Tuesday, January 14, 2020

Neighborhood Bars

One thing I like about neighborhood bars is that you can get into some interesting conversations. It doesn’t happen every night, but recently I had one of those nights. I was just about to waddle home when in came a guy I had met once before on a barstool at Taco Guaymas. He is a neonatal doctor but we didn’t talk about saving babies.

We started talking about what appears to be a very popular topic these days: Why have people clumped up into extreme political groups and why do they spend their time pointing fingers and calling each other names? Why is it that we have almost zero real conversation and instead shout out mantras we learned from the latest cable TV entertainment (I refuse to call them news) show?

We remembered out loud Walter Kronkite and Ralph Renick (Miami) and similar news shows of long ago in which, at some point in the newscast, it became very clear that the next few minutes would be devoted to opinion. If the opinion light was NOT blinking, that meant we were getting some form of news that was not opinion. Then we got off on 24 hour cable news and now there isn’t one iota of news that isn’t colored by ideology. Joe Jones fell and hurt his knee because Republicans don’t fund adequate exercise programs for the elderly. Or Joe Jones fell because he is a lazy parson on welfare. That’s what we get these days. No offense to Joe Jones.

My doctor friend and I didn’t share much ideology, but we were just about hugging it out in agreement that something has changed and that something is for the worse. The extremes are making us all cranky. The press makes it even worse. And don’t get me started on our politicians.

Our sad conclusion is that while this state of affairs seems like fun in a perverse way, it has a devastating effect when it comes to solving real problems. As we are unloading F bombs at each other, we are losing precious time to try to find realistic solutions for income inequality, poverty, healthcare, and so on. The clock is ticking and we are doing nothing. And yet we gleefully elect monsters who perpetuate this sad state of affairs.

I took a big swallow of JD. Then we got to the fun part. Why? Why now? What seems to be causing this exciting yet dangerous mud-wrestling? Why do the extremes seem to rule each party? Why do we not recognize that compromise – a dirty word these days – has always been and will always be the solution in a democracy? Clearly, very few real, durable and deep economic and social problems in the USA today are simple enough to be fixed by either right- or left-wing extreme solutions. The world is full of grey, and there is no simple ideological solution to our problems.

Here is the shoe dropping. How did we get here? I think I know why we no longer trust moderates like Lugar and Hamilton to fashion solutions that most of us would approve. But maybe I am full of crap. I am sure you will tell me what you think.

Today we find ourselves with outcomes we don’t love. Let’s not point the finger of blame but just agree that the data supports outcomes that most of us don’t like. Maybe it is the distribution of income. Maybe it is the share of income earned by the rich. Maybe it has something to do with healthcare. Maybe it is the slow growth of the economy. Okay – you can add to the list.

My point is that we find ourselves in 2020 with a long list of disappointments. What do we do? Do we sit down together and patiently go over all the likely causes and try to compromise on very difficult decisions? Oh hell no. Just blame it all on the other guys. That’s easier and more fun and really – that world out there is so damn complicated we probably can’t figure out how to approach all those problems anyway. Let's get out the dictionary and look up some really hateful names to call each other. Commie! Pinko! Racist! Bigot! Now, that’s fun!

Err, no it isn’t. And that’s about all I have to say right now. We have big problems and instead of them requiring the best of us to solve them, it is much easier to start a revolution. We aren't very smart and all that work will take away from our TV time. 

My friend forecast that it is more likely than ever that after so many years of being the world’s most successful democracy, soon the West Coast states (and a few others) will secede from the USA. Wow – he really caught my attention on that one. Why should people on the West Coast be dragged down by the rest of us? Or vice versa? Just secede. Split up. That will solve everything. Or will it? 

From my vantage point today in Seattle I am wondering what it would be like to be living in a foreign country. Maybe we will introduce our own currency. Let's call it the Mariner. How many Mariners will I be able to exchange for one loaf of bread? That’s all folks. Happy New Year. :-)

Tuesday, January 7, 2020

A Look Back and Forward by Guest Blogger Buck Klemkosky

What a difference a year makes. At the end of 2018, the Fed had just raised interest rates for the fourth time that year and was forecasting three more in 2019. Stocks were plummeting and trade tensions rising. At the end of 2019, things don’t seem nearly as bad, even somewhat normal. The economy in 2019 did revert to the “new normal,” the 2% GDP growth rate of prior years. The year started out with first-quarter annualized GDP growth of 3.1% but it reverted to 2.0% in the second quarter and 2.1% for the third quarter. If GDP growth is close to 2.0% in the fourth quarter, growth for 2019 will be 2.3%, down from 2.9% in 2018.

The economy has faced several crosswinds in 2019. Certainly, the trade tensions have been one of the biggest headwinds in 2019. Even though a “Phase 1” trade agreement with China was reached in December, trade tensions are expected to continue not only with China, but Europe and Latin America. Trade tensions and policy uncertainties are the primary reasons that CEO confidence is at the lowest level in a decade. This corporate gloom has resulted in negative corporate investment in the second and third quarters of 2019. Other CEO concerns are slower synchronized global growth and a manufacturing recession in most developed countries plus China. In the U.S., manufacturing has contracted for six consecutive months. While manufacturing doesn’t play as prominent a role in today’s economy, 11% of GDP and 8.5% of employment, it is still considered an economic bellwether.

There are economic tailwinds. The biggest is probably the state of the consumer. Unlike the CEOs, consumer confidence is close to an all-time high. Unemployment of 3.5% is at a 50-year low, wages are growing at a 3% annual rate and jobs are still plentiful; there are still more job openings than people looking for jobs. Household balance sheets are in good shape and household net worth (assets minus liabilities) is at an all-time high. The consumer has been the pillar for the economy in 2019.

Other tailwinds in 2019 have been monetary and fiscal policy. After raising interest rates four times in 2018, the Fed did an about-face and cut rates three times in 2019. These were “insurance cuts” because of trade tensions, slowing global growth and the manufacturing recession. Even though the unemployment rate is at a historic low, inflation appears moderate as the Fed’s preferred measure of inflation continues to be below its 2% target. Monetary easing and subdued inflation have resulted in the bellwether 10-year Treasury bond yield falling from 2.68% at the beginning of 2019 to 1.92% at year end. This has been good for consumers, homeowners and corporate borrowers but financial repression for savers. The biggest benefactor of lower interest rates has been the U.S. government. As the effects of the 2018 tax cuts waned, the government attempted to stimulate the economy via spending and fiscal deficits; the deficit surpassed $1 trillion for the 12 months ending in October 2019 for the first time since the Great Recession of 2007-2009. These $1 trillion fiscal deficits are projected into the foreseeable future.

The stock and bond markets reacted favorably to the economic crosswinds in 2019. The S&P 500 appreciated 28.9% in 2019, the best year since 2013. To keep this in perspective, some of the 2019 stock market appreciation was in reaction to the dismal performance in the fourth quarter of 2018; the S&P 500 peaked at 2930 in September and fell to 2351 by Christmas Eve day, a decline of 19.7%, excluding dividends. A decline of 20% would have been classified as a bear market, so it was close to being the first since 2007-2009. Since earnings growth was slightly negative in 2019, the stock market’s appreciation was all due to higher valuation metrics. Given the stock market performance, individual investors don’t seem to be enthused about the longest-running bull market in history. In 2019, investors have withdrawn more than $156 billion from equity mutual funds and exchange-traded funds – the largest withdrawals since they began tracking flows in 1992. There were record inflows into money market and bond funds in 2019. Going back 35 years, 2019 was the first time the S&P 500, crude oil and gold all appreciated at least 10%, and the 10-year Treasury yield fell .75%. Gold had its best year since 2010 and the S&P 500 since 2013. As both short-term and long-term interest rates fell in 2019, bond markets also performed well – the longer the maturity, the better the performance. It certainly paid to follow the Wall Street adage – Don’t Fight the Fed – in 2019.

Recessions tend to catch economists unaware, and the ones they do see coming often don’t happen. In 2018, many of the economic pundits were predicting a U.S. economic recession in 2020. But recession fears have been dialed back. One of the red flags of 2019 was an inverted yield curve – short-term interest rates higher than long-term rates; it has since uninverted. The other red flag was manufacturing; while still contracting, it is doing so at a decelerating rate and stabilizing. The outlook for the global economy is improving; the economies of the U.S., China and Japan have improved but not the Eurozone.

2020 economic growth hangs on the consumer; consumption is more than two-thirds of overall GDP. The household sector is in good shape; while debt is at an all-time high of $16.2 trillion at the end of the second quarter of 2019, it represents 76% of GDP versus 100% in 2008. Household net worth was $114.9 trillion at the end of the second quarter of 2019, a record high, and debt payments as a percentage of disposable personal income were 9.7% versus 13.2% in 2007. Shoppers have been the heroes of this record-setting economic expansion, 10.5 years and counting. Consumer spending will continue to be the primary force driving the U.S. economy in 2020 given the strength of the job market, wage increases and moderate inflation. Corporate investment is usually one of the driving forces in the later part of economic expansions and this has been missing in 2019. It would help if this could get back on track in 2020 to alleviate some of the burden on the consumer.

Monetary and fiscal policy will continue to be economic stimulants in 2020. But headwinds still exist; trade tensions with China and the rest of the world will not abate, and election worries will probably trump everything. There are wide differences among potential president candidates, and the primary process and election may affect consumer confidence and already deflated CEO confidence. Less trade and policy uncertainty would certainly help the latter.

One macro factor to watch carefully in 2020 is inflation. Many believe inflation is permanently muted because of globalization, demographics and price transparency at the consumer level. Thus far, the historical relationship between a record-low unemployment rate and inflation has not held up. If wage inflation picks up and the U.S. dollar weakens, overall inflation could perk up. If this happens, the Fed will be slow to counteract it by raising interest rates because it has adopted a symmetrical inflation policy whereby their inflation target will be an average of 2%. Since the inflation rate has consistently been below 2%, the Fed plans to let it run above 2% for some time before tightening monetary policy. Higher inflation would translate quickly into higher interest rates, certainly not good for the bond and stock markets.

Investors should not expect 2019’s stock market performance in 2020. In 2018, S&P 500 earnings increased more than 22% for the year and the S&P 500 fell 6% due to the bad fourth quarter. In 2019, S&P earnings declined and the S&P 500 increased 29% due to price-earnings multiple expansions, leaving valuations above historical levels. This could be justified based upon lower-for-longer interest rates. So interest rates will be a critical factor in how the stock markets perform in 2020. Another factor may be FOMO, fear of missing out. There are record amounts of money in money market and bond funds that could navigate into stocks. With bond yields at extraordinarily low levels, there are few alternatives to stocks. Real yields on bonds – the after-inflation return – is barely above zero and stocks do offer the possibility of capital appreciation and dividend growth. Plus stock buybacks offer some support for stock prices. S&P 500 earnings are expected to increase in 2020 relative to 2019 adding more support for the stock market. The consensus of stock market prognosticators is for market returns of around 5% in 2020 with 1.8% coming from dividends. Historically, election years have been good for the stock market with only two down years since 1948.

The consensus for U.S. economic growth in 2020 is the “new normal” of 2%. GDP is a function of the number of hours worked times output for worker. The number of hours worked has been increasing about 0.8% annually and productivity has also been increasing about 1.3% although it was negative in the third quarter of 2019. Given the low unemployment rate, the growth in the number of hours worked is expected to fall below 0.5% going forward. That leaves the heavy lifting to productivity and that has been trending down for several decades – 2.77% in the 2000s and 1.3% since 2010. It will take a dramatic increase in productivity to get GDP growth out of its 2% rut. This is a global as well as a U.S. problem.

Thursday, January 2, 2020

Part 2. Healthcare 2020 America by Guest blogger Bruce Gingles of Cook Medical

The incessant criticism of America's health cost and outcomes/quality is partly legitimate in that we do spend the most and on certain metrics like infant mortality and life expectancy we rank below the top and in some cases, well below.  A recent and very credible study in JAMA found that America's healthcare utilization across several major disease categories mimics that of other developed nations.  

Two costs distinguished the US from other countries.  The first is that our physicians make a lot more money than physicians in other countries and second, breakthrough drug classes (primarily biologics indicated for cancer) are more expensive than most "small molecule" drugs and the price borne by US patients and payers is higher than other countries (1, 2).  It's not clear whether the US has the political will to reform our medical workforce and the prerequisite undergraduate and graduate medical education system in order to produce less expensive yet highly competent labor units.  The average debt at medical school graduation in the US is just under $200K.  That money has to be paid back somehow and the task falls to wages.  We could reduce/eliminate from the curriculum those classes that do not logically increase technical skills like French, art history, geography, astronomy, poli sci, and perhaps even economics.  Dispensing with these credit hours would not harm a physician's ability to accurately diagnose and skillfully treat any disease.  Also, miracle-working specialists like transplant surgeons, trauma surgeons, oncologists and many others, spend months at a time on "shopping" rotations during med school to help to help narrow their residency selection.  Since they only choose one, all the services on which they served before matching were wasted.  Specialty rotations during med school could be eliminated without compromising physician quality and this would save a lot of money and time. 

To the less expensive but more volatile issue of high drug costs, here are the facts.  Drugs represent about 12-13% of total US health spending.  Devices and diagnostics account for about 5-6%, bringing the total for "stuff" to nearly 19%.  Device and diagnostics costs as a percentage of the total have been stable for decades but drug costs began rising unusually rapidly about 10-12 years ago.   These increases were mostly the result of a) new biologic classes of drugs which are very expensive to manufacture when compared to small molecules and b) the development of drugs for rare or orphan indications.  Virtually all new drugs require the same level of testing and pre-market regulatory validation to earn market approval.  This is expensive and time consuming (3).  With the exception of rare, expedited review "breakthrough"  drugs, most run the full obstacle course.  A market feature enjoyed by the pharmaceutical industry which is not shared by device or diagnostic companies is that by federal law, drug manufacturers set market prices and these prices cannot be negotiated by Medicare or other federal payers.  That artifact allows pharma considerable pricing leeway but its not clear that this policy has been detrimental to America's health or R&D dominance.  The facts of the case are that we struggle to survive high drug prices until patents expire, at which point the market nearly instantly converts to the generic equivalent.  About 80% of all prescriptions in the US are generic (4).  Generic drugs reduce prices by about 85% (5).

American per capita GDP is the highest of all major economies.  We're rich and we spend part of our wealth on healthcare, including drugs.  Gilead Sciences paid $11B for the Sovaldi/Harvoni patents alone.  This drug class cures Hepatitis C in about 12 weeks with no known side effects. For affected patients, it's practically a miracle.  The addressable population is small, only a few million (up from the original estimate of 350,000) so the costs have to be amortized over many fewer patients than Lipitor or Nexium.   Our health system and the world's had a mild episode of sticker shock when Sovaldi launched at $87,000 per patient.  Never mind that there was virtually unanimous opinion among health economists that at $87K it was much less expensive for much better outcomes than the prevailing standard of care comprising frequent hospital admissions and palliative care.  The main point is that Americans pay more than other countries for the same patented drugs because we can.  

People who are smart enough to know better insist on arguing that because Canada, France, Uruguay or Somalia pay less, the true market price should be the lowest amount paid.  In reality, and from the manufacturer's perspective, the amount earned can be calculated by multiplying the total number of doses sold times the average selling price (ASP) of each prescription dispensed.   What matters is not the lowest or highest but the average.  Hypothetically, the US pays $50/dose for 5 million patients and Portugal pays $15/dose for 800,000 patients, and so forth.  It's easy math.  In exchange for our higher ability/willingness to pay, we get earlier access to life saving drugs while many countries must wait years for the generic version to become available.  In this way, we are also the proverbial guinea pig since side effects may not manifest for years.  Thalidomide is one scandalous example.  An obvious truth is that pharma is highly incentivized to sell more, not fewer, drug doses.  Pricing one's product above the market's ability to pay is not a winning business strategy and even dull pharma execs get that.  With only a few years to repay investors before patented drugs go generic, the pressure is on to move as much inventory as possible.  Scaling R&D/clinical trial quantities to global production volumes results in miniscule cost/dose.  

It is instructive that each year Forbes and Fortune publish a list of the 1) largest and 2) the most profitable US companies.  Pharma's greed should be on stark display.  In reality, pharma rarely breaks the top 10 and it's uncommon to find more than one or two in the top 25.  Most of the profligate profit hyperbole is urban myth.  

America is by far the most heterogeneous of the world's societies.  Diverse cultural preferences often dictate care delivery and consumer models.  Try explaining vaccine phobia to an educated person, especially those with kids in crowded public schools.  We are also blessed/burdened with many personal freedoms.  It's our birthright to consume junk food and pizza in excess and if we want to Darwin ourselves out of the gene pool, that's our right.  The government's and private sector's best efforts to the contrary notwithstanding.  Modern medicine performs many miracles but our health quality and life expectancy also require individual compliance.  The harmonious relationship between excess and affluence is a proud and long-established tradition.  So what if we chop less firewood than the Norwegians or walk fewer kilometers each day than the French?  We make and consume better bourbon and we should be proud of that.   If some of our bourbon and legal pot is enjoyed by pregnant teenagers, is that really a healthcare problem?  We are now celebrating the excellent reflexes and marksmanship of Texas worshippers willing to exchange gunfire with nefarious congregants.  That's Constitutional policy, not healthcare.  Healthcare is the number of trauma survivors discharged from the operating room after the event.  In that expertise, we remain the envy of the world. 

Tuesday, December 31, 2019

Healthcare 2020 in America by guest blogger Bruce Gingles of Cook Medical

Here’s a macro thought as we prepare to turn out the lights on 2019.  High healthcare spending is vexing many economists and hospitals.  Mature wisdom has suggested that enormous prosperity enjoyed by developed countries following the industrial revolution and later the Information Age, resulted in big piles of cash that could be spent on sick people.  Delivery of expensive medical interventions has increased quantity (and quality) of life by 30 extra years since 1900 (1).  As remarkable, life expectancy in the US has increased a full decade since 1950, years and in some cases even generations after the discovery/implementation of vaccination, penicillin, x-ray, public sanitation and apothecary-quality Jack Daniels (2).

In our justified pride for extending life, we should remember the other side of the wealth-health equation.  Nearly as important as the extra life gained from spending innovation dollars may be the enormous increase in wealth that resulted from living longer.  With the exception of Bill Gates, Mark Zuckerberg, LaBron James and a few European soccer stars, most wealth is owned by old people and for one very practical reason: compound interest and ROI (rate of return on investment).  It takes a long time for a $100 sitting in an index fund or savings account to grow to $1B but because we are living to archeological ages, we can be patient.  Average life expectancy for males in the US in 1900 was about 47 years (1).  That’s not much time to build a fortune considering we don’t walk for a full year and grad school can eat up 10% of the total. We now have almost too many billionaires to count and not just in China.  

Back to healthcare, people are beginning to complain that hospital and CVS bills now consume 18% of GDP.  America’s health bill in 2018 was $3T (yes, trillion) (3).  Even if that seems like a lot, imagine a country being able to fork over that amount and still be under 20% of GDP.  The US can and does spend more each year on healthcare than the total GDP of Great Britain, France, Italy or Brazil. (4)

Let’s raise our glass to the capital appreciation Americans will enjoy in 2020 just by making it to the end of the year.   It’s nice to know that almost a fifth of the total will support continued exploration, validation and adoption of new cures and therapies, and contribute to a virtuous wealth and health cycle.  Space prevents examining the “America spends the most for only average health outcomes” red herring which always seems to follow conversations about healthcare costs.

Bruce Gingles is vice-president of Healthcare Policy and a 40 year employee of Cook Medical.  

Tuesday, December 24, 2019

Christmas Eve

Dear friends,

By now you are sick of at least two full months of Christmas carols on your car radio, and how many freaking emails can stores send you in one day? I long for those good old days when Christmas meant drinking large quantities of JD and saying nasty things to friends and family.

But there is no sense being overly romantic when you know your Visa card bill is on its way, and you will soon be serving time for record-setting spending amid fewer tips from all those angry customers who you failed to serve properly as you had daydreams of escaping to a Caribbean Island.

Tomorrow will come and your grandchildren will awaken you before sunrise and your hearts will be filled with joy and love as they open several hundred carefully wrapped packages with crazed and wild abandon while never even glancing at who those gifts were from. Of course, you did none of the wrapping or buying as you were much too busy watching your favorite sports team lose to New England. Luckily, someone else did all that ordering on Amazon and the Forbidden Sex Shop online.

As the haze of all that love and giving love wears off, and the children are gulping their cereal and M&Ms, you can recede to your private room and smoke a dooby in your brand new underwear and socks. How do you spell dooby?

Anyway, I hope you are having a wonderful holiday.

In that spirit I would like to strongly urge you to buy a wonderful new book that is now on the market. It promises to fascinate and more likely to generate a really sound nap. The main author (me) needs the money, and the other two monkeys will never know if you just send the money directly to me. If you want a real copy of the book, the link is:


Macroeconomics for Business

Tuesday, December 17, 2019

Employment Cheer at Christmas?

I wanted to write something about December and Christmas and as usual I wanted to use macroeconomic data to illustrate something -- this time something about the US economy during the holidays. The obvious thing is that we spend a lot of money for gifts at the end of the year. Ho Ho Ho.

In looking at monthly spending series, I wasn't happy with what was available so I decided to try monthly employment. I wanted to better understand what happens to US employment over the holidays. The first thing I did was chart the numbers, and that chart is found below. It is hard to see end of year employment patterns on a graph like that, but it does underscore the dramatic and continuous growth of employment over a long period of time.

It is easy to see the many times when one month's employment fell, but the thing that screams at you from the graph is how persistently employment in the US has increased since the days before World War II. We've gone from about 30 million jobs to almost 160 million. That's quite a streak.

If you look at just the last 21 years -- employment went from 129 million at the end of 1998 to about 154 million at the end of 2019. That's a rise of about 25 million jobs in those years.

But that is not what I wanted to write about today. Hidden in all those data points is what usually happens in December of each year. The table below the chart shows you some information about monthly changes.

I will summarize it here.

Among the information collected from the Bureau of Economic Analysis:

          Employment rose each month, on average by about 390,000 jobs from 1998 to 2018. Multiply that number by 12, and you get how much employment increased over the course of a whole average year from 1998 to 2018.

          With respect to the end of each year, the average change in each month over those 21 years was:
          November      294,000 per month
          December      -214,000
          January       -2,860,000
          February         729,000
          March             705,000

If you take those five months as a block, US employment averaged a decline of about 1.4 million jobs over those five months each year. But all the job loss was found in December and January of each year.

The wonderful holiday season with all that spending found employment drastically declining in December and January of each year. Even if you add in the strong snap backs in the following February and March (and the increase in November), you still get a strong decline for those five months on average each year.

Isn't that crazy! Each year jobs rise by an average of 390,000 each month despite the fact that in those five winter months employment declines by 1.4 million jobs. Those other seven months carry quite the employment load.

Looking at individual months supports the general view. In 2017-18, for example, employment change in the five winter months was -832,000 while the change from November to November was 1,265,000. Similarly in 2018-19, the numbers were -989,000 and +1,481,000.

When thinking of why this occurs, many things come to mind. We call these months holidays for a good reason. People often take time off from employment during these months. It might also be true that it takes employment in production in the months before December to create all the goods that will get sold in December and January. So production and employment cycles may be geared to working harder in the months before the holiday.

Finally, I purposely used data that was not seasonally adjusted. Much of what we read about has already been smoothed by seasonal adjustment factors. I wanted to see the real swings in the data.

What else could explain these crazy swings in employment in the USA? I am no expert on monthly employment changes, and even with the above reasoning, it blows me away to see these wild changes.

FRED Graph Observations
Federal Reserve Economic Data
Link: https://fred.stlouisfed.org
Help: https://fred.stlouisfed.org/help-faq
Economic Research Division
Federal Reserve Bank of St. Louis
PAYNSA All Employees, Total Nonfarm, Thousands of Persons, Monthly, Not Seasonally Adjusted
Frequency: Monthly
observation_date PAYNSA
Employment  CHG
1998-11-01 128290 403
1998-12-01 128459 169
1999-01-01 125708 -2751
1999-02-01 126696 988
1999-03-01 127409 713 -478 2027
1999-11-01 131510 461
1999-12-01 131646 136
2000-01-01 129005 -2641
2000-02-01 129667 662
2000-03-01 130764 1097 -285 2209
2000-11-01 133614 365
2000-12-01 133555 -59
2001-01-01 130681 -2874
2001-02-01 131348 667
2001-03-01 131942 594
2001-11-01 132155 -189
2001-12-01 131773 -382
2002-01-01 128890 -2883
2002-02-01 129362 472
2002-03-01 129969 607
2002-11-01 131667 121
2002-12-01 131259 -408
2003-01-01 128577 -2682
2003-02-01 128994 417
2003-03-01 129490 496 -2056 -1068
2003-11-01 131565 164
2003-12-01 131385 -180
2004-01-01 128726 -2659
2004-02-01 129337 611 -2064 -153
2004-03-01 130378
2004-11-01 133649 251
2004-12-01 133418 -231
2005-01-01 130713 -2705
2005-02-01 131536 823
2005-03-01 132376 840 -1022 882
2005-11-01 136174 557
2005-12-01 135973 -201
2006-01-01 133320 -2653
2006-02-01 134245 925
2006-03-01 135226 981 -391 1637
2006-11-01 138234 385
2006-12-01 138124 -110
2007-01-01 135334 -2790
2007-02-01 136026 692
2007-03-01 136923 897 -926 783
2007-11-01 139510 312
2007-12-01 139297 -213
2008-01-01 136268 -3029
2008-02-01 136787 519
2008-03-01 137378 591 -1820 -352
2008-11-01 136761 -681
2008-12-01 135732 -1029
2009-01-01 132042 -3690
2009-02-01 131808 -234
2009-03-01 131675 -133 -5767 -6239
2009-11-01 131236 48
2009-12-01 130690 -546
2010-01-01 127820 -2870
2010-02-01 128255 435
2010-03-01 129089 834 -2099 -2770
2010-11-01 131947 306
2010-12-01 131641 -306
2011-01-01 128778 -2863
2011-02-01 129592 814
2011-03-01 130499 907 -1142 287
2011-11-01 133893 335
2011-12-01 133718 -175
2012-01-01 131113 -2605
2012-02-01 132067 954
2012-03-01 132971 904 -587 1256
2012-11-01 136039 390
2012-12-01 135964 -75
2013-01-01 133081 -2883
2013-02-01 134120 1039
2013-03-01 134918 798 -731 1064
2013-11-01 138543 524
2013-12-01 138292 -251
2014-01-01 135488 -2804
2014-02-01 136229 741
2014-03-01 137187 958 -832 1264
2014-11-01 141331 465
2014-12-01 141326 -5
2015-01-01 138511 -2815
2015-02-01 139343 832
2015-03-01 140099 756 -767 1774
2015-11-01 144066 421
2015-12-01 144063 -3
2016-01-01 141088 -2975
2016-02-01 141919 831
2016-03-01 142814 895 -831 1531
2016-11-01 146482 433
2016-12-01 146270 -212
2017-01-01 143393 -2877
2017-02-01 144423 1030
2017-03-01 145078 655 -971 1169
2017-11-01 148774 574
2017-12-01 148526 -248
2018-01-01 145428 -3098
2018-02-01 146665 1237
2018-03-01 147368 703 -832 1265
2018-11-01 151375 522
2018-12-01 151203 -172
2019-01-01 148295 -2908
2019-02-01 149148 853
2019-03-01 149864 716 -989 1481
2019-11-01 153624 622
November 294
December -214
January -2860
February 729
March 705 -1073 390
Total Nov to Mar -1413.6

Tuesday, December 10, 2019

Politics and Solutions

This post is all about politics, policy, and problem solving. Policy is so dominated by politics and ideology, I thought I would take a step back from all that noise to think about what we are really dealing with.

At a personal level, we spend our lives encountering challenges and figuring out how to deal with them. While ethics or ideology might enter some of these decisions, many of them are determined by the objective pluses and minuses. Should I buy a SUV or a two-door sedan? Should I go to Indiana University or Purdue? Should I turn left here or turn right? Is it time to replace my furnace? A logical process for finding the best solutions to these and many other questions aids us every day.

Why don’t we do the same thing in the public arena? Should we have a national policy to reduce income inequality? If so, then what is the best policy to achieve significant and lasting improvements? How can we effectively reduce poverty? What do we do to have a strong national defense? How can we have an efficient national infrastructure or successful immigration policy, or how can we make sure enough JD is produced each year?

I realize that when it comes to the public arena, the elements of an objective analysis might get more complicated, but does that mean we have to abandon all logic and start screaming ideology at each other?

We might not agree fully on which problems government should try to solve, but we generally agree it is appropriate for government to try to resolve some of them. Despite this agreement, there are some well-known hazards to consider. Not sure our friends in Washington are capable of the process. But clearly you should agree that this sort of simple logic should not be impossible to muster.

Below I list 6 common-sense steps to approach any national problem.

            Where is the pain center? Can we be specific about the nature and extent of the problem? Seems obvious to me that one should begin by clarifying the nature and extent of the problem. What is it? Who gets affected? How big is the problem?

  Where did it come from? While a problem might be highly visible and impactful, do we know what the source or cause of the problem is? That is, do we have a clue as to what to treat? If the sources are multiple, can we list the causes of the pain and perhaps rank them by size of impact?

How should we treat the problem? Monetary policy is often used because the Fed believes that government either doesn’t know how or is incapable of handling the real sources of a problem. So the Fed often changes monetary policy simply because it observes a potential threat to the economy even if the actual problems have absolutely nothing to do with interest rates or money. Wouldn’t it be nice to aim our policies at the actually sources of our problems, and then use a remedy appropriate to the problem?

Balloon management. Push in the bubble on a balloon and another bubble forms. I learned balloon management when I was a student at Georgia Tech. The bubble on the balloon is like a problem we are encountering. The solution is to get rid of the bubble. Pushing on the bubble will reduce that problem but inevitably when you push one bubble in, you create another one. The trick to good management or problem-solving is to make the second bubble smaller than the first one. Good managers realize they will always create a second bubble, and the trick is to make it smaller than the original one.

            Long term consequences. Sometimes the second bubble does not show up for a while. We have plenty of experience and theory that explains why a policy that overheats the economy will eventually cause interest rates to rise and a crowding out of private investment spending. Balloon management suggests taking this long-term result into account when we use fiscal policy to stimulate the economy.

Unintended consequences. When you try to solve a problem, the action creates other outcomes you might not have anticipated. Balloon management is about expected consequences. But sometimes we get surprised by the eventual impacts of a policy introduced today. Tariffs on Chinese goods might sound practical but how will the Chinese respond?

These last three points underscore how important it is to acknowledge these spillovers as we make our decisions. Ignoring them is to bring peril.

            Where does ethics and/or ideology come in? Try as we might we all have either explicit or hidden ideologies and biases. They are there. We can’t escape them. But we can try to bring them to the surface and try to make sure they play a proper role in any decision. We can try to make sure they don’t dominate every decision. 

So that's it. Whether at the personal level or the national level, it makes no sense to use name-calling and shouting to solve our problems. We will never be perfect when it comes to a complete, objective, and totally effective approach but we probably could do a lot better for ourselves if we  followed some simple decision-making rules. 

What is it about government these days that makes such an approach seems so impossible?

Tuesday, December 3, 2019

Don't Destroy What Makes America Great by Guest Blogger John Manzella*

When I crossed through Checkpoint Charlie from West Berlin to East Berlin nearly 30 years ago, the failures of former East Germany were immediately obvious. The grey unkempt landscape and dilapidated buildings looked as though that country hadn't been repaired since American and Soviet tanks faced off yards apart decades earlier in one of the most tense nuclear showdowns.

While there, I witnessed the dismantling of the Berlin Wall and observed the first free parliamentary elections held in that region since 1933. Although these historic events marked the end of Soviet-dominated Communism, that system began collapsing several years earlier.

Michael Novak, the author of dozens of books on the philosophy and theology of culture, stressed that checks and balances are to the political order what competition is to capitalism. The former Soviet Union, East Germany and other Soviet-controlled countries did not have a system of checks and balances or real competition, and failed miserably.

Even today, China has not designed a system with these critical functions. Consequently, its brand of one-party capitalism is undergoing difficulties that are likely to become more severe in the years ahead.

The American system of checks and balances is part of a critically important formula that prevents any one group from permanently imposing its will on others. It shepherds constant changes — some good, some bad — but always allows for self correction.

Combined with American free-market capitalism, which promotes dynamic and healthy competition, as well as a brilliant Constitution, the rule of law, and separation of church and state, these factors have improved the lives of millions of people. They also have attracted the world’s brightest entrepreneurs, engineers and scientists, and empowered people to unleash their creativity, take risks, and start new businesses.

But to continue to succeed, this American experiment also requires trust in important American institutions, like good government, a well functioning electoral system, a fair judiciary, and sound property rights that protect investments. And herein lies a big problem: faith in many American institutions is declining, especially in government.

Stated in a recent report by the Pew Research Center, “Long running surveys show that public confidence in the government fell precipitously in the 1960s and ‘70s, recovered somewhat in the ‘80s and early 2000s, and is near historic lows today.” The report also indicates that only 37% of those interviewed have at least a “fair amount” of confidence in elected officials to act in the best interests of the public, and 63% have “not too much” or “no confidence at all.”

According to the report, “Why Institutions Matter for Economic Growth,” published by the World Economic Forum, a Geneva-based non-profit organization best known for its annual meeting in Davos, Switzerland, institutions play an important role in a country’s economic health. When trust declines, economies can fail.

A country’s institutions, sometimes referred to as rules of the game, shape behavior. If, for example, citizens don’t believe the legal system will protect their farm or company from being stolen, then their incentive to work hard and invest in a farm or company will be limited.

Only 25 miles apart, there are many differences between San Diego and Tijuana, Mexico. One has a relatively high standard of living, the other doesn’t. One big factor is the strength and level of trust in the institutions they operate under. For a simpler example, look no further than North and South Korea. One country has a vibrant economy, the other can barely feed its people. One has relatively strong institutions, the other doesn’t.

How do we reverse the decline in trust in our institutions? The answer isn’t simple. But support for American institutions — not today’s constant assault on our electoral system, the independent judiciary, the rule of law, and the media — would help. Although the erosion in trust began years ago, it needs to be addressed before the damage mounts.

Many Americans say they are happy with the performance of their stock portfolios and the U.S. economy. But keep in mind that declining trust in American institutions is tantamount to chipping away at the building blocks that make America great and support our wealth creation model. And for me, this brings images of Berliners chipping away at the Berlin Wall.

*John Manzella, founder of the ManzellaReport.com, is a speaker, author and nationally syndicated columnist on global business and economic trends. Contact him at JohnManzella.com.

This article was nationally syndicated by Tribune News Service.