More On Health Savings Accounts

Russ Roberts has posted some interesting thoughts about the healthcare system in Canada. Just keep scrolling. He references the development of fully private medical care facilities that are cropping up in the wake of a Supreme Court ruling in the Great White North. This ties in with some comments from the readership (it's gotta be at least five of you now) regarding my post about HSAs. Let me be clear, HSAs are not a panacea for our healthcare system, but they represent a senstional political compromise for both sides of the political spectrum (although I am not sure that one of the sides recognizes this fact). You have to view HSAs as an alternative to what is happening in Canada, which is a natural evolution of a two-tiered system, one which provisions care through the government and one which accepts all major credit cards. This two-tiered structure invariably means better quality and availability of care for those who have the means to pay. I'm not sure that this is what liberal policy makers would like to see and I am certain that some will attempt brute force legislation aimed at stopping this evolution. An alternative would be HSAs which, as I mentioned in my posted comments, is a bone that the political left could throw to the large swath of the population that is clamoring for more fairness. This swath consists of the young, healthy, and middle to upper class, and they are desirous of a better healthcare system, principally a more fair one where the heathy don't subsidize the unhealthy. While a more free market system is probably the ideal choice for many in this group, people understand political reality and would be happy for an incremental advance that fixes the inherent unfairness and/or offers some reward for being responsible for their own health. This desire is a powerful political force that isn't going away, but could be blunted with HSAs, which would leave the current system intact and open to tinkering to maintain and improve access and quality for the poor and unhealthy in this country. I imagine that if a politician like Daniel Moynihan were still around, this would be the strategy that he would advocate, but (and this is a symbol of the establishment Democratic Party on nearly every issue) it is his successor, unfortunately, who is driving her party into uncompromising policy positions on healthcare. If you are concerned about things like "access" and "safety nets" and "the needy" in our healthcare system, a blooming "cash 'n carry" healthcare marketplace ala Canada, is far worse than offering HSAs.

Bernanke Bombshell

Newly-installed Fed Chief Ben Bernanke gave a speech at Princeton last Friday and, Dr. Ed Yardeni gives his assessment:

(1) The so-called Phillips Curve is dead. There is no tradeoff between unemployment and inflation. Price stability is the best way to achieve low unemployment. (2) Inflation that is high and stable is better than rising and volatile inflation. But the best way for the Fed to maximize the potential growth of the economy is to target very low inflation, a.k.a., "price stability." (3) It is probably more important to contain inflationary expectations than actual inflation. The Fed can manage expectations best by clearly communicating its commitment to price stability. This is why BSB is a big advocate of transparency in the conduct of monetary policy. (4) The latest oil price shock hasn't had much if any impact on core inflation because the public has confidence that the Fed will keep inflation low. "The anchoring of inflation expectations in a narrow range has been the product of Fed policies that have kept actual inflation low in recent years, clear communication of those policies, and an institutional commitment to price stability."

This is an earthquake if this really represents a new view at the Fed. The Fed has been guided by Phillips Curve thinking for years and I even saw Bernanke speak where he mentioned "resource utilization" many times throughout the speech. While I think it would be a good thing to have less Phillips Curve and more Milton Freidman in the Fed's diet, any philosophical shift is going to be hell on the bond market and its commentators. People have gotten so used to Phillips Curve-type analysis that trying on new intellectual duds is going to take some getting used to. There could be fortunes made and lost in the near future, if this speech indeed signals where monetary policy is headed.

Bloomberg on Healthcare: "Don't Consume Services, Pay Anyway."

Today's "Bloomberg TOP Liberal Inanity of the Day" is directed at Bush's HSA-centric healthcare reform proposals. Far be it for me to outline the major points of why these reforms hold promise, great arguments by the likes of Milton Freidman and Glenn Hubbard are widely available. But the Bloomberg article pounds home a point that, well, has a high degree of stickiness in my craw, and it is this: the proposal would, HORRORS, benefit the healthy!! I don't know where to begin with this but let's take a stab...why the hell would we NOT want to provide incentives for people to be healthy? We ban smoking and sue McDonald's into the mud in an attempt to make people healthier, why not try to achieve the same result via tax policy? (Of course, that presumes that promoting health is a worthwhile goal. Maybe it isn't. Maybe freedom means being able to be a fat, artery-clogged slob who gets winded climbing stairs if one so chooses, but that is a topic for another day.) Of course, tax policy only creates incentives while ultimately leaving it up to people to make choices, and we can't have that. People must be forced to do what is good for them. That is the essence of so much debate in our society today - freewill vs. coersion, faith in people vs. faith in rules.

Also, the general premise of this opposition to HSAs on economic grounds, seems to be that HSAs would allow these dastardly heathly people to actually not pay for services that they don't consume. Without paying into the system for servies that they don't consume, the inherent subsidy to the unhealthy will decrease. This argument that HSAs will benefit the healthy avoids the uncomfortable fact that "the healthy" are getting royally screwed under the current system. Removing the steel rod from the posterior of "the healthy" can hardly be viewed as a grievously unfair benefit. Let's take a simple example. The Baseball family, consisting of two adults under 40 and two children under 5, went to the doctor a grand total of 7 times in 2005. All seven visits were for the under five crowd and involved weighing, peering into mouths, ears and nostrils, and/or getting a total of four vaccinations. For this amount of medical services, the Baseball family paid over $16,000 in healthcare premiums, or roughly $2,300 per visit, and some small out-of-pocket expenses. That is half a year's tuition at a private school for said tykes or food for 10 years for a starving Cambodian family of four, take your pick. Contrast this with Donny Baseball's beloved father-in-law who went to the doctor over 25 times and had an innovative surgical procedure and racked up insurance premiums of roughly $8000, and modest out-of-pockets. To boot, said father-in-law engaged in terribly irresponsible behavior vis-a-vis his health over the years, and continues to do so, without regard to risk. I am of the opinion that in a society where the financial consequences of such irresponsible behavior are actually borne by the individual, we might see less such behavior. But I digress. The point is that the heathly are subsidizing the unheathy. This is unfair and needs to be corrected. HSAs are a way to do that, and more importantly they are a way to do so that have multiple follow-on benefits such as driving down healthcare costs. But probably the greatest benefit is that they would make enormous improvements to our healthcare system without having to fundamentally change the system, which right now offers extraordinary access to healthcare if you happen to be poor and unhealthy. HSAs are actually a damned good compromise that "the healthy" are offering the socialized medicine crowd via the legislative process. The alternative could be alot worse for the bleeding hearts.

Also Selling Well in Hooverville...Steak Dinners.

Some gents and I tried to get a ressie at decent steak joint in NYC the other day...Wolfgang's, Spark's, etc. No dice. Call two weeks in advance we were told.

Just a few hard-working Americans trying to get a little cholesterol in their bloodstreams, but NOOOOOO! Worst economy since Hoover, I tell 'ya!

Related post here.

Light Blogging...Paul Newman's Fault

Blogging has been light, I apologize...to all three of you. There have been other things going on in my life.

Just a few general things...the EUR has come back down from its January rally, which I said to stay tuned for while admitting I had gotten the near term outlook way wrong. I still beleive that Europe is not a good place for global capital to flow to these days given their policies. There isn't even a glimmer of hope, so the outlook for the EUR for the balance of the year has to be down. I did note that it is worth watching Angie Merkel closely, and she may still work out well but she'll have to eat her Wheaties because Germans just threw a French-style hissy fit of a strike over the idea that they might have to work 40 hours just like everybody else. Monthly trade data and the fickleness of currency traders will make it a wild ride but the fundamental trend is down in my opinion, trade deficit-schmeficit.

I had a glorious night the other night watching a Paul Newman fest on TCM...Cat On a Hot Tin Roof followed by Absence of Malice. Where to begin? Even I, red-blooded-heterosexual American male, had at first a hard time figuring out who was hotter - the young Paul Newman as Brick or Liz Taylor, as his nubile, young wife; but, the plunging neck line of that white dress that Liz sported in the last few scenes cleared up the temporary confusion. Many great lines in COAHTR, but of course the two that resonated with me were:
- Big Mama: "Why, I wouldn't trust a man that didn't take a drink now and then."
- Big Daddy: "...Europe ain't nothing but a wore-out auction, just a great big fire sale, the whole rotten thing..."

Off-hand, I don't know when COAHTR was written but it seems pretty sad that Tennessee Williams felt this way and that not alot has changed, to wit I read a quote from a Frenchman recently that asserted that France was in the process of taking its rightful place in the world as a museum for Chinese tourists. Sad.

Next, AOM. Wow. I forgot how good this movie is. Hollywood is simply incapable of making this kind of movie today. Actually, Hollywood just made the antithesis of this movie. George Clooney's Goodnight and Good Luck lionized the media as saints, and yet had no memorable performances or intrigue to speak of. AOM takes the print media to task for soullessness and sloppiness. In AOM Sally Field plays the ostensibly hard-charging, modern, progressive career gal, who doesn't "need to be courted" at age 34 (she'll just bang you if she so chooses, and have an abortion, cause it ain't no big deal) but yet gets taken for a career-ending ride because she is so dumb and has bought into some idealisitic journalism gibberish about the public's right to know. Then there is ole' Paul Himself as a close-to-the-vest, sly and unyielding defender of his marginally good name. But my favorite character though, is Sally Field's editor who extols the virtue of being an editor by claiming that it gets him away from people and keeps him in the office. Self-imposed isolation really is bliss, apparently. OK, maybe big city print media was out of touch in 1980, but not today, right? And then finally there is the magestically opened can of Whoop-Ass that Wilfred Brimley opens at the end of the film, that no currently working actor could hold a candle to (although was it really that easy to fire a government employee back then?).

Clearly, I don't do these two great films justice. If you're like me and you forgot what a great movie looks like, take a trip back...

Rubinomics in the FT

A week or two ago, Robert Rubin took to the Op-Ed pages of the WSJ to pitch the economic model of the establishment Left. Today Rubinomics gets a airing on the FT's page 15. (For those not in the know, the FT is a pink newspaper put out by foreigners.) The purveyor is not Rubin himself, but a mini-me of sorts, Jacob Weisberg. The article is quite fair. Weisberg admits that, budget deficits notwithstanding, the Bush economy has been performing quite well, and he even recognizes the dovish argument that globalized capital markets may represent a paradigm shift for the role of deficits. Still, he warns us that it is just temporary and that deficits, like people, haven't changed their nature - they're still terribly bad.

Here is the nub according to Weisberg: "The basic problem is quite obvious: we are making ourselves poorer. Borrowing to consume, which is what the US is doing, as opposed to borrowing to invest, is a lousy long term strategy..."

I will get to the nub of my criticism shortly, but I have to point out the dishonesty in this statement. He rests the legitimacy of borrowing on the distinction between consumption and investment, but that distinction is totally ignored by any devotee of Rubinomics if the source of funding is taxation rather than borrowing. You can be sure that if taxes were rising to match the outlays, Weisberg and his ilk would not be splitting expenditures into good and bad buckets. The true goal of Rubinomics is to always raise taxes to the level of expenditures, not to make distinctions and judgements on the merits of the expenditures.

But on the real issue. I will be the first guy to agree with Weisberg that deficit spending to subsidize our farmers or hand out pills to old people is reckless, but by lumping all deficit spending as consumption, Weisberg makes the same mistake that most make in simply dismissing wartime defense spending as consumption and not investment. Spending on a transformative foreign policy, of the type that the current administration is pursuing, is an investment in the conditions for expanded global trade. Transforming profoundly illiberal and backward regimes, by force or otherwise, into liberal, capitalist governments and removing security threats creates new participants in the global economy and empowers new producers and new consumers. As any mayor can tell you, business flees when law and order break down, and conversely when you make your town attractive to hardworking people, they move to your town and work hard. On a global scale it is no different. If you don't have conditions conducive to economic prosperity, spending on it is an investment not a cost. Then there is simply the cold calculus of preventing another 9/11. If 9/11 caused $1 trillion worth of damages and something like 9/11 could happen again, you would be wise to spend money to avoid such a similar cost in the future. Investment in cost avoidance makes us richer, not poorer. But that is just the numbers. Obviously the human toll should factor as well. Not just the lives lost, but the damage to our spirits. No less than the patron saint of liberal economics himself, Keynes, saw the importance of our 'animal spirits' to the vitality of the economy. Avoiding another crushing blow to our animal spirits, that which drives us to get up each morning and work, invent, and improve, is not a cost, but probably one of the best investments going.

Nothing Concentrates a Politician's Mind Like a Little Heat

You can bet that Senator Voinovich will take notice of this.

Whoops, maybe he already has.

YES YES YES !!! FINALLY...

Someone has marshalled the resources to attack Sarbanes-Oxley on constitutional grounds. The WSJ has the skinny here and Larry Kudlow has more.

Sad, Truly Sad

This is another blot on the left. Not on their policy, but on their character. Public leaders should set an example by knowing the time and place for debate and having respect for the stature of the President regardless of his policies. Not to mention the needless sullying of the purpose of the occasion.

Beyond that, didn't they learn anything from the Paul Wellstone funeral debacle? They acted indecorously at the late Senator's funeral as well, and snatched defeat from the jaws of victory, gifting a guaranteed seat to Norm Coleman.

Unfortunately it is another blot on the civil rights movement. Americans see things like this and observe the antics and rhetoric of Jesse Jackson, Al Sharpton, Julian Bond et al and they know that the moral authority of the civil rights movement is a thing of the past. It is true that white America is more or less disengaged from the modern cause of civil rights. In part this is because the real goals of the movement have been achieved, but the last, critical threads of engagement have been severed by the laughable cast of characters that now carry the banner of civil rights. They've traded in the likes of Dr. King and Jackie Robinson for Al Sharpton and Kanye West. That's a Bad Trade. A Really Bad Trade.

Bloomberg Borrows Krugman's Favorite (Irrelevant) Ratio

I could maintain quite an active blog even if I just stuck to chronicling the liberal bias and shoddy economic analysis (the later being an outgrowth of the former, in my view) offered to the financial services community by Bloomberg, the leader in financial information services. This is post number 4 or 5 in just the last few weeks.

Today, the mission from Al Hunt & Co. is to convince us that the deficit is the result of George Bush's tax cuts. This is a recurring theme in the MSM, yet the timing is especially critical as a major issue for the upcoming congressional session is the extension of the 2003 tax cuts on dividends and capital gains. So it is high season for this particular liberal drumbeat. To wit, Bloomberg's not-quite famous "Chart of the Day" feature claims that "Tax Cuts Are Fueling US Budget Deficit." Of course the analysis underpinning this proposition comes from...drumroll...the leftist Center on Budget and Policy Priorities. But as any honest critique should do, let's actually look at the analysis. The CBPP analysis rests on the ratio of government revenue (tax receipts) to GDP. The ratio "plunged" from 21% in 2000 to 16.3% in 2003. Notice anything? Yes, 2004 and 2005 are missing. Must be that data on one of the critical variables, like GDP, is not available for those years (it takes the gov't some time to compile numbers, 'ya know). Wait, my assistant is signaling to me...oh, it appears the GDP numbers for 2004 and 2005 are available and it appears that GDP grew roughly 4.2% and 3.5% respectively. A bit of an ommission, wouldn't you say? It also dawns on me, wasn't 2003 the year that the bulk of the tax cuts were passed? Why yes, in May of that year to be exact. You don't have to be a genius to figure out that maybe the tax cuts, which were passed in May of 2003, ought to be assessed based on more than their first seven months in effect, when there are 31 perfectly good months worth of data to look at. No, you don't have to be a genius, you have to be a liberal economist at a left wing think tank.

Beyond this exercise in cherry picking, is the complete irrelevance of the ratio to the conclusion that tax cuts are the cause. The ratio doesn't tell you what is happening to either of the individual components and it certainly doesn't tell you why. Also, it also is completely blind to whether the federal budget is in surplus or in deficit. Making the link between rev:GDP to deficits is erroneous to the point of dishonesty.

Finally, there is the lack of context. 2000 was a year that the government was flooded with tax receipts as dot com bazillionaires cashed in stock and generated huge capital gains before the bubble burst (guys like Gary Winnick, Bernie Ebbers, the Enron guys and a few honest guys too). This bubble-induced revenue was a freak, which goosed the ratio. Of course it all came crashing down and revenue from capital gains taxes were not to be seen again for many years. Until 2004 to be exact, when revenues started to rebound based on an economic and stock market rally. 2005 has seen the largest amount of tax receipts flow into the federal coffers since...since ever. Hmmm, lower tax rates but higher tax revenues??? They gotta have a name for that.

The whole thing is just appallingly Krugmanesque. Don Luskin has more.

I'm On Board the 'Buy Danish' Campaign

Danish with a capital D, that is. Other websites I have perused suggested butter cookies. I like butter cookies as much as the next guy, but I have a better idea:















Reportedly, the Danes are losing about $1 MM per day in lost trade just with Iran. I'm only one man, so I won't be able to offset that. I need help. Who's with me?

Bad Marketing Can Be a Sign of Trouble

While you can't short this idea, because Visa isn't a public company, this news spells, at least to me, that Visa is hurting and offers general lessons for investing. First, nobody changes their ad slogan when things are working, or working well. At best, business is plodding along and needs a kick, but usually when marketing types are up to this kind of stuff, you can bet that business is bad. Second, they are replacing a successful (legendary actually) slogan, which rules out the mitigating possibility that they are just correcting a previous boneheaded move. Tossing out an icon is hard to do (unless you are George Steinbrenner), and is a good indicator of deeper problems. Third, the new slogan, "Life Takes Visa," is essentially identical to American Express's recently launched slogan of "My Life. My Card." So the fact that Visa honchos chose to go with, and spend good money on, a slogan that is indistinguishable from a key competitor's slogan should tell you that there is a dearth of brainpower firing the pistons at Visa currently.

The City That Never Stops Nannying You

The City That Never Sleeps has become the Nanny-State That Doesn't Rest. Among the numerous other degradations of quality of life that New York City's leaders have foisted on residents, the most infuriating has to be the unending series of nannying regulations that have come down during the Bloomberg administration.

The NY Post editorial linked to in the title exposes the latest absurdity: ticketing straphangers for the unconscionable crimes of drinking coffee, wearing rollerbaldes, or placing packages on empty seats while riding the subway. This, of course, is on the heels of the restaurant/bar smoking ban that was Bloomberg's first move out of the gates. We were thankfully spared Bloomberg's noise reduction proposals, but these remain yet another assault on personal liberty that hangs over New Yorkers heads.

The loss of personal liberty is troubling in itself and would be a problem for liberty lovers in any part of America, but for New Yorkers it upsets a delicate balance that has prevailed, by local preference, for decades. New Yorkers know that their city is horribly mismanaged, but have suppressed any demands for responsible management and accountability in return for maintaining a high degree of personal liberty. New Yorkers have always seemed to want, and vote for, social laissez-faire and personal liberty than things like functioning schools, efficient and honest administration, and responsible stewardship of infrastructure. As their personal liberty recedes, New Yorkers are losing out on the implicit deal and getting the worst of both worlds. We aren't getting responsible government, and yet we aren't getting left alone either. Everyday after school lets out (at 2:30!) we have to deal with marauding gangs of insolent, and often dangerous, youths riding the subways, but we are prohibited from such a small consolation in the face of this unpleasantness in the form of a little caffeine.

Previous Decline of New York City themed blogging here and here.

Stupid Is As Stupid Says

Bloomberg has a story on the Senate's vote on a tax cut package that clears the way for a conference committee to extend the dividend and capital gains tax cuts, which are currently set expire in 2008, to 2010. The article is nothing exciting except for a quote from Sen. Max Baucus (D-MT), who expresses his hope that the tax cut extension won't be included in the final conference bill. The Montanan actually said "it will make no sense to focus on capital gains and dividends issues that won't affect a single American until 2009."

Now I don't actually think that Sen. Baucus is really that stupid, but rather he is ignoring what he knows to be true in order to present an alternative analysis that is consistent with his party's legislative goals. While I have observed that this behavior, a form of dishonesty, is commonplace among elected officials (points for subtle understatement?), I nonetheless believe in the principle that people should be ridiculed for what actually comes out of their mouth if warranted.

So, until such time as courses in basic corporate finance are available to Montanans, let's help the Senator out. All together now...

Net...Present...Value...of...Future...After...Tax...Cash...Flows.

Ethanol from Wood Chips and Switch Grass...God Help Us

I see the wisdom in a "don't sweat the small stuff" attitude. Being able to understand what is at the core of an issue and to marshall your energies on real priorities is a hallmark of a good leader. Maybe that is how the White House approached the SOTU address - stand firm on the critical issues of Iraq, fighting terrorism, taxes; and, for the rest, just throw out any old nice-sounding political garbage. After all, you can't be a bulldog on everything. That has to explain the rubbish that Bush spouted about America's addiction to oil and the need for ethanol from wood chips and switch grass.
We need energy diversity and Bush might have thought that was what he was promoting, but that is not what he actually achieved. He fed the large amorphous, unknowledgable, anti-hydrocarbon blob. He may have thought he said that we are too reliant on foreign oil and have not made adequate progress on alternatives to oil, but what the world heard, his adversaries especially, was "oil is bad, very bad." Now, I understand the political impossibility of getting up before the Congress and the nation and saying "Oil rocks. It's cheap, abundant, can propel thousands of pounds of metal and humans long distances, and saves us from having to kill whales or farm millions of acres just to feed horses." But the American people inherently understand this despite the pervasive harping and bad-mouthing of our hydrocarbon-driven society. Thus, you can stand before it and say "like it or not, we use alot of oil, and until the day comes when we have alternatives, we'll be buying alot of it from murderous, socialist jerks like Hugo Chavez when we could be supplying ourselves and employing more of our own folks. Seems pretty obvious, so let's get cracking up in ANWR while we are doing the other smart things, like mandating ultra-low-sulphur diesel or encouraging hybrid technology, that take time to have an impact. It doesn't have to be black or white, we can have a shades of gray energy policy." But no, what does he do, but throw out "Americans are addicited to oil" which is straight out of an enviromental absolutist's playbook. And the one policy proposal to go with this indictment...more ethanol. No nuance no reasoned approach. Most shockingly, no attempt to sensibly frame a complex issue, of which he clearly has extensive knowledge. Bam! Oil bad, more ethanol.
He didn't just punt, he gave upper hand to the legions of radical people and ideas that are at odds with a sensible, free-market driven energy policy. Our energy market is under assault from all sides and the repercussions on the economy and on society are enormous. By legitimizing the demonization of oil he failed to stop the dangerous momentum that anti-free market forces have gained and hastened bad things.