Explaining the Green Shoots

I believe Calculated Risk found out what happened to the green shoots that were sprouting this spring - my emphasis.

The restaurant business is still contracting, and although not contracting as fast as late last year, the pace of contraction has picked up over the last two months.

Someone must have eaten the green shoots.

Oxhorn Subsidies

Money is fungible and income from one activity can be spent elsewhere while looking like it is unrelated. Stimulus money most certainly is being used for corporate subsidies regardless of how uninformed Ms. Oxhorn of the White House is about accounting, economics and unintended consequences. [Bloomberg]

Elizabeth Oxhorn, a White House spokeswoman, said she isn’t aware of any case in which states are directly using stimulus dollars to lure businesses. Any applications that would use funds in such a way would be rejected, she said. Competition among states “ensures that the taxpayers see the very best use of their money,” she added.
Technically she is correct, no stimulus money is being "directly" used but this is disingenuous Newspeak.

My complaint here is the stimulus packages (there were three so far) are sold as money going to mostly idealistic job-saving or economy-saving causes. What is needed is a deeper evaluation of the unintended consequences - by the public and policy makers. These are always present in any policy and the effects are usually minimized or outright ignored. The most recent stimulus was exaggerated as being imperative to avoid dire consequences. Well, we got the dire consequences and then some compared to stress test adverse scenario. Additionally, the economy is starting to turn the corner and yet the stimulus has not even spent $100B of $787B in the legislation. As many predicted, the stimulus would be delivered slowly, with poor feedback and ultimately arrive after recovery has started.

Health and Percent of GDP

The actual consumption of food at home has gone from 20.3% of income in 1929 to a mere 5.6% today. Factoring in eating out it has gone from 23.4% in 1929 to a staggering 9.6% today. Just reviewing the numbers, and ignoring what we know, it appears Americans are eating much less than they did in 1920's. This is certainly not the case. You could even conclude from the numbers that maybe people don't value food as much and therefore are spending less. Reality is we both eat better and spend less which is great.

Now take medical care, just because we are spending more of GDP then in the past doesn't mean all is bad. We need to look at the value as well. Despite the fact we, as Americans, have some lifestyle improvements to make, get a very strong benefit from what we spend. The reason we know this is because if it didn't work we would not demand more and better health care. Lower demand means lower prices - basic economics.

This evaluation of how much of our GDP goes toward health care is misguided. This is not the metric that should be evaluated. The other thing is everyone loves to do straight line (simplistic) analysis of health care cost growth and how in year X it will consume 50% of GDP. Unlikely.

The focus should be on improving the incentive system in the medical care market. To provide insurance and medical savings plans (currently everyone wants a medical savings plan it seems but with the cost of insurance). To reward providers that have higher output per dollar of input - to establish feedback loops through a cost system. Government mandates will fail, in the sense of even less effectiveness as compared to market feedback and distributed knowledge. Providers should publish prices and keep prices consistent regardless of the payer. We don't need to mot towards nationalization of health care to improve it.

Is Massachusetts the Way To Go?

Massachusetts mandated (under a Republican governor) health insurance basically for everyone. This was done just a few years ago and is considered a model for the current reform plans in Congress. It would be a wise idea to wait and see what happens in the next couple of years to the state plan - if nothing else we can improve the proposals.

As I expected, the Massachusetts plan is not so great is being revamped. It was not working so well and did little to control costs. The current plan appears to actually do little to control costs and will greatly exceed (50% or more) over the first 10 years even the pessimistic projections of the Congressional Budget Office that Schumer and others are scoffing at.

A good post to read a bit more at EconLog

DRM's Ugly Head

As a Kindle owner I am very, very disappointed to find that Amazon can and will change purchased content on your Kindle. They have gone and removed (with an account credit) already purchased books from the purchaser's Kindle. Ironically, it was Orwell's 1984 and Animal Farm.

Read the details. http://www.tgdaily.com/content/view/43296/98/

-fishsticks

Glenn Beck Gets it Right

I am not a Glenn Beck fan but he does a nice job of explaining one aspect of "crony capitalism" that we have going on in Washington and on Wall Street. For anyone thinking this is capitalism - this is not capitalism. This is a symptom of government largess. Companies cozy up to the lawmakers to ensure they stand to benefit from this largess.

We Are All Auto Experts

I know my prescription for the ailing American auto industry is correct. So thought Daimler, followed by Cerberus Capital Management and currently Fiat. Fortunately, I don't run, nor will I run an auto maker. Daimler and Cerberus used there own money - I am good with that.

Unfortunately Congress gets to play with other people's money - your money. It seems they think they know which dealers are economically viable better than management or the accountants. Not it looks like they are going to try a new endeavour - running an auto maker.

More than 3,100 General Motors and Chrysler dealers could be in line for a new lease on life as a House bill to overturn dealer closing passed a House committee vote last night. The bill, part of larger spending bill, will move to the House floor next Wednesday.

Read more here.

Anyone who believed that a government run auto maker was going to be free to pursue economic rather than political choices was starkly wrong. These are the unintended consequences of bailouts. I expect that before the end of the next recession GM or Chrysler(Fiat) will be back to losing money on a massive scale. Again the taxpayer will be expected to be riding to the rescue (again). Can we get off this merry-go-round?

Health Care Chaos

Nationalizing more of our health care is a very, very bad idea. The simpler solution to the (involuntarily) uninsured is to provide vouchers or cover them under Medicaid. We didn't need to nationalize grocery stores to provide food aid to the poor We did it in the form of food stamps. Creating a Byzantine, inefficient bureaucracy is overkill.

For those that think "public choice" health care is a good idea they should sign up. However, where profit is falsely believed to be "excess" this is their chance to enjoy the benefits of government. If nationalizing becomes a reality it should be funded just like private insurance - from the proceeds of the program and fees collected through payroll deduction (only from the covered). NO GENERAL FUND money should supplement the program. This is where it will be quickly discovered profit is neither guaranteed nor excess in a competitive market place. I concede that our current system is already very convoluted. A system where the employer decides who pays for coverage, the patient choose the provider, the insurance company decides how much to pay on the claim. The normal market incentive system is broken.

Regulation, wisely done, is a necessity for both a private or public option and should be unaffected by such legislation.