How Gov't. Turned American Dream Into Nightmare

Excerpts below from an excellent WSJ article "The New American Dream: Renting: It's Time to Accept that Home Ownership is Not a Realistic Goal for Many People and To Curtail the Enormous Government Programs Fueling This Ambition," by Thomas Sugrue, professor at the University of Pennsylvania.

Excellent analysis of how government policy turned the American Dream into the American Nightmare for many homeowners, because of public policy that encouraged excessive home ownership and in the process turned good renters into bad homeowners.

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes (see chart above). Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation. We are a nation of homeowners and home-speculators because of Uncle Sam.

Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. In 1933, as one of the signature programs of his first 100 days, Franklin Roosevelt created the Home Owners' Loan Corporation to provide low interest loans to help out foreclosed home owners. In 1934, F.D.R. created the Federal Housing Administration, which set standards for home construction, instituted 25- and 30-year mortgages, and cut interest rates. And in 1938, his administration created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages. In 1944, the federal government extended generous mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house. Together, these innovations had epochal consequences.

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent.

It's a story riddled with irony—for at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army of banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains. Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities; the 1976 Community Reinvestment Act forced banks to channel resources to underserved neighborhoods; and activists successfully pushed Fannie Mae to underwrite loans to home buyers once considered too risky for conventional loans. Minority home ownership rates crept upward—though they still remained far behind whites. Even at the peak of the most recent real-estate bubble, just under 50% of blacks and Latinos owned their own homes. It's unlikely that minority home ownership rates will rise again for a while. In the last boom year, 2006, almost 53% of blacks and more than 47% of Hispanics assumed subprime mortgages, compared to only 26% of whites. One in 10 black homeowners is likely to face foreclosure proceedings, compared to only one in 25 whites.

During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.

Bottom Line: More support for the high likelihood that the global financial crisis, mortgage tsunami, and housing bubble can all be traced to federal government intervention to create affordable housing, see previous CD post here.

Importing BB Talent: A Home Run for Globalization

WSJ article "Foreign Talent Loads the Bases in Minor Leagues":

Recent changes in U.S. immigration law and growing competition in baseball for raw talent have allowed the minor-league farm system to flourish with imported players. It has been a home run for globalization, but bad news for U.S.-born players, who suddenly have much more competition. Across the minor and major leagues, the total number of foreign-born players is growing fast, to almost 3,500 of the 8,532 players under contract this summer, from 2,964 three years ago.

Originally posted at Carpe Diem, not for re-posting on Death and Taxes.

Inflation Fears? Let's Check the Historical Record

There are some economists who are concerned about future inflation because of the loose, expansionary monetary policy in 2008, e.g. see Brian Wesbury and Bob Stein here, here and here. I don't think inflation will be a problem, and here's why:

The chart above shows the annual growth rate in the M2 money supply (percent change from the same month in the previous year, data here) monthly from January 1960 to July 2009. Notice that:

1. There was sustained double-digit money growth in two periods in the 1970s, and that is what generated the high double-digit inflation in that decade. There was double-digit M2 growth for 29 consecutive months from March 1971 to July 1973 (and nine straight months above 13%), and then again for 30 consecutive months from July 1975 to December 1977, with a high of almost 14% growth in early 1972 (see chart above).

2. There was double-digit M2 growth in 1983, but only for 12 months from January to December of 1983, and this monetary expansion wasn't enough to cause inflation (see chart below). Inflation never rose above 5% for many years after the double-digit money growth of 1983.

3. There was double-digit money growth in September, November and December of 2001, but inflation in subsequent years never got above 5% (see chart below).

4. The peak monetary expansion of M2 in 2008 was below the peaks in 1971-1972, 1976-1977, 1983 and 2001 (see chart above), and during the recent monetary expansion there has been only one month of double-digit money growth, and that was the peak of 10% in January 2009.

Bottom Line: Without sustained double-digit M2 growth, we won't have anything close to double-digit inflation. And the historical evidence during the two most recent experiences of double-digit money growth in 1983 and 2001 demonstrates that short periods of double-digit money growth aren't enough to bring about inflationary pressures. And since recent M2 growth during the "loose" monetary policy of 2008 is actually lower than in 1983 and 2001, there probably can't be any inflationary pressures that will lead to problems with future inflation. In other words, a single month of double-digit M2 growth in January 2009 isn't expansionary enough to create inflation.

Originally posted at Carpe Diem, not to be re-posted at Death and Taxes without permission.

DMV

By IBD's Michael Ramirez.

Broadbands: Thanks, But No Thanks for Stimulus $$

Washington Post -- The Obama administration made a national priority of spreading high-speed Internet access to every American home and offered stimulus money to help companies pay for it, but the biggest network operators are staying away from the program. As the Aug. 20 deadline nears to apply for $4.7 billion in broadband grants, AT&T, Verizon and Comcast are unlikely to go for the stimulus money, sources close to the companies said.

Some say taking money could draw unwanted scrutiny of business practices and compensation, as seen with automakers and banks that have taken government bailouts. And privately, some companies are griping about conditions attached to the money, including a net-neutrality rule that they say would prevent them from managing traffic on their networks in the way they want.

Lesson: There ain't no such thing as free stimulus money (TANSTAFSM).

Originally posted at Carpe Diem, not for re-posting on Death and Taxes.

Recovery May Be Strongest Since Early 1980s

NEW YORK, Aug 14 (Reuters) - A U.S. future economic growth gauge rose in the latest week, as its yearly growth rate surged to a 26-year high, suggesting that recovery will commence at the briskest pace in decades, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to a 47-week high of 123.9 in the week to Aug. 7 from 121.7 the prior week. Meanwhile, the index's annualized growth rate leapt to a 26-year high of 13.4% from last week's five-year high of 10.4%. It was the index's highest yearly growth rate reading since the week to Aug. 26, 1983, when it stood at 13.9% (see chart above).

"With WLI growth surging, the odds are rising that the early stage of this economic recovery will be stronger than any since the early 1980s," said Lakshman Achuthan, Managing Director at ECRI. Achuthan recently told Reuters that the national recovery would be stronger than many expect, though signs of such strong growth will not be apparent until sometime next year. "Next year, looking back you'll see that GDP, industrial production, sales, and even non-manufacturing jobs growth -- where 91% of Americans work -- began rising as recovery took hold," Achuthan said.

Originally posted at Carpe Diem, not for re-posting on Death and Taxes.

Big Sugar and The Sugar Racket

Wall Street Journal -- Some of America's biggest food companies say the U.S. could "virtually run out of sugar" if the Obama administration doesn't ease import restrictions amid soaring prices for the key commodity. In a letter to Agriculture Secretary Thomas Vilsack, the big brands -- including Kraft Foods, General Mills, Hershey Co. and Mars -- bluntly raised the prospect of a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies, chewing gum and thousands of other products.

The companies threatened to jack up consumer prices and lay off workers if the Agriculture Department doesn't allow them to import more tariff-free sugar. Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year, except from Mexico, suppressing supplies from major producers such as Brazil.

The letter is the latest salvo fired in a long-simmering dispute between U.S. food companies and the sugar industry over federal policy that artificially inflates the domestic price of U.S.-produced sugar in order to support the incomes of politically savvy sugar-beet farmers on the Northern Plains and cane-sugar farmers in the South. Most years, the price food companies pay for U.S. sugar is twice the world level (bold added).

Phillip Hayes, a spokesman for the American Sugar Alliance (MP: aka "Big Sugar"), a trade group of cane and sugar-beet farmers, said farmers are "absolutely opposed" to expanding the sugar-import quota in part because it would cause the prices received by U.S. growers to sink.

MP: There's another possibility - Kraft, General Mills, Hershey and Mars will simply move their production of sugar-based products out of the U.S. into countries like Canada that don't restrict foreign sugar, which will result in a loss of Amercian jobs.

Exhibit A: In 2003, Kraft moved its LifeSavers production from Holland, Michigan to Canada, resulting in the loss of 600 jobs in Michigan. The reason?

According to the Mackinac Center for Public Policy:

Sugar is cheaper in Canada, which imports it at the lower, freely traded world price. The U.S., on the other hand, has protected its sugar industry with tariffs or quotas since 1922. The LifeSavers case provides an unusually vivid example of how the impulse to "protect jobs" with tariffs can backfire, actually costing some Americans their jobs. In this instance, sugar protection has put LifeSavers and all U.S. sugar-using industries (like cereals) at a serious disadvantage due to tariffs that raise the cost of sugar 2-to-2.5 times the world price. As a result, U.S. candy producers are exporting less than they could, closing plants, and relocating production to other countries.

Legislators who support protectionist measures portray themselves as sympathetic to workers, rarely admitting to the high costs that trade restrictions impose on consumers, taxpayers, and the industries that use the "protected" product (in this case, companies like Kraft). The ratio of jobs in the U.S. food-processing industry, which uses large amounts of sugar, to jobs in sugar production is at least 7 to 1. The best way to keep LifeSavers and other candy jobs in the United States is to end sugar protection, pure and simple.

Originally posted at Carpe Diem, not for re-posting on Death and Taxes.

Falling Odds for Health Care: From 46% to 35.5%

Over the last ten days, the Intrade odds for health care reform by December have fallen from 46% to 35.5%.

Originally posted at Carpe Diem, not for reposting on Death and Taxes.

Median and Core CPI Inflation Show Price Stability

The BLS reported today that annual standard CPI inflation (deflation) from July 2008 to July 2009 was -2.10% (see chart above, blue line), mostly because of a -28.1% decrease in energy prices and a -14.1% decrease in transportation prices from a year ago (when gas was $4 per gallon and oil was $130 per barrel).

In contrast, the Cleveland Fed reported today that its adjusted, Median CPI increased by +1.8% year-to-year through July 2009 (see chart above, red line), similar to the BLS' +1.5% annual "core inflation rate" for July based on the "CPI less food and energy."

The Cleveland Fed has been studying and reporting median CPI for a long time, here is a paper from 1991 on "Median Price Changes: An Alternative Approach to Measuring Current Monetary Inflation," which concluded that:

Differences between changes in the CPI and the median consumer price change underscore the impact of the distribution of price movements on our monthly interpretation of inflation. The median price change is a potentially useful indicator of current monetary inflation because it minimizes, in a nonsubjective way, the influence of these transitory relative price movements.

As Greg Mankiw reported on his blog several months ago:

The average of any data set can be thrown off by a few extreme outliers; the median is a more robust statistic to estimate the central tendency in the data. Right now, the two measures of inflation are diverging substantially. The standard CPI shows deflation over the past year, but that average is due to a few anomalous sectors, such as energy. If you look at the median CPI, which shows what a more typical price is doing, the inflation rate does not look very unusual.

MP: There are some concerns about future inflation from the expansionary monetary policy in 2008 that doubled the monetary base, but that loose monetary policy certainly hasn't yet started showing up in the median CPI inflation, or CPI inflation less energy and food. Unless and until median CPI inflation and core CPI inflation start to show inflationary signs, we really won't have any real inflationary pressures to worry about.

Originally posted at Carpe Diem.

NHS: Long Waits and Putting the Patient Last

1. TELEGRAPH -- A quarter of a million people are waiting more than 18 weeks for treatment on the NHS, new figures show. The figures, published by the Lib Dems, show that 236,316 people are currently waiting more than 18 weeks for a range of treatments including oral surgery, rheumatology and geriatric medicine. This means that nearly 10% of patients are not being treated within the government's waiting list target.

2. TELEGRAPH -- Civitas, the think tank, blames the monolithic nature of the National Health Service for “putting the patient last”. It argues that the “customer” of the NHS business model introduced by Tony Blair and continued by Gordon Brown is the health secretary rather than the patient.

Originally posted at Carpe Diem.

Record Real Wage Increase of 5.15% in July

According to today's BLS Real Earnings report, average hourly earnings for workers in private industries, measured in real dollars (constant 1982 dollars), increased in July by 5.1% compared to July of last year, and this is the largest percentage increase in real hourly earnings in BLS history (back to 1965, see chart above). The 5.1% increase marks the first time ever that real hourly earnings have increased more than 5% in a single month (vs. the same month in the previous year).

Originally posted at Carpe Diem.

Anesthetizing Effect of Tax Withholding:Let's End It

What's your monthly mortgage or rent payment? What's your monthly car payment? What's your monthly payment for your student loan, cell phone or cable TV? Most of us have a pretty good idea of these monthly payments, because we typically write checks every month, or pay online. Now, what's your monthly or quarterly tax liability for federal income taxes?

Most of us have no idea, because most us never write a monthly or quarterly check for income taxes. If you have an adjustable mortgage and your monthly payment adjusts upward, you would be fully aware of the increase in your monthly housing expense. But if your monthly or quarterly tax liability increases, you'd probably have no idea that your tax burden has changed. That insulation from feeling the full impact of our increases in our personal tax burden is probably one of the reasons that government has grown so dramatically over the last 50 years.

Solution? End the practice of employers' withholding taxes from our paychecks, as Charles Murray suggests in today's Wall Street Journal:

The finishing touch is to make sure that people understand how much they are paying, which is presently obscured by withholding at the workplace. End withholding, and require everybody to do what millions of Americans already do: write checks for estimated taxes four times a year.

Tax withholding has a wonderfully anesthetizing effect on people whose only income is a paycheck, leaving many of them actually feeling grateful for their tax refund check every year, not noticing how much the government has taken from them.

MP: Another advantage of ending withholding is that it would remove the significant financial burden on employers who are currently forced to act as tax collectors for the government.

Originally posted at Carpe Diem.

July Retail Sales

Wall Street Journal -- U.S. retail sales fell 0.1% in July even with a boost from the government's cash-for-clunkers subsidy, the Commerce Department reported, marking the first decline in seasonally adjusted sales in three months.

MP: Actually, the seasonally-adjusted decline in retail sales was only -.055% (from $342.497 billion in June to $342.309 billion in July), so by rounding to only one decimal place the reported percentage decline (-0.10%) was almost twice the actual percentage decline (-0.055%).

Additionally, the Census Bureau reports shows a +1.11% increase in July retail sales without seasonal adjustment ($355.243 billion in July from $351.360 billion in June). And the BLS reported today that the Consumer Price Index (CPI-U) decreased 0.2% in July before seasonal adjustment. Therefore, real retail sales in July, adjusted for the 0.2% deflation in July, actually increased by 1.16% before seasonal adjustment.

Originally posted at Carpe Diem.

What About Pre-Existing Conditions?

University of Chicago finance professor John Cochrane answers that question in today's WSJ:

The bills being considered in Congress address the pre-existing condition problem by forcing insurers to take everybody at the same price. It won't work. Insurers will still avoid sick people and treat them poorly once they come. Regulators will then detail exactly how every disease must be treated. Healthy people will pay too much, so we will need a stern mandate to keep them insured. And this step further reduces competition.

Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.

A truly effective insurance policy would combine coverage for this year's expenses with the right to buy insurance in the future at a set price. Today, employer-based group coverage provides the former but, crucially, not the latter. A "guaranteed renewable" individual insurance contract is the simplest way to deliver both. Once you sign up, you can keep insurance for life, and your premiums do not rise if you get sicker. Term life insurance, for example, is fully guaranteed renewable. Individual health insurance is mostly so. And insurers are getting more creative. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.

These market solutions can be refined. Insurance policies could separate current insurance and the right to buy future insurance. Then, if you are temporarily covered by an employer, you could keep the pre-existing-condition protection.

The right to future insurance could be transferrable to another company, for example, if you move. You could have the right that your company will pay a lump sum, so that a new insurer will take you, with no change in your premiums. Better, this sum could be occasionally placed in a custodial account. If you got sick but had something like a health-savings account to pay high premiums, you could always get new insurance. Insurers would then compete for sick people too.

Innovations like these would catch on quickly in a vibrant, deregulated individual insurance market.

Originally posted at Carpe Diem.

World Stock Mkt. Rally, MSCI Index Hits 10 Mo High

The MSCI Barra World Stock Market Index reached a fresh 10-month high today of 1,071.06 points, closing at the highest level since October 6, 2008 (see chart above). From its early March low, the World Stock Market Index has increased 55.5%. Leading the world stock market rally are the emerging markets, which are up by 80% since early March.

Originally posted at Carpe Diem.

Retail Clinic Updates: Check Waiting Times Online, and Docs Want Some of the Growing Business

1. At Family Quick Care clinics operating in Illinois (either next to a Wal-Mart or inside Meijer's Stores), you can now check wait times online (currently no wait at 2 of the 3 clinics listed).

2. CHICAGO TRIBUNE -- A suburban Chicago doctors group is resuscitating the physician-staffed model of retail medicine. Physicians Prompt Care Centers said it will open a clinic this month inside the Jewel-Osco in the Chicago suburb of Orland Park that will be staffed by physicians.

It's the first retail health clinic in the Chicago area for Jewel-Osco parent Supervalu Inc., which has 14 retail clinics in its stores elsewhere in the country. Though the number of retail health clinics has grown to more than 1,100 nationally, most are staffed by nurse practitioners, who are paid less than doctors. Just a half-dozen clinics are staffed by physicians.

MP: About the second story, the docs probably figure that "if you can't beat them (retail health clinics), join them." With more than a thousand retail clinics operating nationally, think of all of the millions (billions?) of dollars of revenue and profits being diverted away from traditional physician-staffed offices and clinics, to nurse practitioner-staffed retail heath care clinics.

Hey, maybe competitive market forces will solve the problem of rising health care costs quicker, and more effectively, than any grandiose form of government-run Obamacare?

Originally posted at Carpe Diem.

Post Prop-209, Asian Students Benefit, and Are Now Almost 50% of Student Body at UC-Berkeley

From the article "Admissions and Public Higher Education in California, Texas, and Florida: The Post-Affirmative Action Era":

How did Asian-American students fare in the changing admissions environment after Proposition 209 ended affirmative action? Early studies in California suggested that the elimination of affirmative action would significantly advantage Asian-American students in their efforts to gain admission to UC-Berkeley, UCLA, and UC-San Diego. Was that, in fact, the case over time?

The data suggest that Asian-American students in California were the major beneficiaries of Proposition 209 in California. At UC-Berkeley, for example, Asian-American enrollment ("first time in college" enrollment) jumped from 37.30% in 1995 to 43.57% in 2000 following the implementation of Proposition 209, and, since that date, the number and percentage of Asian-Americans has increased steadily at both UC-Berkeley and UCLA, reaching 46.59% at UC-Berkeley and 41.53% at UCLA (in 2008).

For UC-San Diego, the number of Asian-American students continues to increase, from 35.93% in 1995 to 36.33% in 2000 and 46.88% in 2005. Clearly in an open admissions process where affirmative action does not enter into enrollment decisions and where legacy and donor issues are discouraged, Asian-American students compete very well.

MP: Thanks to an anonymous commenter for the link.

Originally posted at Carpe Diem.

Economic Logic: Too Much or Too Little?

Do we have too much or too little pollution? Too many or too few people? Do we save too much or too little? Do we spend too much or too little on health care; or on cosmetics? Do we work too much or too little? Do we have too much or too little casual sex?

Rochester economist and professor Steven Landsburg explains how to apply economic logic to these questions.

Part 2 here.

Intrade Odds Plunge for Dec. Jobless Rate > 10%

Based on trading for the Intrade contract "US Unemployment Rate in Dec. 2009 to be Greater Than 10.00%," the odds of the U.S. jobless rate being above 10% in December have fallen from almost 90% several weeks ago to 45% today (see chart above).

Originally posted at Carpe Diem.

Recession Declared Over; Let the Expansion Begin

WALL STREET JOURNAL -- The majority of the economists The Wall Street Journal surveyed during the past few days said the recession that began in December 2007 is now over.

After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate (see chart above) amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the "cash for clunkers" car-rebate program. Economists expect GDP growth to remain above 2% at an annualized rate through the first half of next year (see chart above, survey data here).

MP: Welcome to the economic expansion of 2009, the 12th economic expansion in the U.S. economy since WWII.

Originally posted at Carpe Diem.

Cash for Clunkers: Congress and Parliaments in Fantasyland. Why Not Knock Down Old Houses?

Picture above is from The Economist.

If Congress suddenly required every car and truck in America (all 250 million of them) to be immediately destroyed and replaced with new cars and trucks that got better gas mileage, would the country be worse off or better off? Those members of Congress who voted for the "cash for clunkers" program would probably say "better off," even though a perfectly good auto and truck stock would be destroyed.

The congressional clunker caucus would say millions of workers would be employed to replace all of the existing cars and trucks. Yes, that would be true, but everyone else would be poorer. Those who had to buy a new car would have less money to spend on everything else, which would mean fewer jobs in the rest of the economy -- more autoworkers but fewer farmers, teachers and medical researchers -- not a good trade-off.

Members of Congress would then say that we are saving gasoline by having a more efficient auto fleet -- which ignores the fact that building a new car takes far more resources, including petroleum, than could possibly be saved by the gain of additional miles per gallon.

Congressional "logic" could also be applied to housing.

Why not knock down all houses built in America before 2000 and replace them with new and more energy-efficient houses? Wait -- we already evidenced the results of that experiment -- it happened in New Orleans. Rather than the government directly knocking down the houses, Hurricane Katrina did it for us. Are the people of New Orleans better off or worse off because of Katrina? Are all of the American taxpayers who footed much of the rebuilding cost -- hundreds of billions of dollars -- better off or worse off because of Katrina?

~"Congress in Fantasyland," by Cato's Richard Rahn

Originally posted at Carpe Diem.

Comprehensive Health Insurance Coverage: Absurd

From an excellent article in The Atlantic, "How American Health Care Killed My Father":

Health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance.

Comprehensive health insurance is such an ingrained element of our thinking, we forget that its rise to dominance is relatively recent. Modern group health insurance was introduced in 1929, and employer-based insurance began to blossom during World War II, when wage freezes prompted employers to expand other benefits as a way of attracting workers. Still, as late as 1954, only a minority of Americans had health insurance. That’s when Congress passed a law making employer contributions to employee health plans tax-deductible without making the resulting benefits taxable to employees. This seemingly minor tax benefit not only encouraged the spread of catastrophic insurance, but had the accidental effect of making employer-funded health insurance the most affordable option (after taxes) for financing pretty much any type of health care. There was nothing natural or inevitable about the way our system developed: employer-based, comprehensive insurance crowded out alternative methods of paying for health-care expenses only because of a poorly considered tax benefit passed half a century ago.

In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12% of the population. And it is no coinci­dence that the great inflation in health-care costs began soon after. We all believe we need comprehensive health insurance because the cost of care—even routine care—appears too high to bear on our own. But the use of insurance to fund virtually all care is itself a major cause of health care’s high expense.

Comment from Colin: Excellent read. You'll notice that almost everything wrong about the health care sector can be traced to regulations, the tax code, and Medicare. What we need is a complete rethink of Medicare and an end to insurance as the centerpiece of health care. What's currently on the table is basically the opposite. Government got us into this mess and more government won't get us out.

Originally posted at Carpe Diem.

The Recession Is Over in Europe; +1.2% Annual GDP Growth Rates in Germany and France for Q2

Aug. 13 (Bloomberg) -- The German and French economies unexpectedly grew in the second quarter, bringing an end to their worst recessions since World War II. Gross domestic product rose a seasonally adjusted 0.3% from the first quarter, Germany’s Federal Statistics Office in Wiesbaden said today. The French economy also expanded 0.3%, Finance Minister Christine Lagarde said. Economists predicted contractions of 0.2% in Germany and a 0.3% in France, Bloomberg News surveys showed.

MP: In the U.S., real GDP growth rates are reported as annualized rates, and the quarterly percent growth rates are multiplied by four (-0.25% x 4 = -1.0% for second quarter U.S. real GDP growth). European countries report quarterly growth rates for real GDP from the previous quarter, without annualizing. Therefore, according to the way the U.S. reports real GDP growth, the German and French economies grew by 1.2% in the second quarter.

Originally posted at Carpe Diem.

World Stock Markets Gain $4 Trillion in July

As stock markets around the world gained ground last month, the total world stock market capitalization increased by almost $4 trillion in July, according to data from the World Federation of Exchanges. The July gain follows increases of $1 trillion in March, $3.59 trillion in April, $3.82 trillion in May, and $600 billion in June, and is the first time in two years of five consecutive monthly advances in world stock market value.

The cumulative five-month gain of $12.85 trillion in world stock market capitalization brings the value of world equities up to $41.52 trillion, the highest level since September 2008, and marks a 45% increase from the February bottom (see chart above). 48 out of the 52 world stock markets reporting to the World Federation of Exchanges registered July increases in their domestic stock market capitalization, led by Poland with a whopping 25.2% increase.

Originally posted at Carpe Diem.

New Evidence in Favor of a Gender Math Gap

From a new working paper by Steven Levitt (U Chicago economist, author of "Freakonomics") and Roland Fryer (Harvard economist), "An Empirical Analysis of the Gender Gap in Mathematics":

In this paper, we utilize the Early Childhood Longitudinal Study Kindergarten Cohort (ECLS-K) to shed new light on the gender gap in mathematics. ECLS-K is a data set administered by the Department of Education. The survey covers a sample of more than 20,000 children from roughly 1,000 schools entering kindergarten in the fall of 1998. An enormous amount of information is gathered for each individual, including family background, school and neighborhood characteristics, teacher and parent assessments and expectations, and test scores, which allows us to test several important theories for gender differences within a unified framework. The original sample of students has been subsequently re-interviewed in the spring of kindergarten, first grade, third grade, and fifth grade.

Consistent with the prior literature, when children enter kindergarten, girls and boys are observationally equivalent in both math and reading. By the end of fifth grade, however, girls have fallen more than 0.2 standard deviations behind their male counterparts in math. The math gap is equivalent to 2.5 months of schooling.

Girls are losing ground in math in every region of the country, every racial group, all levels of the socio-economic distribution, every family structure, and in both public and private schools. By the end of the sample, girls do significantly worse than boys on every math skill tested. Underperformance by girls is evident not just in mean test scores, but also in the upper tail of the math distribution. On entry to kindergarten, girls make up 45% of the top five-percentiles in math test scores; by the end of fifth grade just 28% of the top five percent are female. Girls are underrepresented in the bottom tail of the math distribution in kindergarten, but overrepresented in the bottom tail by fifth grade.

We explore a wide range of possible explanations in the U.S. data, including less investment by girls in math, low parental expectations, and biased tests, but find little support for any of these theories. Our evidence suggests that the gender math gap is especially large among children who attend private schools, have highly-educated mothers, and have mothers working in math-related occupations -- all factors that one might think under some theories would be conducive to girls’ success in math.

Although highly speculative, in the cross-country data we identify one factor that correlates strongly with a small gender math gap: gender-segregated schools. This is an area ripe for experimentation.

MP: Does this mean that Lawrence Summers gets his job back as president of Harvard University?

Originally posted at Carpe Diem.

Profit Margin: Health Insurance Industry Ranks #86

Click to enlarge. Private health insurance companies have come under attack lately for making profits, even "record profits," allegedly because of mergers, lack of competition, and monopoly power.

Health Care for America Now: Simply put, the private insurance companies have secured monopolies or tight oligopolies and exercised that power to put profits ahead of patients.

There were no actions taken against anticompetitive conduct by health insurers in the last administration, in spite of the fact that cases by state attorneys general have secured massive fines against these insurers. A lack of antitrust enforcement has enabled insurers to acquire dominant positions in almost every metropolitan market. Unfortunately, this toxic market structure has a profound effect on the nation’s ability to achieve the goals of health care reform.

President Obama: There have been reports just over the last couple of days of insurance companies making record profits, right now," Obama said during a prime-time news conference. At a time when everybody's getting hammered, they're making record profits, and premiums are going up. What's the constraint on that? ... Well, part of the way is to make sure that there's some competition out there.

MP: As the table above of Profit Margins by Industry shows (click to enlarge, data here for the most recent quarter), the industry "Health Care Plans" ranks #86 by profit margin (profits/revenue) at 3.3%. Measured by profit margin, there are 85 industries more profitable than Health Care Plans (includes Cigna, Aetna, WellPoint, HealthSpring, etc.).

And isn't one reason for a lack of competition that competition for health insurance across state lines is prohibited, creating in effect 50 state health insurance "cartels?"

Minimum Wage Stuck in the 1950s? No Way

Are you better off than you were 40 years ago? Not if you’re a minimum wage worker. It would take $9.92 today to match the buying power of the minimum wage at its peak in 1968.

The minimum wage is stuck in the 1950s. With the raise to $7.25 per hour, the minimum wage is higher than 1950s inflation-adjusted $6.71, but lower than the 1956 minimum wage of $7.93 in today’s dollars. The long-term fall in worker buying power is one reason we are in the worst economic crisis since the Great Depression.

Consumer spending makes up about 70% of our economy. The minimum wage sets the wage floor. We can’t build a strong economy on poverty wages. A growing share of workers make too little to buy necessities — much less afford a middle-class standard of living.

Meanwhile a growing share of business revenue has gone to executive pay and profits. In 1968, the richest 1% of Americans had 11% of national income. By 2006, they had 23% — the highest share since 1928, right before the Great Depression. We can’t build a strong, sustainable economy on a 1950s’ wage floor, 1920s’ income gaps and ballooning Wall Street bailouts.

~From "Minimum Wage Stuck in the 1950s" in the Miami Herald


From a previous CD post:

In 1949, the minimum wage was $0.40 per hour, and a full-time summer job (40 hours per week for 12 weeks) would have generated $192 in total summer earnings (ignoring taxes). Using a Sears catalog for retail prices, $192 would have only purchased the following 4 items in 1949:

Now contrast that with 2009. At the current minimum wage of $7.25 per hour, a full-time summer job will generate about $3,500 this year, which would be enough to purchase the following list of 28 items (click to enlarge):

Bottom Line: The inflation-adjusted minimum wage might be stuck in the 1950s, but when you adjust for the purchasing power of what you can buy with income earned at the minimum wage, the minimum wage today is light years ahead of the minimum wage of the 1950s.

As economist W. Michael Cox (chief economist at the Federal Reserve Bank of Dallas) reminds us:

Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers.

Originally posted at Carpe Diem.

Why Should Insurance Cover Pre-Existing Problems?

President Obama: A recent report actually shows that, in the past three years, over 12 million Americans were discriminated against by health insurance companies because of a pre-existing condition.

MP: Doesn't this demonstrate a basic misunderstanding on the part of President Obama about how private insurance markets work? Consider these examples:

1. You call the State Farm Insurance Company to purchase homeowners insurance the day after your home has been damaged by hail, a flood, a fire, an earthquake, a tornado; or has just been burglarized. Would you expect State Farm to cover those "pre-existing conditions?"

2. You call State Farm the day after your car has been in a major accident, and inquire about getting a quote for car insurance, hoping that your extensive "pre-existing body work" will be covered?

3. You call AAA on your cell phone from the side of the road with a flat tire, and ask about signing up for towing insurance, hoping that your "pre-existing" condition will be covered, and could they please send out a tow truck right away to fix your flat tire?

4. You are offered an extended warranty for your new bigscreen TV at BestBuy, and you decline. A month later, you have major problems with your TV and go back to BestBuy and ask if you can now buy that extended warranty, hoping it will cover your "pre-existing" electronic problems?

If the pre-existing conditions wouldn't be covered in those four examples, why would we expect that health insurance companies should, or would cover pre-existing medical conditions? That's not discrimination, that's just the way insurance markets work.

Originally posted at Carpe Diem.

USPS: It Doesn't Care, It Doesn't Have To

WASHINGTON POST -- Postage stamps can be purchased by mail, at the supermarket, even from many bank cash machines. But there's one place you won't be able to get them in a few years - vending machines at the post office. The U.S. Postal Service plans to eliminate its 23,000 vending machines by 2010, the agency said in a recent internal memo.

"The heart of the matter is a lot of these machines are up to 20 years old," she said, meaning breakdowns are increasing and replacement parts are costly or impossible to get. The removals are expected to begin next year with about 5,900 machines eliminated annually.

MP: The stamp vending machine at the downtown Flint Post Office no longer sells stamps, it sits there empty. Right next to the dark, empty vending machine for stamps sit two fully operational, bright and shiny vending machines, one for soft drinks and one for snacks, presumably owned and operated by a private, for-profit vending machine company (see photo above).

Old machines, breakdowns, and replacement parts apparently are not overwhelming problems for a for-profit vending machine company, so couldn't the Post Office outsource its stamp vending machines to the private company that is providing soft drinks and snacks in the Post Office lobby?

Originally posted at Carpe Diem.

US Purchases of Imported Food Doubled in 10 Yrs.

From the USDA study "U.S. Food Import Patterns, 1998-2007":

Using import data from the U.S. Census Bureau, this study examines patterns of U.S. food imports for fiscal years 1998-2007. Results indicate faster import growth trends for consumer-ready foods, such as fruit, vegetables, meats, seafood, and processed food products.

U.S. food consumers are increasingly demanding greater variety, quality, and convenience in the food they consume. As Americans become wealthier and more ethnically diverse, the American food basket reflects a growing share of tropical products, spices, and imported gourmet products.

While the globalized food industry offers U.S. consumers a more affordable array of diverse food products year round, it also increases access for developing countries, such as China, India, and countries in Central America, which have registered rapid export growth.

Growing U.S. consumer demand for increased variety in their diet and more healthful products may have contributed to growth in imports of many tropical products, such as spices, fruits, vegetables, green tea, and unsaturated oils.

U.S. food imports grew rapidly, from $41 billion in 1998 to nearly $78 billion in 2007. Across all food product categories, such as grains, meat, dairy, fruits, vegetables, sugar and sweeteners, import growth was greater among value-added products than among raw commodities. While bulk commodity imports grew at a rate of 14 percent between 1998 and 2007, consumer-ready food products grew over 100 percent (see chart above).

MP: Because of globalization and free trade, Americans now have greater access to an increasing variety of imported foods, at a lower cost than ever before, and with increased health benefits. As the chart above shows, consumer-ready imported food products doubled between 1998 and 2007, from $30 billion to $60 billion. Just another example of how international trade and globalization improve our lives.

Originally posted at Carpe Diem.

Politics and Blacks, Political vs. Economic Power

Blacks hold high offices and dominate the political arena in Philadelphia, Detroit, Baltimore, Washington, D.C., New Orleans and other cities. Yet these are the very cities with the nation's most rotten schools, highest crime rates, high illegitimacy rates, weak family structure and other forms of social pathology.

I am not saying that blacks having political power is the cause of these problems. What I am saying is that the solution to most of the major problems that confront many black people won't be found in the political arena and by electing more blacks to high office. In fact, politicians tend to be hostile to some of the solutions to problems many blacks face such as school choice as a means to strengthen education, the elimination of oppressive licensing restrictions for various occupations, and supportive of job-destroying labor legislation such as minimum wage laws.

The bottom line is there is very little evidence anywhere on the planet that political power is a necessary condition for economic power.

~Walter Williams
Originally posted at Carpe Diem.

"No Shows" Cost NHS Almost $1 Billion Per Year

BBC News -- Patients who fail to keep hospital appointments cost the National Health Service (UK) more than £600 million a year ($990 million), enough to run two medium-size hospitals, data has shown.

Between 2007 and 2008, 6.5 million appointments were missed in the UK, with hospitals losing around £100 ($165) per patient in revenue. Some clinics in the UK are now over-booking patients in anticipation of no shows.

MP: Is this a consequence of "free" health care in the UK? On the one hand, patients tend to overuse healthcare when it is free to them, but they also may tend to engage in more "no show" behavior because healthcare is "free"?

Originally posted at Carpe Diem.

8 Ways To Improve Healthcare, No Effect on Deficit

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That's because there isn't any. This "right" has never existed in America

While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment. Here are eight reforms that would greatly lower the cost of health care for everyone:

1. Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).

2. Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.

3. Repeal all state laws which prevent insurance companies from competing across state lines.

4. Repeal government mandates regarding what insurance companies must cover.

5. Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.

6.  Make costs transparent so that consumers understand what health-care treatments cost.

7. Enact Medicare reform.

8. Revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

~Whole Foods CEO John Mackey in today's WSJ

Originally posted at Carpe Diem.

IPOs Bounce Back in Q2 and First Half of Q3 2009

TechCrunch -- Another small sign that the worst of the recession may be behind us: IPO registrations are clawing their way back from the shadow of the valley of death (also known as the first quarter if 2009, when there were zero IPOs registered with the SEC). So far in July and August alone there have been 14 IPOs, as many as in the previous three quarters combined. These numbers and the chart above are based on the number of IPO filings tracked by Hoovers as of yesterday. Renaissance Capital counts 16 IPO registrations in July and August, and if you look on the SEC’s Edgar site it looks like a few more filed today.

Registering for an IPO doesn’t mean that the company is actually going to go through with it, but the volume of filings is a good confidence index for startups. Most of the companies filing are not technology-related (Hyatt Hotels, RailAmerica, Bayview Mortgage Capital), although Ancestry.com did file on August 3. In terms of actual IPOs, we saw five venture-backed companies start trading in the second quarter, including OpenTable, which is still trading above its $20 offering price.

All this means is that more companies are willing to take a shot at going public, which is encouraging in and of itself. But don’t expect the actual number of IPOs to recover for at least another year.

MP: We're only about half way through the third quarter, and we can expect even more IPO registrations over the next seven weeks left in Q3 2009.

Originally posted at Carpe Diem.

Markets In Everything: Style Your Garage Door

Style-Your-Garage.com -- The days of boring garage doors are numbered! That’s because there are now photo tarpaulins for garage doors from style-your-garage.com!Garage doors have until now mostly been mouse grey and ugly – and often spoil the appearance of well-maintained homes. But now, the days of those hideous garage doors are numbered! That’s because the new photo tarpaulins from style-your-garage.com can give monochrome up-and-over garage doors a whole new look. The printed-on 3D motifs are deceptively realistic and will cause neighbours, friends and passers-by to stop and stare!

Originally posted at Carpe Diem.

Wrong Diagnosis of Our "Disease Mgmt. System"

Washington is working on reform initiatives that focus on one problem: the fact that the system is too expensive (and consequently too exclusive.) Reform proposals, such as the "public option" for government insurance or calls for drug makers to drop prices, are aimed mostly at boosting affordability and access. Make it cheap enough, the thinking goes, and the 46 million Americans who can't afford coverage will finally get their fair share.

But what's missing, tragically, is a diagnosis of the real, far more fundamental problem, which is that what's even worse than its stratospheric cost is the fact that American health care doesn't fulfill its prime directive -- it does not help people become or stay healthy. It's not a health care system at all; it's a disease management system, and making the current system cheaper and more accessible will just spread the dysfunction more broadly.

~Andrew Weil, MD

Originally posted at Carpe Diem.

5-Yr. Cancer Survival Rates: US Dominates Europe

Based upon period survival data for 2000-02 from 47 European cancer registries, 5-year survival rates were found to be higher in the U.S. than in a European composite for cancer at all major sites (see table above, click to enlarge). For men (all sites combined), 47.3% of Europeans survived 5 years, compared to 66.3% of Americans. For women, the contrast was 55.8% vs. 62.9%. The male survival difference was much greater than the female primarily because of the very large difference in survival rates from prostate cancer.

Thus, the US appears to screen more vigorously for cancer than Europe and people in the US who are diagnosed with cancer have higher 5-year survival probabilities.

From a new NBER working paper "Low Life Expectancy in the United States: Is the Health Care System at Fault?" (abstract here and full paper here), by Univ. of Pennsylvania professors Samuel Preston and Jessica Ho.

Thanks to Lee Coppock who pointed me to Marginal Revolution.

Originally posted at Carpe Diem.