn an MS in Finance post BA and add to their competitive arsenal, etc.
Looking back at the graphic, there are "SHRINKING SECTORS" and "GROWING SECTORS" during this recession. Looking at "sectors" for what's growing gives hints about where work is and where good companies are within those sectors. So, while "auto" is down 35%, "oil and gas exploration" is up 8.6% for that same period. As I said to someone recently, I would be looking for a job in Finance in a hospital in Las Vegas right now. Not only is the health care business growing (with some sectors within it potentially growing exponentially), but Vegas now has housing so low cost (either in foreclosures or the overall market) that the cost of living in upper middle class suburbs (like Henderson) is very low for the quality of life.
Uchitelle quotes Mark Zandi as saying that it is going to take manufacturing and construction a while to stop losing jobs because the necessary confidence for investments won't come back until next summer. When it does, the hiring is likely to be spotty and cautious because we will not have the pent up demand we have had in prior recoveries - there are too many unemployed and credit continues to be harder to get.
As some economists have described it, this recovery is likely to come not with job growth, but "a diminution of job loss."
Louis Uchitelle has been writing for most of this decade (inclusive of at least one book that I know of) about the "unemployment equation" (my term). With the article I've attached, his distinguished perspective continues. Click on the "graphic" which accompanies the article (Jobs Lost and Gained During the Recession) to look at percent employment changes since December, 2007.
I have consistently told students since the fall of 2007 that we are headed for the worst job market since the Great Depression and that staying in school to add a degree would not be a bad investment. In addition, times like these show off great companies that continue to earn profits and grow (inclusive of grabbing market share from weaker companies): these are the companies to work for. That's why Booz Allen told "Fortune" in February of this year that they were planning on hiring 5,000 people in 2009. Properly done, adding an MS (Accounting) to an MBA does not take a long time and is currently highly prized by management consulting firms (like Booz). Undergrads can earn an MS in Finance post BA and add to their competitive arsenal, etc.
Looking back at the graphic, there are "SHRINKING SECTORS" and "GROWING SECTORS" during this recession. Looking at "sectors" for what's growing gives hints about where work is and where good companies are within those sectors. So, while "auto" is down 35%, "oil and gas exploration" is up 8.6% for that same period. As I said to someone recently, I would be looking for a job in Finance in a hospital in Las Vegas right now. Not only is the health care business growing (with some sectors within it potentially growing exponentially), but Vegas now has housing so low cost (either in foreclosures or the overall market) that the cost of living in upper middle class suburbs (like Henderson) is very low for the quality of life.
Uchitelle quotes Mark Zandi as saying that it is going to take manufacturing and construction a while to stop losing jobs because the necessary confidence for investments won't come back until next summer. When it does, the hiring is likely to be spotty and cautious because we will not have the pent up demand we have had in prior recoveries - there are too many unemployed and credit continues to be harder to get.
As some economists have described it, this recovery is likely to come not with job growth, but "a diminution of job loss."
Climate Models
"In a nutshell, theoretical models cannot explain what we observe in the geological record. There appears to be something fundamentally wrong with the way temperature and carbon are linked in climate models."
Gerald Dickens - Professor of Earth Science at Rice University: co-author of a study that suggests scientists' best predictions about global warming might be incorrect (esciencenews.com, 7/14/09).
Gerald Dickens - Professor of Earth Science at Rice University: co-author of a study that suggests scientists' best predictions about global warming might be incorrect (esciencenews.com, 7/14/09).
Friday, July 17, 2009
Improving Health Care
http://online.wsj.com/article_email/SB124775966602252285-lMyQjAxMDI5NDE3NzcxNTc5Wj.html
http://online.wsj.com/article_email/SB124779717982855785-lMyQjAxMDI5NDE3NzcxOTc3Wj.html
Before I remark on this issue again, I want to salute two "Followers" of this blog for their comments on our "45 Million" post: Dale and Craig - outstanding commentary and insight! I have been blessed over recent years to have had some brilliant students who claim to have been inspired by me and I consider that the highest compliment I could be paid. Read that post with the comments and it gives an excellent perspective.
Health care is a "business" and the big insurance companies that are in that business run their companies for the bottom line which makes the stockholders happy (apply that remark to the drug companies, etc.). What will make this decade's effort to improve the health care system successful, is if the "insurers" and the doctors that are part of the system weigh in on what will work. On Thursday, the American Medical Association (AMA) threw its support behind the House proposal on health care. In May, excited administration officials called Paul Krugman to say that the "medical-industrial complex" (their words, not Krugman's) was offering to be helpful. At that time, six major industry players sent a letter to President Obama sketching out a plan to control health care costs (this includes the major insurers and pharmaceutical firms). What's going on here is that the key interest groups have realized that health care reform is going to happen no matter what they do, so the idea is to try to influence a reasonable outcome.
This is pragmatic and it's good stuff (that's a business term). First attached is an article in today's WSJ on testimony on Thursday by Douglas Elmendorf, director of the Congressional Budget Office, that the main health care proposals would fail to contain costs and could actually worsen the problem of rapidly escalating medical spending. This goes back to the two pronged goal of the President's proposals: expand health care insurance and curb runaway costs. My perspective on this is that health care "opportunity" in this country can be improved without runaway costs - that will require cooperation and compromise. But, if we are going to "expand health care insurance", we are going to have increased costs.
The devil is always in the details but there are key congressmen and senators who should be heard on what needs changing (like removing lifetime "caps" on medical insurance, or "cessions" - the insurance industry term [I am not an expert here so please correct me if the term is differently spelled] for dropping individuals from coverage because their use rate is too high: last year 20,000 people lost their medical insurance for this reason): and they ARE.
The second article attached (again in today's WSJ) refers to the recklessness of congress because of the potential "costs" of health care legislation. A new effective tax rate of 52% would not be welcome to anyone, but calling the efforts to improve health care (and/or its availability) a reckless disregard for economic and fiscal reality is a little much. All sides are "trying". Let's give them credit and let's hope something positive happens.
http://online.wsj.com/article_email/SB124779717982855785-lMyQjAxMDI5NDE3NzcxOTc3Wj.html
Before I remark on this issue again, I want to salute two "Followers" of this blog for their comments on our "45 Million" post: Dale and Craig - outstanding commentary and insight! I have been blessed over recent years to have had some brilliant students who claim to have been inspired by me and I consider that the highest compliment I could be paid. Read that post with the comments and it gives an excellent perspective.
Health care is a "business" and the big insurance companies that are in that business run their companies for the bottom line which makes the stockholders happy (apply that remark to the drug companies, etc.). What will make this decade's effort to improve the health care system successful, is if the "insurers" and the doctors that are part of the system weigh in on what will work. On Thursday, the American Medical Association (AMA) threw its support behind the House proposal on health care. In May, excited administration officials called Paul Krugman to say that the "medical-industrial complex" (their words, not Krugman's) was offering to be helpful. At that time, six major industry players sent a letter to President Obama sketching out a plan to control health care costs (this includes the major insurers and pharmaceutical firms). What's going on here is that the key interest groups have realized that health care reform is going to happen no matter what they do, so the idea is to try to influence a reasonable outcome.
This is pragmatic and it's good stuff (that's a business term). First attached is an article in today's WSJ on testimony on Thursday by Douglas Elmendorf, director of the Congressional Budget Office, that the main health care proposals would fail to contain costs and could actually worsen the problem of rapidly escalating medical spending. This goes back to the two pronged goal of the President's proposals: expand health care insurance and curb runaway costs. My perspective on this is that health care "opportunity" in this country can be improved without runaway costs - that will require cooperation and compromise. But, if we are going to "expand health care insurance", we are going to have increased costs.
The devil is always in the details but there are key congressmen and senators who should be heard on what needs changing (like removing lifetime "caps" on medical insurance, or "cessions" - the insurance industry term [I am not an expert here so please correct me if the term is differently spelled] for dropping individuals from coverage because their use rate is too high: last year 20,000 people lost their medical insurance for this reason): and they ARE.
The second article attached (again in today's WSJ) refers to the recklessness of congress because of the potential "costs" of health care legislation. A new effective tax rate of 52% would not be welcome to anyone, but calling the efforts to improve health care (and/or its availability) a reckless disregard for economic and fiscal reality is a little much. All sides are "trying". Let's give them credit and let's hope something positive happens.
Thursday, July 16, 2009
China GDP Growth
http://www.nytimes.com/2009/07/17/business/global/17gdp.html?_r=1&emc=eta1
China's second quarter GDP growth figures, released this morning in Beijing by the National Statistics Bureau, are at 7.9%. The announcement (chronicaled in today's NY Tmes attached) is a pleasant surprise to international economists who were skeptical of China's ability to quickly offset a major contraction in export activity.
There is a general consensus among China experts that that country's GDP needs to grow at 8% per year because, for each 1% drop in that rate of growth, 22 million citizens face unemployment. Strong auto sales (which now exceed U.S. auto sales), housing sales, a strong stock market, and strong retail sales have all combined to move economic growth much more rapidly than expected.
While some analysts have warned that China's growth also holds serious risks because of an explosion of bank lending that could easily lead to non-performing loans, overly aggressive infrastructure spending that could be wasteful, and policies that do not favor private business, I would prefer to see the situation as a "half full glass."
Many economists and statesman have pointed out that, before there is a "G-8", or a "G-20", there is a "G-2". The "G-2" are China and the U.S. If the G-2 have economies that reflect appropriate GDP growth rates, the rest of the world's economies can depend on a modicum of stability.
China's first quarter gowth was 6.1%. This current announcement, at 7.9%, shows a positive trend even if the numbers are close to accurate, or are later revised.
China's second quarter GDP growth figures, released this morning in Beijing by the National Statistics Bureau, are at 7.9%. The announcement (chronicaled in today's NY Tmes attached) is a pleasant surprise to international economists who were skeptical of China's ability to quickly offset a major contraction in export activity.
There is a general consensus among China experts that that country's GDP needs to grow at 8% per year because, for each 1% drop in that rate of growth, 22 million citizens face unemployment. Strong auto sales (which now exceed U.S. auto sales), housing sales, a strong stock market, and strong retail sales have all combined to move economic growth much more rapidly than expected.
While some analysts have warned that China's growth also holds serious risks because of an explosion of bank lending that could easily lead to non-performing loans, overly aggressive infrastructure spending that could be wasteful, and policies that do not favor private business, I would prefer to see the situation as a "half full glass."
Many economists and statesman have pointed out that, before there is a "G-8", or a "G-20", there is a "G-2". The "G-2" are China and the U.S. If the G-2 have economies that reflect appropriate GDP growth rates, the rest of the world's economies can depend on a modicum of stability.
China's first quarter gowth was 6.1%. This current announcement, at 7.9%, shows a positive trend even if the numbers are close to accurate, or are later revised.
Wednesday, July 15, 2009
Climate Change By Decree
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/13/AR2009071302587.html?referrer=emailarticle
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/31/AR2009053102077.html?referrer=emailarticle
I found myself confused last week when I read that leaders at the G-8 summit (plus China and India) in Italy had agreed on a climate deal. This basically involved "...embracing a goal of preventing temperatures from rising more than 3.6 degrees Fahrenheit..." which, while laudible, I find to be almost infinitely difficult to make happen - ie. how, exactly, are they going to do that? Can we "decree" that the temperature of the planet will be controlled?
Fortunately, I wasn't alone on being confused and Anne Applebaum has rescued me (attached) by pointing out that the world's leaders had once again failed to halt climate change by decree. She went on to point out that "The group could not agree on short term emissions targets, could not agree on how developing countries would be compensated for meeting those targets and, indeed, could not even decide from what baseline any targets would be calculated." This was a relief since there are actually scientists among us who report that, for the majority of this decade, the world has been cooling. But, I digress.
Back here in the U.S., Martin Feldstein, a Harvard economist and former Chairman of the Council of Economic Advisors points out (attached) that a proposed U.S. "cap-and-trade system" would have a trivially small effect on global warming while imposing substantial costs on all American households. The leading legislative proposal, the Waxman-Markey bill would reduce allowable CO2 emissions to 83% of the 2005 level by 2020, then gradually decrease the amount further. Overall, this would create a "market" for tradable permits where the cost to companies to buy them would be passed on in consumer prices.
Feldstein goes on to point out that the Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15% CO2 reduction would raise the cost of living of a typical household by $1,600 per year. If this were all to happen, a 15% fall in U.S. CO2 output would lower global CO2 output by less than 4%.
My primary concern with this pending legislation is how does it effect economic growth and where will the very employment numbers that we have discussed in previous blogs go? Will this discourage other capital investment that could go toward innovation and job creation?
Returning to Anne Applebaum, she was also disturbed (as I was) at reading simultaneously about T. Boone Pickens deciding to postpone, until further notice, an investment in a big Texas wind farm. His perspective was that natural gas prices had fallen so low that once-promising investments in alternative energy didn't make sense. Sadly, wind energy is a clean technology and a business where unemployed auto workers, for example, can be retrained to produce the "spars" for wind turbines. These are places in the economy where clean energy, employment and economic growth can come together as a priority.
As Applebaum so brilliantly points out, "The truth is that carbon emissions will not be reduced by international bureaucrats, however well meaning, sitting in a room and signing a piece of paper. They will not be reduced by public relations campaigns or by Oscar-winning documentaries. Above all, they will not be reduced by a complex treaty that neither the United Nations nor anyone else can posibly supervise...They can, however be reduced by the efforts of entrepreneurs such as Pickens. If he and others can find viable ways to produce clean energy, then the problem will solve itself without the aid of a single international conference."
Perhaps "Energy Entrepreneurship" (like Pickens has displayed) deserves more emphasis than it's gotten thru tax and investment incentives. This year China is on track to pass the United States as the world's largest market for wind turbines - after doubling wind turbine capacity in each of the last four years. HSBC predicts that China will invest more money in renewable energy and nuclear power between now and 2020 than in coal-fired and oil-fired electricity.
Why can't we?
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/31/AR2009053102077.html?referrer=emailarticle
I found myself confused last week when I read that leaders at the G-8 summit (plus China and India) in Italy had agreed on a climate deal. This basically involved "...embracing a goal of preventing temperatures from rising more than 3.6 degrees Fahrenheit..." which, while laudible, I find to be almost infinitely difficult to make happen - ie. how, exactly, are they going to do that? Can we "decree" that the temperature of the planet will be controlled?
Fortunately, I wasn't alone on being confused and Anne Applebaum has rescued me (attached) by pointing out that the world's leaders had once again failed to halt climate change by decree. She went on to point out that "The group could not agree on short term emissions targets, could not agree on how developing countries would be compensated for meeting those targets and, indeed, could not even decide from what baseline any targets would be calculated." This was a relief since there are actually scientists among us who report that, for the majority of this decade, the world has been cooling. But, I digress.
Back here in the U.S., Martin Feldstein, a Harvard economist and former Chairman of the Council of Economic Advisors points out (attached) that a proposed U.S. "cap-and-trade system" would have a trivially small effect on global warming while imposing substantial costs on all American households. The leading legislative proposal, the Waxman-Markey bill would reduce allowable CO2 emissions to 83% of the 2005 level by 2020, then gradually decrease the amount further. Overall, this would create a "market" for tradable permits where the cost to companies to buy them would be passed on in consumer prices.
Feldstein goes on to point out that the Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15% CO2 reduction would raise the cost of living of a typical household by $1,600 per year. If this were all to happen, a 15% fall in U.S. CO2 output would lower global CO2 output by less than 4%.
My primary concern with this pending legislation is how does it effect economic growth and where will the very employment numbers that we have discussed in previous blogs go? Will this discourage other capital investment that could go toward innovation and job creation?
Returning to Anne Applebaum, she was also disturbed (as I was) at reading simultaneously about T. Boone Pickens deciding to postpone, until further notice, an investment in a big Texas wind farm. His perspective was that natural gas prices had fallen so low that once-promising investments in alternative energy didn't make sense. Sadly, wind energy is a clean technology and a business where unemployed auto workers, for example, can be retrained to produce the "spars" for wind turbines. These are places in the economy where clean energy, employment and economic growth can come together as a priority.
As Applebaum so brilliantly points out, "The truth is that carbon emissions will not be reduced by international bureaucrats, however well meaning, sitting in a room and signing a piece of paper. They will not be reduced by public relations campaigns or by Oscar-winning documentaries. Above all, they will not be reduced by a complex treaty that neither the United Nations nor anyone else can posibly supervise...They can, however be reduced by the efforts of entrepreneurs such as Pickens. If he and others can find viable ways to produce clean energy, then the problem will solve itself without the aid of a single international conference."
Perhaps "Energy Entrepreneurship" (like Pickens has displayed) deserves more emphasis than it's gotten thru tax and investment incentives. This year China is on track to pass the United States as the world's largest market for wind turbines - after doubling wind turbine capacity in each of the last four years. HSBC predicts that China will invest more money in renewable energy and nuclear power between now and 2020 than in coal-fired and oil-fired electricity.
Why can't we?
Tuesday, July 14, 2009
45 Million People
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/02/AR2009070201937.html?referrer=emailarticle
There is no excuse why 45 million people in this country do not have health care. If it takes star power like Edie Falco (whose Carmela Soprano character on HBO's "The Sopranos" set a standard for brilliance in acting) to help mobilize congress, then so be it.
A reasonable proposal has been made by the Obama administration for combining a public/private health care program...any health care for people who don't have it, is better than none at all. In addition, spending on health care could be infrastructure spending of the type and kind that the "trio" of Krugman/Buffet/Zuckerman (see a prior blog) would endorse as a part of what might be called a "supplemental stimulus".
There is no excuse why 45 million people in this country do not have health care. If it takes star power like Edie Falco (whose Carmela Soprano character on HBO's "The Sopranos" set a standard for brilliance in acting) to help mobilize congress, then so be it.
A reasonable proposal has been made by the Obama administration for combining a public/private health care program...any health care for people who don't have it, is better than none at all. In addition, spending on health care could be infrastructure spending of the type and kind that the "trio" of Krugman/Buffet/Zuckerman (see a prior blog) would endorse as a part of what might be called a "supplemental stimulus".
10 Reasons
http://online.wsj.com/article_email/SB124753066246235811-lMyQjAxMDI5NDE3NDUxMzQwWj.html
Mort Zuckerman is chairman and editor in chief of U.S. News and World Report. As such, his opinion is "informed" and well respected. His article (attached), released in today's WSJ, takes the position that the economy is even worse off than we think: the average length of unemployment is higher than it's been since government began tracking the data in 1948.
One of Zuckerman's most compelling points is that job losses are now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to WIPE OUT ALL JOB GROWTH FROM THE PREVIOUS EXPANSION.
Zuckerman gives 10 reasons why we are in even more trouble than the 9.5% unemployment rate indicates. All of his reasons are compelling.
He asks why aren't things moving when Washington has thrown trillions of dollars into the pot, "...including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent?" The answer is that too much money went to "transfer payments" such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending for new jobs is new spending, particularly on infrastructure. That spending amounts to less than 10% of the stimulus package today.
He concludes that the economy may oscillate between sluggish growth and modest decline for the next several years until the rebalancing of "excessive debt" has been completed. His idea of a "second act stimulus" would be something that has a real multiplier effect, not a congressional wish list of pet programs: "It's a shame that Washington didn't get it right the first time."
I would conclude that Zuckerman would be on the team made up of Warren Buffet and Paul Krugman (see a prior blog). Given their position, I would have a hard time arguing against them. President Obama's position that the stimulus has only had 4 months to work when it was planned to impact over 2 years sounds "reasonable" politically. But, if I'm a Democrat running for reelection in November of 2010, and the unemployment rate is continuing to go up, do I simply "wait", as one of my blog "Followers" has so accurately commented! I don't think so.
Economically, the case for Buffet/Krugman/Zuckerman is being made by the facts. Unemployment, always a lagging indicator, is now also a "current indicator"!
Mort Zuckerman is chairman and editor in chief of U.S. News and World Report. As such, his opinion is "informed" and well respected. His article (attached), released in today's WSJ, takes the position that the economy is even worse off than we think: the average length of unemployment is higher than it's been since government began tracking the data in 1948.
One of Zuckerman's most compelling points is that job losses are now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to WIPE OUT ALL JOB GROWTH FROM THE PREVIOUS EXPANSION.
Zuckerman gives 10 reasons why we are in even more trouble than the 9.5% unemployment rate indicates. All of his reasons are compelling.
He asks why aren't things moving when Washington has thrown trillions of dollars into the pot, "...including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent?" The answer is that too much money went to "transfer payments" such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending for new jobs is new spending, particularly on infrastructure. That spending amounts to less than 10% of the stimulus package today.
He concludes that the economy may oscillate between sluggish growth and modest decline for the next several years until the rebalancing of "excessive debt" has been completed. His idea of a "second act stimulus" would be something that has a real multiplier effect, not a congressional wish list of pet programs: "It's a shame that Washington didn't get it right the first time."
I would conclude that Zuckerman would be on the team made up of Warren Buffet and Paul Krugman (see a prior blog). Given their position, I would have a hard time arguing against them. President Obama's position that the stimulus has only had 4 months to work when it was planned to impact over 2 years sounds "reasonable" politically. But, if I'm a Democrat running for reelection in November of 2010, and the unemployment rate is continuing to go up, do I simply "wait", as one of my blog "Followers" has so accurately commented! I don't think so.
Economically, the case for Buffet/Krugman/Zuckerman is being made by the facts. Unemployment, always a lagging indicator, is now also a "current indicator"!
Doing Business in Russia
http://www.cnn.com/CNN/Programs/fareed.zakaria.gps/
Boris Nemtsov is the former Deputy Prime Minister of Russia. He is now considered to be the leader of the "loyal opposition" to Prime Minister Putin. When President Obama visited Russia, he spent time with Nemtsov and gave a speech to an economic forum that Nemtsov was a part of (ironically, that speech was not carried on national television there).
Nemtsov is a compelling presence and is worth watching on the video from Zakaria's interview with him (site location attached). Listen especially to what he has to say about "corruption" as part of doing business in Russia.
If you have an interest in "macroeconomics", Zakaria also interviews President Obama's Treasury Secretary on the worldwide economic crisis and where it's going...Zakaria does a better job of explaining what did happen and what will and will not happen than Secretary Geithner does.
But my primary recommendation is that you listen to Nemtsov. He is exceptional.
Boris Nemtsov is the former Deputy Prime Minister of Russia. He is now considered to be the leader of the "loyal opposition" to Prime Minister Putin. When President Obama visited Russia, he spent time with Nemtsov and gave a speech to an economic forum that Nemtsov was a part of (ironically, that speech was not carried on national television there).
Nemtsov is a compelling presence and is worth watching on the video from Zakaria's interview with him (site location attached). Listen especially to what he has to say about "corruption" as part of doing business in Russia.
If you have an interest in "macroeconomics", Zakaria also interviews President Obama's Treasury Secretary on the worldwide economic crisis and where it's going...Zakaria does a better job of explaining what did happen and what will and will not happen than Secretary Geithner does.
But my primary recommendation is that you listen to Nemtsov. He is exceptional.
Monday, July 13, 2009
WSJ Consensus Economic Forecast
http://online.wsj.com/article_email/SB124708099206913393-lMyQjAxMDI5NDE3MjAxODIwWj.html
While the timing isn't always exact, the WSJ usually surveys their panel of highly regarded economists for a consensus forecast after the close of every business quarter. The current survey was performed from 7/2 thru 7/7. The data and comments from that survey are referenced above - if your "click on" doesn't get you to it, you can find it as an attachment to Phil Izzo's 7/10/09 WSJ article summarizing the findings.
I was delighted to find that only 8 of the 51 economists responding said more stimulus was necessary! This is a perfect follow up to our prior "blog" where we pointed out that both Krugman and Warren Buffet thought MORE stimulus was needed. (My thought here is that they both would have wanted the Obama economic team to have proposed a much larger stimulus in the first place!) Let's choose up sides - I'll take Buffet and Krugman and anybody else can take the 51 economist consensus (or, rather, the 43 who think further stimulus isn't necessary). It's an important debate but politically there's no chance of another stimulus right now and President Obama has rightly pointed out that his stimulus is 4 months into a program that is designed to impact over a two year period. So, neither he, nor the Democratic party will push for more.
Getting into the survey itself, the economists see the just ended second quarter as the last one with a negative GDP growth rate (-1.6%), forecasting that the next four quarters will grow at from .9% (Q3) to 2.7% (Q2 - 2010). You can see that sequenced and by which economist is forecasting what by going to the survey data summary tabs.
I'll go with Alan Sinai (of Decision Economics) who said that he sees "The mother of all jobless recoveries...coming down the pike." Those economists who project that unemployment could still be in double digits by 2011 will probably be right unless something more gets done by the fall of 2010...
While the timing isn't always exact, the WSJ usually surveys their panel of highly regarded economists for a consensus forecast after the close of every business quarter. The current survey was performed from 7/2 thru 7/7. The data and comments from that survey are referenced above - if your "click on" doesn't get you to it, you can find it as an attachment to Phil Izzo's 7/10/09 WSJ article summarizing the findings.
I was delighted to find that only 8 of the 51 economists responding said more stimulus was necessary! This is a perfect follow up to our prior "blog" where we pointed out that both Krugman and Warren Buffet thought MORE stimulus was needed. (My thought here is that they both would have wanted the Obama economic team to have proposed a much larger stimulus in the first place!) Let's choose up sides - I'll take Buffet and Krugman and anybody else can take the 51 economist consensus (or, rather, the 43 who think further stimulus isn't necessary). It's an important debate but politically there's no chance of another stimulus right now and President Obama has rightly pointed out that his stimulus is 4 months into a program that is designed to impact over a two year period. So, neither he, nor the Democratic party will push for more.
Getting into the survey itself, the economists see the just ended second quarter as the last one with a negative GDP growth rate (-1.6%), forecasting that the next four quarters will grow at from .9% (Q3) to 2.7% (Q2 - 2010). You can see that sequenced and by which economist is forecasting what by going to the survey data summary tabs.
I'll go with Alan Sinai (of Decision Economics) who said that he sees "The mother of all jobless recoveries...coming down the pike." Those economists who project that unemployment could still be in double digits by 2011 will probably be right unless something more gets done by the fall of 2010...
Friday, July 10, 2009
The Political-Economic Trap
Yesterday, Warren Buffet was quoted across the "major media" as saying that the current fiscal stimulus efforts were not enough. Paul Krugman has been saying that consistently since the stimulus plans were initiated. But Krugman (article attached) doesn't harp on what he has said in the recent past. His point with today's observations is that there is a "trap" for the Obama administration in not doing enough stimulus because the "opposition" will say that what has been done "didn't work". Politically, it will be very difficult to go back for more.
For you "macroeconomists" out there, you know that the Fed ran out of bullets long ago (zero interest is as far as they can go), and, as Krugman so accurately points out, only 15% of the stimulus money has made its way into the economy. All sides of this issue knew and know that. Buffet doesn't like the "pork" aspect of the spending. Frankly, I don't think it matters "what" we're spending as long as we "spend". I'm not a fan of spending $30 million on Nancy Pelosi's "marsh mouse" but that environmental money will go into supporting employment and research so I don't care.
It would appear that President Obama has spent a portion of his very high initial approval ratings already. He may need to spend more (rating points) on "spending more" because his multiple front approach to issues is not going to help him if lagging indicators like unemployment don't get any better.
Thursday, July 9, 2009
Moral Hazard
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2282
There is evidently a difference of opinion on the Wharton faculty...several key members believe that there was not enough "penalty" in the ww financial crisis (and/or the U.S. government response to it) to deter the kind of risk practices that caused all the problems in the first place (article attached). We still have some of the large institutions that were "too big to fail". Citi would probably be a good example.
As many of you know, Jeremy Siegel is considered the best finance professor on that faculty. His perspective on this debate is that the crisis has caused enough suffering among corporate executives, shareholders, and others to deter overly "hazardous" financial practices. He goes on to add that many of the financial products and practices that contributed to the crisis have passed from the scene: the subprime mortgage market has dried up; financial institutions have curtailed "binge investing" with borrowed money, etc. Rather, Siegel sees the main problem today as "insufficient risk taking." Money isn't there for good investments...
I strongly recommend the article as it is most interesting to see the differing opinions of the best finance professors in the world on the "Great Recession", its causes, and what's next.
There is evidently a difference of opinion on the Wharton faculty...several key members believe that there was not enough "penalty" in the ww financial crisis (and/or the U.S. government response to it) to deter the kind of risk practices that caused all the problems in the first place (article attached). We still have some of the large institutions that were "too big to fail". Citi would probably be a good example.
As many of you know, Jeremy Siegel is considered the best finance professor on that faculty. His perspective on this debate is that the crisis has caused enough suffering among corporate executives, shareholders, and others to deter overly "hazardous" financial practices. He goes on to add that many of the financial products and practices that contributed to the crisis have passed from the scene: the subprime mortgage market has dried up; financial institutions have curtailed "binge investing" with borrowed money, etc. Rather, Siegel sees the main problem today as "insufficient risk taking." Money isn't there for good investments...
I strongly recommend the article as it is most interesting to see the differing opinions of the best finance professors in the world on the "Great Recession", its causes, and what's next.
Monday, July 6, 2009
Polar Bears
http://online.wsj.com/article_email/SB124657655235589119-lMyQjAxMDI5NDA2MjUwNzI2Wj.html
For those of you who have shared a class or two with me, you know that I was "shocked" (yes "shocked") to read George Will's column (washingtonpost.com 5/28/08) and find that Polar Bears had been declared a "threatened" species because they might be endangered "in the foreseeable future" meaning 45 years. The polar bears had the distinction of being the first species whose supposed jeopardy had been ascribed to "GLOBAL WARMING".
The Interior Department, bound by the Endangered Species Act, had so declared this status because the bears could be threatened if the current episode of warming is, unlike all previous episodes, irreversible, and if it intensifies, and if it continues to melt sea ice vital to the bears, and if the bears, unlike in many previous warming episodes, cannot adapt. Are we following?
With all of this, I was happy to find that Will remembered that time in 1975 when the general consensus of scientists was that we were entering a "New Ice Age" ("Science" magazine, March 1975 reported "...the approach of a full blown 10,000 year ice age."). Will quoted Nigel Lawson as saying that "Over the past 2.5 million years, a period where the planet's climate has fluctuated substantially, remarkably few of the earth's millions of plant and animal species became extinct. This applies not least, incidentally, to polar bears which have been around for millennia, during which there is ample evidence that polar temperatures have varied considerably." I would guess that this type of temperature variance would have been what created the opportunity for ancient Indian tribes to walk across the Bering Strait on land from Siberia to Alaska. I'm also guessing that the polar bears of that time viewed that process with no great amazement.
If we might get back to today, Kimberley Strassel has written an article in the 7/3/09 WSJ (attached) about silencing a climate skeptic: Alan Carlin. Mr. Carlan works for the Environmental Protection Agency (EPA) where everyone is supportive of President Obama's edict that "...there will be a new transparency in government, and science." I agree with him.
However; I'm confused about how Mr. Carlin (a 35 year veteran of the agency) has been treated by his own agency. In March, the Obama EPA prepared to engage the global warming debate in a whole new way by issuing an "endangerment" finding on CARBON. It establishes that carbon is a pollutant, and thereby gives the EPA the authority to regulate it - even if Congress does not act. Around this time, Mr. Carlin and a colleague presented a 98 page analysis arguing the agency should take another look, as the science behind man-made global warming is inconclusive at best. This analysis noted that global temperatures were on a "downward trend." (I'm guessing this would be good news for the polar bears!) It pointed out problems with "climate models." (I'm guessing that this would be similar to the problems with "financial models.") It highlighted new research that contradicts apocalyptic scenarios. Mr. Carlin was silenced, or rather, told to be silent. But, Congress is now involved and we can read about the situation so, perhaps, some light is being shed on the situation.
For Kimberly Strassel, I applaud her report and her conclusion that the professional penalty for offering a contrary view to "elites" like Al Gore is a "smear campaign." Internally, within the EPA, Carlin's work is being "trashed." Kimberly Strassel's work is not being trashed.
For those of you who have shared a class or two with me, you know that I was "shocked" (yes "shocked") to read George Will's column (washingtonpost.com 5/28/08) and find that Polar Bears had been declared a "threatened" species because they might be endangered "in the foreseeable future" meaning 45 years. The polar bears had the distinction of being the first species whose supposed jeopardy had been ascribed to "GLOBAL WARMING".
The Interior Department, bound by the Endangered Species Act, had so declared this status because the bears could be threatened if the current episode of warming is, unlike all previous episodes, irreversible, and if it intensifies, and if it continues to melt sea ice vital to the bears, and if the bears, unlike in many previous warming episodes, cannot adapt. Are we following?
With all of this, I was happy to find that Will remembered that time in 1975 when the general consensus of scientists was that we were entering a "New Ice Age" ("Science" magazine, March 1975 reported "...the approach of a full blown 10,000 year ice age."). Will quoted Nigel Lawson as saying that "Over the past 2.5 million years, a period where the planet's climate has fluctuated substantially, remarkably few of the earth's millions of plant and animal species became extinct. This applies not least, incidentally, to polar bears which have been around for millennia, during which there is ample evidence that polar temperatures have varied considerably." I would guess that this type of temperature variance would have been what created the opportunity for ancient Indian tribes to walk across the Bering Strait on land from Siberia to Alaska. I'm also guessing that the polar bears of that time viewed that process with no great amazement.
If we might get back to today, Kimberley Strassel has written an article in the 7/3/09 WSJ (attached) about silencing a climate skeptic: Alan Carlin. Mr. Carlan works for the Environmental Protection Agency (EPA) where everyone is supportive of President Obama's edict that "...there will be a new transparency in government, and science." I agree with him.
However; I'm confused about how Mr. Carlin (a 35 year veteran of the agency) has been treated by his own agency. In March, the Obama EPA prepared to engage the global warming debate in a whole new way by issuing an "endangerment" finding on CARBON. It establishes that carbon is a pollutant, and thereby gives the EPA the authority to regulate it - even if Congress does not act. Around this time, Mr. Carlin and a colleague presented a 98 page analysis arguing the agency should take another look, as the science behind man-made global warming is inconclusive at best. This analysis noted that global temperatures were on a "downward trend." (I'm guessing this would be good news for the polar bears!) It pointed out problems with "climate models." (I'm guessing that this would be similar to the problems with "financial models.") It highlighted new research that contradicts apocalyptic scenarios. Mr. Carlin was silenced, or rather, told to be silent. But, Congress is now involved and we can read about the situation so, perhaps, some light is being shed on the situation.
For Kimberly Strassel, I applaud her report and her conclusion that the professional penalty for offering a contrary view to "elites" like Al Gore is a "smear campaign." Internally, within the EPA, Carlin's work is being "trashed." Kimberly Strassel's work is not being trashed.
Housing Markets and Public Policy
http://online.wsj.com/article_email/SB124631486277570583-lMyQjAxMDI5NDA2NTMwMTU0Wj.html
I continue to be haunted by Alan Greenspan's statement that financial markets are "self-regulating". I'm sure he is too.
John H Makin has written a brilliant article in the 7/1/09 WSJ (attached) on the fact that the housing bubble was a fully rational response to a set of distortions in the free market - distortions created primarily by the public sector. His point about the intensification of the national push toward home ownership after 2,000 is not arguable: first, the Fed's interest rate policy drove down the cost of borrowing money to unprecedented lows. Second, a common conviction arose that home ownership should be available even to those who, under prevailing conditions, could not afford it. And, finally, private agencies charged with determining the risk and value of securities were exceptionally generous in their assessment of the financial products known as "derivitives" whose collateral resided in the value of thousands of mortgages bundled together. The rating agencies understated the risks from these bundled mortgages by assuming that home prices were simply going to rise forever.
Makin argues that the housing bubble only burst after government subsidies pushed house prices up so fast that marginal buyers could no longer afford to chase prices even higher. So, a "bubble" created by rigged financial markets and a government-sponsored obsession with home ownership is not a result of market failure, but rather, a result of bad public policy. The belief that home ownership, per se, is such a benefit that no amount of government support could be too great and no pace at which home prices rise could be too fast is, therefore, the root of the crisis.
See references in Makin's article to the Clinton administration in 1994, Angelo Mozilo in 2003 (on a "down payment" should no longer be an "impediment" to home ownership), the Fed allowing "bubbles", and a policy of granting monopoly power to rating agencies as examples of a perspective that is difficult to refute.
As a social policy, there are probably less dangerous ways to encourage home ownership for those who might not otherwise "qualify". But the system of regulation that needs to evolve will have to be more sophisticated than those who have "gamed" it in the past. This will have to include the incentives that executives have benefited from in the institutions that purveyed the mortgages that are now the "problem".
I continue to be haunted by Alan Greenspan's statement that financial markets are "self-regulating". I'm sure he is too.
John H Makin has written a brilliant article in the 7/1/09 WSJ (attached) on the fact that the housing bubble was a fully rational response to a set of distortions in the free market - distortions created primarily by the public sector. His point about the intensification of the national push toward home ownership after 2,000 is not arguable: first, the Fed's interest rate policy drove down the cost of borrowing money to unprecedented lows. Second, a common conviction arose that home ownership should be available even to those who, under prevailing conditions, could not afford it. And, finally, private agencies charged with determining the risk and value of securities were exceptionally generous in their assessment of the financial products known as "derivitives" whose collateral resided in the value of thousands of mortgages bundled together. The rating agencies understated the risks from these bundled mortgages by assuming that home prices were simply going to rise forever.
Makin argues that the housing bubble only burst after government subsidies pushed house prices up so fast that marginal buyers could no longer afford to chase prices even higher. So, a "bubble" created by rigged financial markets and a government-sponsored obsession with home ownership is not a result of market failure, but rather, a result of bad public policy. The belief that home ownership, per se, is such a benefit that no amount of government support could be too great and no pace at which home prices rise could be too fast is, therefore, the root of the crisis.
See references in Makin's article to the Clinton administration in 1994, Angelo Mozilo in 2003 (on a "down payment" should no longer be an "impediment" to home ownership), the Fed allowing "bubbles", and a policy of granting monopoly power to rating agencies as examples of a perspective that is difficult to refute.
As a social policy, there are probably less dangerous ways to encourage home ownership for those who might not otherwise "qualify". But the system of regulation that needs to evolve will have to be more sophisticated than those who have "gamed" it in the past. This will have to include the incentives that executives have benefited from in the institutions that purveyed the mortgages that are now the "problem".
The Mortgage Meltdown
http://online.wsj.com/article_email/SB124657539489189043-lMyQjAxMDI5NDA2MzUwNzM1Wj.html
I am attaching an article that was featured in the 7/3 WSJ both on line and in the print edition. Obviously, the WSJ thought as much of the article as I do. One of the major reasons that the UT Dallas School of Management has made such exceptional progress in national rankings over the last several years is the effort by Dean Hasan Pirkul to put in place outstanding faculty. Dr. Stan Liebowitz (Ashbel Smith Professor of Economics) is an excellent example of the quality of that faculty and the research they do.
The premise of the article is that most government programs being discussed to remedy the woes of the housing market are "misdirected". Rather, the evidence from a huge national data base strongly suggests that the single most important factor in the housing crisis is whether the homeowner has negative equity in the house. The point is that the focus on "subprime" mortgages ignores widely available industry facts that 51% of all foreclosed homes had "prime"
loans. Ergo, the suggestions being put forward by the administration and most media outlets - more stringent regulation of subprime lenders - would not have prevented the mortgage meltdown redardless of their merit otherwise. Dr. Liebowitz's point is that stronger underwriting standards are, and were, needed.
As Dr. Liebowitz points out, a significant reduction in foreclosures will happen "...when and only when housing prices stop falling and unemployment stops rising."
What we are doing about those twin factors would be my primary concern and, I would venture to say, could be factors supportive of Krugman's position that there was not, and still is not, enough fiscal stimulus being injected into the economy.
I am attaching an article that was featured in the 7/3 WSJ both on line and in the print edition. Obviously, the WSJ thought as much of the article as I do. One of the major reasons that the UT Dallas School of Management has made such exceptional progress in national rankings over the last several years is the effort by Dean Hasan Pirkul to put in place outstanding faculty. Dr. Stan Liebowitz (Ashbel Smith Professor of Economics) is an excellent example of the quality of that faculty and the research they do.
The premise of the article is that most government programs being discussed to remedy the woes of the housing market are "misdirected". Rather, the evidence from a huge national data base strongly suggests that the single most important factor in the housing crisis is whether the homeowner has negative equity in the house. The point is that the focus on "subprime" mortgages ignores widely available industry facts that 51% of all foreclosed homes had "prime"
loans. Ergo, the suggestions being put forward by the administration and most media outlets - more stringent regulation of subprime lenders - would not have prevented the mortgage meltdown redardless of their merit otherwise. Dr. Liebowitz's point is that stronger underwriting standards are, and were, needed.
As Dr. Liebowitz points out, a significant reduction in foreclosures will happen "...when and only when housing prices stop falling and unemployment stops rising."
What we are doing about those twin factors would be my primary concern and, I would venture to say, could be factors supportive of Krugman's position that there was not, and still is not, enough fiscal stimulus being injected into the economy.
Friday, July 3, 2009
Our Own 1937
http://www.nytimes.com/2009/07/03/opinion/03krugman.html?emc=eta1
So, what is it about Krugman's blog today that is inconsistent with other economists, politicians generally, and the Obama administration (copy attached)? Wait, it's coming to me: the "difference" is that he's right! What a concept! Of course, why pay any attention to him? He is only the most recent Nobel Prize winner in economics.
Christina Romer (chairwoman of the Council of Economic Advisors), who makes sense a lot of the time, published an article (which Krugman references) on the "Lessons of 1937" - the year that FDR gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda. Unfortunately, Dr. Romer is but one member of an economic team that is "chaired" by someone else, and, while I hope that that team works by a reasonable "consensus", I fear that it does not.
Krugman has been very consistent about advocating significantly more stimulus for the economy and he feels that Thursday's jobs report settles the issue: since the recession began, the U.S. economy has lost 6.5 million jobs and it's continuing to lose jobs at a rapid pace. Krugman goes on to point out that, once you take into account the 100,000-plus (I say it's 150,000) new jobs that we need each month just to keep up with a growing population, we're about 8.5 million jobs in the hole. Those facts are irrefutable. Thursday's report also showed wages stalling but that's for another blog.
So, the Obama stimulus plan aims to create 3.5 million jobs by "late next year"...someone do the "math" for me...
Krugman points out quite politely that "As an economist, I'd add that many members of my profession are playing a distinctly unhelpful role." Like Krugman, I worry about the politics of this situation. You should too.
*********************************
Additively, Sung Won Sohn (of the Smith School of Business and Economics) points out in the WSJ (7/2/09) that the "Green Shoots" in the job market are hard to find. Businesses are determined to trim costs by cutting payrolls. Expecting sluggish improvement in demand in the forseeable future, employers want to make sure that a sustained economic recovery is here before hiring. The job market will become the Achilles' heel of the economic recovery.
So, what is it about Krugman's blog today that is inconsistent with other economists, politicians generally, and the Obama administration (copy attached)? Wait, it's coming to me: the "difference" is that he's right! What a concept! Of course, why pay any attention to him? He is only the most recent Nobel Prize winner in economics.
Christina Romer (chairwoman of the Council of Economic Advisors), who makes sense a lot of the time, published an article (which Krugman references) on the "Lessons of 1937" - the year that FDR gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda. Unfortunately, Dr. Romer is but one member of an economic team that is "chaired" by someone else, and, while I hope that that team works by a reasonable "consensus", I fear that it does not.
Krugman has been very consistent about advocating significantly more stimulus for the economy and he feels that Thursday's jobs report settles the issue: since the recession began, the U.S. economy has lost 6.5 million jobs and it's continuing to lose jobs at a rapid pace. Krugman goes on to point out that, once you take into account the 100,000-plus (I say it's 150,000) new jobs that we need each month just to keep up with a growing population, we're about 8.5 million jobs in the hole. Those facts are irrefutable. Thursday's report also showed wages stalling but that's for another blog.
So, the Obama stimulus plan aims to create 3.5 million jobs by "late next year"...someone do the "math" for me...
Krugman points out quite politely that "As an economist, I'd add that many members of my profession are playing a distinctly unhelpful role." Like Krugman, I worry about the politics of this situation. You should too.
*********************************
Additively, Sung Won Sohn (of the Smith School of Business and Economics) points out in the WSJ (7/2/09) that the "Green Shoots" in the job market are hard to find. Businesses are determined to trim costs by cutting payrolls. Expecting sluggish improvement in demand in the forseeable future, employers want to make sure that a sustained economic recovery is here before hiring. The job market will become the Achilles' heel of the economic recovery.
Thursday, July 2, 2009
The Master's Degree
http://roomfordebate.blogs.nytimes.com/2009/06/30/what-is-a-masters-degree-worth/?emc=eta1
The "Room for Debate" blog @ nytimes.com has access to people who can opine with authority on important issues. Some of you may have a personal interest in the perspectives expressed in the post I refer to here (attached for you to read). Some of you are already headed for, or are in, Law School, Business School, Medical School, etc.
I have consistently told the students that have asked me that staying in school and getting a Master's degree is the right thing to do while waiting for the Great Recession to end. It adds to your percieved value in the job market and may, in some cases, allow you to change/improve your capabilities (ie. BA in Sociology to an MBA).
One of the reasons we bring real "practitioners" into our classes is that you get to see what and who is successful (even in down markets). This semester was no different with, for example, Mike Wheeler who came in to talk about "Worlwide Supply Chain" and some of his experiences at well known companies. He mentioned in passing after class that, in the consulting world, the new hot degree combination is the MBA/MS (Accounting). Put that together with the fact that Booz Allen plans to hire 5,000 people in the world this year and you have a small example of how to think in this poor employment environment.
Certainly, as Liz Pulliam Weston points out in the blog, certain degrees are winners (per the examples I give above) but that doesn't mean that an MA is useless. If I had identical candidates for a job, I'd chose the person with the higher degree.
Ironically, there is a coming "labor shortage" which we will discuss at my "Book Club" on the "Next 100 Years" this fall.
The "Master's" post is good stuff - I suggest you read it even if you've already made your choices.
The "Room for Debate" blog @ nytimes.com has access to people who can opine with authority on important issues. Some of you may have a personal interest in the perspectives expressed in the post I refer to here (attached for you to read). Some of you are already headed for, or are in, Law School, Business School, Medical School, etc.
I have consistently told the students that have asked me that staying in school and getting a Master's degree is the right thing to do while waiting for the Great Recession to end. It adds to your percieved value in the job market and may, in some cases, allow you to change/improve your capabilities (ie. BA in Sociology to an MBA).
One of the reasons we bring real "practitioners" into our classes is that you get to see what and who is successful (even in down markets). This semester was no different with, for example, Mike Wheeler who came in to talk about "Worlwide Supply Chain" and some of his experiences at well known companies. He mentioned in passing after class that, in the consulting world, the new hot degree combination is the MBA/MS (Accounting). Put that together with the fact that Booz Allen plans to hire 5,000 people in the world this year and you have a small example of how to think in this poor employment environment.
Certainly, as Liz Pulliam Weston points out in the blog, certain degrees are winners (per the examples I give above) but that doesn't mean that an MA is useless. If I had identical candidates for a job, I'd chose the person with the higher degree.
Ironically, there is a coming "labor shortage" which we will discuss at my "Book Club" on the "Next 100 Years" this fall.
The "Master's" post is good stuff - I suggest you read it even if you've already made your choices.
Wednesday, July 1, 2009
2.5 Million Jobs
http://www.nytimes.com/2009/07/01/business/01leonhardt.html?_r=1&emc=eta1
David Leonhardt writes frequently and brilliantly about the economic scene especially as it relates to the "labor" side of the equation. I have supplied today's NY Times article as an attachment that I suggest you read. He is basically commenting on the optimism shown by the Obama administration's economic advisors when, just before he took over, they "projected" that without the stimulus package the unemployment rate - then 7.2% - would rise above 8% in 2009 peaking at 10% in 2010. With the stimulus, the advisors said, unemployment would probably peak at 8% late this year.
Whoops! The jobless rate is already at 9.4% with forecaters expecting that it will rise further. So, as Leonhardt says, the difference between the situation that the Obama advisors predicted and the one that has come to pass is about 2.5 million jobs.
Leonhardt concludes that the stimulus package does seem to have helped but its impact so far has been minor in comparison with the harshness of the Great Recession. He quotes Mark Zandi (a favorite economist in both houses of congress and one who writes in "English") as saying that
"Early results suggest the stimulus is performing close to expectations." But, obviously, the economy is not performing close to expectations.
Getting back to the 2.5 million jobs, the Obama economists made one avoidable mistake that led to their overoptimism: they relied on the same forecasting models that had failed to see the ww financial crisis coming. These models, used by Wall Street and various research firms, do a decent job most of the time, but they are "notoriously bad" at forecasting turning points because they are based on an assumption that the recent past will more or less repeat itself.
So, what do those same models say for today? Answer: that the recession will end in the next few months. That is roughly what the administration is saying and I hope it's true. But, as Leonhardt says, the larger point is that, even if the optimists are right this time, the economy is not going to feel even remotely healthy anytime soon. Since jobs (and incomes) are a "lagging indicator", the unemployment rate will probably surpass 10% this year and remain above 9% well into next year.
Given this, I look back at Krugman consistently saying that we are not spending enough on fiscal stimulus and he is, again, right. This makes his debate with Taylor (see a previous blog here) kind of one sided: Taylor reminds me of the builders of the Titanic: what would it take for him to believe in "fiscal stimulus"? Perhaps a depression with 25% unemployment? But, the problem with that is that, once you are in a depression, it's already too late. As for the Obama economists, they need to get with the folks who participated in the Wharton Forum on "The New Role of Risk Management: Rebuilding the Model" (see a previous blog here) where they've got to get beyond "...looking for their lost car keys under the street lamp." As the folks at Wharton pointed out, the "modelers" have no idea of how things interact at the systemic level - even those who understood the subprime crisis were "totally amazed" that it brought down vitually the entire international financial system.
As some of you know, I am no big fan of Lawrence (don't call me "Larry") Sommers, the former president of Harvard who is Chairman of the President's Economic Task Force. Not to get personal, but my son has a favorite saying: show me who you're with and I'll tell you who you are. I believe in the President's economic team but my hope is that they will find a way to reasonably overcome the "ego" of their chairman whose biases extend beyond economics. This would include taking a careful look at their forecasting models and paying more attention to economic "lagging indicators" like the 2.5 million jobs Leonhardt has brilliantly calculated that they "missed by" in their projections.
David Leonhardt writes frequently and brilliantly about the economic scene especially as it relates to the "labor" side of the equation. I have supplied today's NY Times article as an attachment that I suggest you read. He is basically commenting on the optimism shown by the Obama administration's economic advisors when, just before he took over, they "projected" that without the stimulus package the unemployment rate - then 7.2% - would rise above 8% in 2009 peaking at 10% in 2010. With the stimulus, the advisors said, unemployment would probably peak at 8% late this year.
Whoops! The jobless rate is already at 9.4% with forecaters expecting that it will rise further. So, as Leonhardt says, the difference between the situation that the Obama advisors predicted and the one that has come to pass is about 2.5 million jobs.
Leonhardt concludes that the stimulus package does seem to have helped but its impact so far has been minor in comparison with the harshness of the Great Recession. He quotes Mark Zandi (a favorite economist in both houses of congress and one who writes in "English") as saying that
"Early results suggest the stimulus is performing close to expectations." But, obviously, the economy is not performing close to expectations.
Getting back to the 2.5 million jobs, the Obama economists made one avoidable mistake that led to their overoptimism: they relied on the same forecasting models that had failed to see the ww financial crisis coming. These models, used by Wall Street and various research firms, do a decent job most of the time, but they are "notoriously bad" at forecasting turning points because they are based on an assumption that the recent past will more or less repeat itself.
So, what do those same models say for today? Answer: that the recession will end in the next few months. That is roughly what the administration is saying and I hope it's true. But, as Leonhardt says, the larger point is that, even if the optimists are right this time, the economy is not going to feel even remotely healthy anytime soon. Since jobs (and incomes) are a "lagging indicator", the unemployment rate will probably surpass 10% this year and remain above 9% well into next year.
Given this, I look back at Krugman consistently saying that we are not spending enough on fiscal stimulus and he is, again, right. This makes his debate with Taylor (see a previous blog here) kind of one sided: Taylor reminds me of the builders of the Titanic: what would it take for him to believe in "fiscal stimulus"? Perhaps a depression with 25% unemployment? But, the problem with that is that, once you are in a depression, it's already too late. As for the Obama economists, they need to get with the folks who participated in the Wharton Forum on "The New Role of Risk Management: Rebuilding the Model" (see a previous blog here) where they've got to get beyond "...looking for their lost car keys under the street lamp." As the folks at Wharton pointed out, the "modelers" have no idea of how things interact at the systemic level - even those who understood the subprime crisis were "totally amazed" that it brought down vitually the entire international financial system.
As some of you know, I am no big fan of Lawrence (don't call me "Larry") Sommers, the former president of Harvard who is Chairman of the President's Economic Task Force. Not to get personal, but my son has a favorite saying: show me who you're with and I'll tell you who you are. I believe in the President's economic team but my hope is that they will find a way to reasonably overcome the "ego" of their chairman whose biases extend beyond economics. This would include taking a careful look at their forecasting models and paying more attention to economic "lagging indicators" like the 2.5 million jobs Leonhardt has brilliantly calculated that they "missed by" in their projections.
The Great Debate
http://www.cnn.com/video/#/video/bestoftv/2009/06/28/gps.krugman.taylor.econ.cnn
I have often thought that, if there were an elected position like "President of the World", Fareed Zakaria would get the votes. A good example of how well respected he is around the world is that he can get the leaders of counties to come on his television show (Fareed Zakaria - GPS on CNN) when others cannot. Zakaria's latest effort to inform involves organizing a debate between two noted economists (Paul Krugman and John Taylor) on the need for the fiscal stimulus currently in effect. I have attached the video courtesy of Krugman's blog and I commend it to you.
For those of you who wish to reference back, check my 6/15 blog on Krugman vs Laffer where Krugman points out that rapid rises in the monetary base do not necessarily lead to hyperinflation. My thought on this is: do we want an increase in the deficit as a percent of GDP or do we want a "depression"? There is no debate.
Taylor points out that (politically) we shouldn't be sending people over to China begging them to buy more of our debt. How could I disagree with that? But, he goes on to say that the stimulus we don't need also includes a new health care plan which will add to the deficit...so what? Does he want 45 million people without health care?
On another note, I want to thank the folks who said they missed me when we went dark for a week - I was out in California at my son's wedding. I also appreciate the input that this is a good way to continue the classroom for those of you who have been with me over the years...your feedback continues to motivate me to overcome my computer-phobia.
I have often thought that, if there were an elected position like "President of the World", Fareed Zakaria would get the votes. A good example of how well respected he is around the world is that he can get the leaders of counties to come on his television show (Fareed Zakaria - GPS on CNN) when others cannot. Zakaria's latest effort to inform involves organizing a debate between two noted economists (Paul Krugman and John Taylor) on the need for the fiscal stimulus currently in effect. I have attached the video courtesy of Krugman's blog and I commend it to you.
For those of you who wish to reference back, check my 6/15 blog on Krugman vs Laffer where Krugman points out that rapid rises in the monetary base do not necessarily lead to hyperinflation. My thought on this is: do we want an increase in the deficit as a percent of GDP or do we want a "depression"? There is no debate.
Taylor points out that (politically) we shouldn't be sending people over to China begging them to buy more of our debt. How could I disagree with that? But, he goes on to say that the stimulus we don't need also includes a new health care plan which will add to the deficit...so what? Does he want 45 million people without health care?
On another note, I want to thank the folks who said they missed me when we went dark for a week - I was out in California at my son's wedding. I also appreciate the input that this is a good way to continue the classroom for those of you who have been with me over the years...your feedback continues to motivate me to overcome my computer-phobia.
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