All posts by dt

International

Whither Europe

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The Never Ending Story of Europe’s Crisis, the Great Recession in the States and, before that, the Great Depression, all remind us of a basic fact: Capitalism is dependent first and foremost on the availability of Capital.

In 1933, with massive bank runs across the country, FDR declared a national bank holiday and the Federal Reserve committed to supply unlimited amounts of currency to banks. There was what amounted to a 100% backing of banks. When the banks, reopened, people stood in line redeposit their money and the bank runs were over. 2

During our most recent crisis, the coverage was of CDO’s, MBS’s, massive bubbles and greed, corruption and foolishness by lenders, borrowers and politicians. But, the moment that we came closest to turning a massive recession into a Depression to rival that in the ’30s was when overnight lending markets froze up. A long list of businesses are dependent on overnight lending markets. It’s the mechanism that many capital-intensive businesses use to finance operations. As an example, when a car dealer needs to buy inventory, they often use overnight lending to purchase inventory and then role those loans over for short periods as they sell that inventory. You can round up examples throughout the economy.

As the crisis deepened in late ’07, the key index on this type of lending (the Libor-OIS spread) went from single digits to 90 basis points. Borrowing costs went up ten fold. But, in the Fall of ’08, the situation went from bad to worse and credit markets freaked out and the Libor-OIS spread past 350 basis points.1

Lenders had no faith they’d be repaid. If you could borrow money, it cost you 35 times as much as before. It was so expensive that, by the time a car dealer sold the cars they’d financed, they didn’t make enough to cover what they paid for that car and the money they borrowed.

If you missed it, the basic common element is a kind of faith. If the people with money don’t think they’re going to get their money back, why should they let someone else use it? Those people want to know their money isn’t going to disappear. They lend their money to make money. Greed may or may not be good but it’s what motivates Investors to let other people use their money.

Available Capital for businesses doesn’t magically create economic growth or jobs. It’s just a necessary prerequisite. Joe’s New and Used Cars isn’t going to have cars to sell if he isn’t either already very very rich or can use someone else’s money, and do so cheaply enough that he can still make money on those cars after he pays for the money, his employees, building and so on.

Which brings us around to Europe. A big part of the problem in Europe is in their banking system. Countries in Europe, experienced a housing bubble that popped. High unemployment in certain Euro-zone countries, like Spain, added even more bad private sector debt to the books of European banks, cutting the amount of capital banks have available to loan.

Many of these banks have also been financing the debt of Europe countries. It’s become clear that Greece won’t collect the taxes that are owed, provides services completely out of line with its resources and keeps cooking the books to hide the mess. Other countries in Southern Europe had debt loads that were sustainable before the crash caused large drops in their tax revenues.

So now, the same European banking system is loaded with both bad private sector debt and bad public sector debt and the public knows it. The countries with the biggest banking problem are precisely those countries that are having problems borrowing the money. They are in no position to help their own banks. Europe as a whole has already funneled more funds to the banks. But, the banks have sat on the funds. Instead of being available, it sits.

Combine a banking system that’s broke with a Greek government that many people believe will pull out of the Euro and the public in Greece has lost all confidence in their banks. Money is pouring out of Greek banks.

But, whether Greece pulls out of the Euro in the short term or not, there’s a fundamental disconnect in Europe. Europe’s banks and markets are tied together by one currency but there’s no comparable structure in place to guarantee those banks. Next to that is a related issue: why should Germany in particular get on board with guaranteeing banks that are caught in the mess of structural problems that are Greece, Spain and Italy? Thus the demand for outside oversight of the Greek budget.

More and more, there only seem to be two scenarios on the table. The first is the collapse in part or in full of the common currency. That way lies decades of cleanup and (at least) a massive recession that will spread world-wide. The other path being discussed is a form of European Federalism. This would (at least short term) be a step or two short of the so-called United State of Europe but it would still centralize much of the authority on taxing, budgets and managing the European capital system in Brussels. European voters have repeatedly rejected the so called United States of Europe. They fear loosing their individual identities. Do they fear the dissolution of the common currency enough to develop the political will to move to Federalism?

And, if Europe does move that way, it does so by accepting joining the Americans in what we’ve been doing since 1970: socializing risk. You can’t have a single economic entity with hundreds of millions of people under free market capitalism and not socialize the risks in the financial systems, because the alternative is to watch that system and your economy collapse every recession or so.

Socializing risk has a cost. Some have calculated that the average systemic banking crisis cost 13% of GDP to clean up and resulted in a loss of 20% of GDP.3 But, there’s a little more to this puzzle. As one participant in a discussion on CBC’s ideas program a few days ago noted, European economic growth has steadily dropped over the course of the European Project. The current world economic model that marries capitalism to free markets has been working better in most people’s eyes than the long-gone Soviet-style command and control economic system. But issues like socialized risk, the requirement for indefinite growth and the problems we are seeing –the crisis in Europe, the systemic the stagnation in the U.S. and the developing strains in China– beg two questions: can the current model be fixed and is a better model possible?

1 Emergency Banking Act
2 Interbank Lending. Many people blame the spike directly on the US Government refusal to bail out Lehman brothers. There are other arguments. Why the credit markets blew up doesn’t matter for the basic point.
3 Bank runs

Note: all of the linked sources are Wikipedia. While I drew on many additional sources putting together this piece, Wikipedia’s articles in this are solid pieces that provide further links back to various sources. The fact that any group of three economists will have four opinions on a subject pretty much guarantees that, if you want to get a reasonably complete range of opinions that deeply covers the problems in Europe, you’re going to need to read more than a few pages.

Update: The story in Europe is changing so fast that this piece was drafted Saturday, went through a major rewrite (instead of a simple edit) before I posted it Sunday and the, this morning, news hit of the 100B Euro Rescue of Spanish Banks. Stock markets around the world spent the day going south. A few hours ago, the Wall Street Journal published an editorial by Chris Noyer (Governor of the Banque de France) advocating a milder version of the Fiscal Federalism I describe above.

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Uncategorized

Is putting “0 to 60 in 2.3 seconds for a grand” in a title pandering?

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I wrote this for my other blog and then realized it made at least as much sense over here. So I steal from myself.

 

Some weekend reads. And, yes “0 to 60…” is in here. Like a good pandering news show, that bit is all the way at the end.

Science vs. PR: “How a piece of journeyman work is turned into patently junk science… One of the major reasons that science is held in low repute among portions of the citizenry is that it has too often allowed itself to become entangled with public relations.” http://www.american.com/archive/2012/may/science-vs-pr

Web Design Manifesto 2012: “THANK YOU for the screen shot. I was actually already aware that the type on my site is big. I designed it that way…” http://www.zeldman.com/2012/05/18/web-design-manifesto-2012/

Enough: Or, why we should all be laughing hysterically in the magazine aisle: “…I remember an author saying once that he raised his children to be wary of consumerism by teaching them to laugh at commercials. Like, the whole family would sit around the TV together and bust out laughing when someone from LG asked, “Is it a washer? Or something better?” (It’s just a washer.) I’ve decided I like this idea, particularly as a woman, who most advertisers seem to take for a complete idiot.” http://rachelheldevans.com/enough

Old & New Project: Great, provocative images (just read the text before you assume). http://oldandnewproject.com/portfolio/balaams-donkey/ and http://oldandnewproject.com/study/domesticating-christs-cry/

Everyone’s A Curator, Everyone’s A Content Creator: “It used to be that we were all just consumers — or most of us were, anyway. We’d watch TV or read a book or listen to the music on the radio that was selected by others for us. But lately, there’s been an interesting shift in behavior…” http://paidcontent.org/2012/03/13/419-everyones-a-curator-everyones-a-content-creator/

2012 Audi Racing with Hybrids: Half of Audi’s stable for the this year’s FIA World Endurance Championship (including the storied 24 Hours of Le Mans) will be hybrids. http://www.motorauthority.com/news/1073543_2012-audi-r18-e-tron-quattro-hybrid-le-mans-prototype-debuts.

Electric BMW M3 entered In Pikes Peak Hillclimb… and more: I stumbled onto this laundry list of electric racing news. If you think electric car means a golf car or the slightly stodgy Chevy Volt, this is an eye opener. If you’ve got a thing for fast cars, the “Electric Sports Car that does 0-60 in 2.3 seconds” piece at the end has an absolutely trippy video: http://www.greencarreports.com/news/racing

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Policy: Military Spending

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Sander and de Kabouter
Sander and de Kabouter talk Politcs

The political debate in this country is, essentially, one where neither side listens to the other. Which is very strange. The challenges are still the same and two heads are usually better than one in solving a problem. At it’s core, that’s why I started the blog PolicyThunk. Instead of approaching what we need to do from our standard partisan answers, what if we actually took a policy approach and started by understanding what’s so and then said what’s possible. And, if oh by the way, we can throw in the gravy of “here’s why it makes sense for the two extremes of debate” that’s great.

One of my yardsticks of whether I have something to say policy-wise is whether I can see how to see common ground with someone on the other end of the spectrum. One example: military spending. My Dad and I find ourselves in strange agreement: military spending can and should be cut. Funny thing is, the majority of Americans think that it should be cut by at least 83B dollars. That’s according to a new survey (and true both generally and within every standard category: Democrats, Republicans, each age group, etc., etc.)

We’ve agreed that the answer is to subtract a lot of money. But, like mice finding out the meaning of life is 42, now we need the question. In this case, what does the military need to look like for it to cost $85 Billion less?

In some sense, we already know what it needs to be doing. We can pull many of the scenarios out of a careful read of what the U.S. Military is currently dealing with.

Libya is a very different way to fight a war. Pragmatically, it’s not hard to like a war (nope, Mr. Johnson/Bush/Obama, it’s not a conflict or police action, it’s a war) like that. The United States did not have to lead, did not have to send in foot soldiers and did not have to make a long term commitment. In military terms, it was a tightly-focused mission that was clearly defined and achievable. In terms of cost, it was a drop in the bucket.

Part of the success was that the cost of the effort was not primarily ours. It was widely spread internationally. Even other middle eastern countries committed military forces. Perhaps in our increasingly multi-polar world, military force will be more one of focused and smart than stupid and expensive.

But, once you arrive there, you have to start asking what does that new, smaller military look like?

On one level, it looks in a small amount like Donald Romsfeld’s vision. In an era of drones and minimal boots on the ground, do we really need so many aircraft carriers or mainline (read going head-to-head with the Soviets in Europe) battle tanks?

Another recent example is the Somalia pirate situation. There the challenge isn’t the weaponry of the opponents: they’re using speed boats and AK-47s. Movie extras with tranquilizer guns can handle them. The challenge is the battlefield is hundreds of miles across. How do you even find the enemy? And how do you get to them before they capture their target? Do you go with more and smaller ships so somebody is always a short distance away? Wouldn’t you pair that with expanded use of drones?

I could go on from there –the use of computers as a weapon did not begin or end with the computer virus attack on the Iranian nuclear program– but just as the cold war ended (and militaries had to change), another era has ended and the military needs to change again.

But, at this level, military Policy starts with seeing what you’re actually doing and what you expect to be doing. The types of weapons needed are smaller, cheaper, less expensive to operate.

And the skills are radically different. Some positions are going to be de-skilled. The US military is quite conscious of the power of video games. They’re literally adopting video game controllers for control of military equipment like drones. Piloting a drone is a much lower skill position that piloting a fighter jet. At the other extreme, the era of cyber warfare does herald the rise of one new high expertise area in the military.

Another area that will change is what various support services look like. For instance, when far fewer soliders ever spend time in a combat zone (as opposed to jockeying a drone and fighting a cyber ware), the number of combat injuries are going to drop radically. On the other hand, we have no idea what weird conditions are going to develop with people who live in the suburbs, commute to work and then remotely kill people through what feels like a video game. It’s the first time that a significant number of people are warriors, killing people, while being separated and divorced from the results of their actions. Insert your favorite pop psychology and screen play for Rambo as an ex-drone jockey let behind when he snaps.

Clearly there are going to be big losers. Your congressional district is very likely to loose jobs at companies big and small. Your district may or may not get new jobs. But, if we’re honest about what we’ll be doing and how we need to do it, we can save that $83+ Billion dollars and have military that makes policy sense.

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Rescue Plans, Site, Uncategorized

Kafka and Imperial Presidencies

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Obama seems to be happy to follow in the footsteps of almost every President since Johnson (and probably a few before) in strengthening the powers of the Presidency at the expense of the other two branches, especially the legislative. Under Bush II and Obama, that seems to have taken a very weird Kafkaesque turn with legal justification for presidential actions being classified. What strikes me as an apropos example is covered in the Atlantic’s The Secret Memo That Explains Why Obama Can Kill Americans. The core of the article reads:

“The Justice Department wrote a secret memorandum authorizing the lethal targeting of Anwar al-Aulaqi… The document was produced following a review of the legal issues raised by striking a U.S. citizen and involved senior lawyers from across the administration. There was no dissent about the legality of killing Aulaqi, the officials said.”

…the actual legal reasoning the Department of Justice used to authorize the strike? It’s secret. Classified. Information that the public isn’t permitted to read, mull over, or challenge.

What is truly puzzling is that the US legal basis for this seems fairly explicit in the fifth amendment to the U.S. Constitution:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

I suspect the legal arguments revolve around the Grand Jury clause (unless on a presentment or indictment of a Grand Jury) and the military clause (cases arising in the land or naval forces). It could be the ruling revolves around a secret Grand Jury and/or Anwar al-Aulaqi, by taking up arms against the United States. In essence, there may be a legal basis. And, there is a strong moral argument for the specific action.

The issue is not one of the basis or justification for the argument. The issue is not one of narrow arguments for a particular action. It is a broader one that is reminiscent of “abuses and usurpations” of King George cited in the Declaration of Independence. That document talks ofan Executive who “(refused) his Assent to Laws for establishing Judiciary Powers,” “(deprived them) of the benefit of Trial by Jury,” and “(abolished) the free System of English Laws” and “(altered) fundamentally the Forms of our Governments.” Today, we would say that our government is fundamentally based upon the rule of law (that we can see). We are not free unless we insist upon laws that we have to can access and use to petition for redress of our grievances.

One of Kafka’s novels involves a man who spends his entire life sitting outside a door waiting to petition the bureaucracy. And never even having the ability to do so. In this case, we don’t have access to the logic of the ruling. Without the legal arguments, it’s rather difficult to even get in line next to that door to petition.

To be clear, I am not arguing that our Presidents are close to becoming insane absolute despots like the English King George. What I am saying is that cases like the legal memo justifying the assassination of Anwar al-Aulaqi and the legal memos justifying torture of enemy combatants, penned under George W. Bush’s watch, are a particular new development in their inaccessibility. At first, they appear far removed from the lives of most Americans. If I’ve done nothing wrong, I have nothing to fear is the easy response.

But, this pattern of secretly created hidden law is a slippery slope indeed. Pastor Martin Niemöller famously said, “first they came for the communists, and I didn’t speak out because I wasn’t a communist…. Then they came for the Jews, and I didn’t speak out because I wasn’t a Jew. Then they came for me and there was no one left to speak out for me.”

When the next terrorist act is another Oklahoma City Bombing, how wide will the net be case then? What about the act after that? And will it even need to be a terrorist act? At what point will they come for “me?”

Oh… except, Mr. me, this approach to law isn’t been restricted to Terrorists. The ACTA copyright treaty was negotiated in secret with a list of other nations over multiple administrations. The current administration refused to release the text of treaty, calling it “properly classified in the interest of national security.”

A treaty covering copyrights (the thing authors have on their books and Disney has over Mickey Mouse) is a matter of national security? Because, treaties causes nasty paper cuts? You’d think they were pitching a Saturday Night Live skit.

Someone who read a draft of this piece put it this way: “The basic issue is not whether or not Al Alawki’s rights were violated but rather whether the president violated the Constitution by creating law, an enumerated power of Congress, and by adjudicating that law, an enumerated power of the Courts. This is exactly what King George did; he created, administered, and adjudicated law that violated the rights of citizens of the British Empire.”

Except, King George never legislated in private. He didn’t keep his edicts secret. Many subjects of the British Empire hated what he did but at least they knew what the laws were.

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Weather is not Climate

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forecasting the weather is an attempt to get fairly precise information on the state of the atmosphere in the near future. Forecasting (climate) … involves an attempt to identify the atmosphere’s most probable states on far longer time scales. — Why weather != climate: the engine behind climate models

That quote is from an article on Ars Technica, a site that has a great track record covering technical topics such as computers and science in depth. In some cases (like this one), the article probably won’t make anything clearer than mud unless you’ve got the right background.

The article is based upon some of the core ideas in Chaos Theory. Most books on Chaos Theory talk about the Butterfly Effect. In 1961, Edward Lorenz was using a computer to simulate the weather. He decided to re-start a simulation in the middle. In the original simulation, the value at that point was 0.506127. When he re-started the simulation, he just entered 0.506. The new result was completely different than the first. This has been summarized in many ways (see Butterfly Effects – Variations on a Meme) including “Does the flap of a butterfly’s wings in Africa cause a hurricane in the Atlantic?”

The butterfly effect (and Chaos Theory in general) focuses on dynamic (don’t stay the same) systems that are very sensitive to how things start. If you put a ball on the peak of the St. Louis Arch, you really have no way of knowing exactly when it will roll off or which way it will roll or where it will end up. Chaos Theory and common sense say the same thing: there is no way to know exactly what will happen.

Both Chaos Theory and common sense also say that we’re almost certain that that ball is coming down. With a little Chaos Theory and a calculator, we can figure out that it will probably start moving within a very short period of time (perhaps there’s a 99.9% chance that the ball will begin to roll off the peak in under a minute) and where it will probably end up (say 80% of the time it will land between 150 and 300 feet away from the center of the base of the arch).

If you kept putting balls covered with wet paint on top of the St. Lewis Arch, over time you would end up with a lot of dots on the grass and those dots would have a pattern. Eventually, there would be a ring covered with paint. Moving inward and outward from that ring, you would see more and more grass breaking through the paint until you just found a splotch of paint here and there.

At the level of someone asking where will the next ball fall, there’s no way to know. If you ask me to guess what weather we’ll have a week from now, I can guess we’ll have a high in the ’80s or ’80s. Then again, this is Colorado, so there’s a small chance it might be 40 degrees and hailing. You just never know where that ball will land.

On the other hand, if somebody is watching you put ball after ball on top of the arch and they’re interested in what things are going to look like, they can come up with some pretty good answers. First, eventually, someone in charge is going to find out what’s going on and call the park cops on you. Second, there will eventually be a solid elliptical ring of paint around the St. Lewis Arch that fades to grass in both directions if you don’t change what you’re doing.

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Uncategorized

Improvisation, Part I

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I’ve been busy since early in the year working with several people to start a new company. while, it’s left little time to blog, we’ve had many great conversations about what we want to build and how we want to build it. Although our website isn’t finished, we recently started a blog and I’ll be writing pieces occasionally. My first piece went up today:

Improvisation, Part I

When my daughter was maybe four, I taught her an improvisation exercise: Gift. Gift always starts the same way: the two people playing agree who is going to give the gift. If I was giving the gift, I might start by picking up an (imaginary) box; maybe a large box. Then I would hand it to her.

For the game to continue, she would have to take the box she couldn’t see. It couldn’t be just any box but the box I had handed to her. She would have to agree with what had already happened.

At our last retreat, Andrea read a passage about improvisation from Malcolm Gladwell’s Blink to us…

Read the rest

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Energy Policy

Christmas Eve

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Tonight, I was with family. Before gifts were opened, my daughter was playing. And I had this interesting exchange with my mother and my brother’s wife. They were talking about how the normal heating system in a house can leave one part of the house hot and another cold.

My mother mentioned that, if they build a house, they want to convection-heat the floors.

My sister-in-law pointed out how her parents were cooling their home with a geothermal system: the house was kept cool by the constant temperature of the earth. It costs them very little to cool their house.

We went on to jump from that to the lack of consistent tax policy (to encourage innovation and customer demand); how Holland, and now China, had big companies to supply that demand (because of policy); how in Europe, a lot of people had installed solar panels (because of their tax policy and the fact that they could sell the electricity back to the Utility company).

Strangely enough, this was a discussion about Energy Policy that bridged the traditional split between left and right. One of the three people in the discussion is a traditional Republican who is at best “not convinced” about climate change.

She does realize that clean energy is doable. And she also put together that innovation is the key: with the right policies (for investors to place long-term bets), people will start coming up with solutions to the technical problems. That changes the dynamic for clean energy completely.

Once, there were portable phones. The first I saw filled half a briefcase. Then there were mobile phones. And those became cell phone. And now, there are devices small enough to easily loose that do far more than handle calls and cost almost nothing.

If the problems with clean energy are technical, development will follow the same curve and we will eventually arrive at a situation where clean energy is cheaper than traditional energy sources.

The benefits of clean energy (both in being ultimately cheaper and in being something in which American companies can win) were clear enough that it didn’t matter that we didn’t even agree on whether climate change was an issue.

Earlier in the evening we had talked about the car company Tesla. Tesla is a California-based company that manufacturers electric cars. Their first car, the Tesla Roadster is (while outrageously expensive) also able to accelerate faster than almost every car on the road. Their second car (a 2011 model) will be a sedan that while still expensive is priced more like a BMW than a Lamborghini. Their next car is rumored to be a family sedan and priced for the mass market.

Besides producing electric cars that people want to buy, Tesla in unique in another way. Tesla Motors is the first new American car company (as opposed to a new Brand) since Delorean in the eighties. They are succeeding because the regulatory market for cars is stable, they’ve created a product that customers want and they have strong funding.

The fact that an electric car company is innovating so fast is incredible. The fact that the cars are cheaper to operate and create engineering and manufacturing jobs in the United States is something that most people get. Even if they don’t believe in global warming.

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Health Care

More on Health Care

139 Comments

The debate on Health Care has clearly been hated. My previous post on the topic develops an idea I had discussed with my Dad. Generally his views are on the Conservative end of the spectrum and (suprisingly to me), he thought it was a great idea at the time. Even more interestingly is that (at least as I read the tea leaves of Obama’s recent speech before Congress and the discussions afterwards), it looks like a variant of my idea will be part of the final bill. Tis interesting…

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Energy Policy

Yet Another Tax Hike

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A hypothetical campaign exchange:

“There goes my liberal opponent again—demanding yet another tax. He’s never seen a tax he didn’t like. Now he wants to raise your gasoline taxes… The American people have been taxed quite enough, thank you!”

“The American people certainly have been taxed quite enough. I totally agree. Right now they are being taxed by Saudi Arabia, taxed by Venezuela, taxed by Russia, taxed by Iran, and, if we stay on this track, they’ll soon be taxed by Mother Nature… So let’s get one thing straight: My opponent and I are both for a tax. I just have this quaint, old-fashioned view that my taxes should go to the U.S. Treasury, not the Saudi Treasury, not the Iranian Treasury and not the Russian Treasury. It’s just a little tic I have. I like my tax dollars to go to build my own country.”

That hypothetical campaign exchange comes (via some modifications of my own) from Thomas Friedman’s Hot, Flat and Crowded. It’s an exchange that does a nice job of summarizing some basics.

There are a laundry list of examples that demonstrate that climate change is very real. The opening of the Northwest passage for the first time in recorded history is one such indicator. The extraordinary efforts the Chinese went through to have clear (if not clean) air for the Beijing Olypics is another indicator. Al Gore’s movie and (until the economic meltdown) the nightly news were filled with more. As California Governor Schwarzenegger (you have to love being able to quote the Terminator in a policy article) put it to Friedman “If ninety-eight doctors say my son is ill and needs medication and two say ‘No, he doesn’t, he is fine,’ I will go the nighty-eight. It’s common sense—the same with global warming. We go with the majority, the large majority.

And, of course, there are people who still disagree with that position. But, many of those people understand the other explicit argument in the exchange above. We’re in a situation where the oil we purchase from abroad is, to a significant degree, funding agendas most people don’t want to fund; for instance, the Iranian nuclear program and Russia’s recent invasion of a southern neighbor. Go ahead and think of more while I wait. Good. Go ahead, think of a few more. Want more? Google and your local bookstore can provide all the fodder you need. We are paying to prop up what George W. Bush in his dudding way would call Bad Guys. And we are paying them to be major threats to our national security.

The impatient are already sending me emails. “Gas prices have gone back down and the Bad Guys have gotten quieter.” Very true. When we cut the bottom out from under gas prices, Putin and company have to cut their budgets some where. But, we are in the middle of the worst economic crisis since (depending on how you count) either the ’70s or the Great Depression. Chinese factories are literally closing (liquidation is a growth industry in China at the moment). The U.S. economy shrank at an annual rate of over 6% in the 4th Quarter of 2008. Other economies have shrunk much faster. And gas prices are still high by historical standards. How long will a barrel of oil stay cheap once the world economy starts to grow again?

Next… a short history of energy revolutions.

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Health Care

Health Insurance

I’ve been meaning to flesh this post out some more… since October. Instead of holding it up any longer, I’m going to release the draft version (right down to references to Presidential Candidates)…

Both Candidates for President have health care proposals (Obama and McCain).  But, the genesis for this blog was an idea for a way to provide health insurance for everyone.  We have a fairly straight forward program called the Earned Income Tax Credit that helps workers at the bottom of the income scale. The same concept can be applied to health care. At it’s core, the Federal Government would provide assistance to pay for health insurance based on income. The less people make, the larger the assistance.

Beyond providing assistance, the Federal Government’s would carry out several functions. First, the Government would set minimum guidelines for coverage. Second, the Government would monitor the insurance provider to prevent abuses. Third, the Government would require participating companies to write policies on all comers regardless of pre-existing conditions. More on that last point in a moment.
Fourth, the Government would provide a website that would allow the public to locate insurers, compare prices, post comments about insurers and file complaints. In many ways (besides the fact the Government would not be making money off of it), it would resemble an Amazon.com for the health insurance market.
The Government would not dictate absolute prices on policies. If the program is structured properly, the market should manage prices quite nicely.

It would probably make sense for insurers to have a second category of policy for high-risk individuals. If that were allowed there would have to be standard rules on what qualified as a high-risk individual, the amount provided to the individual by the federal government would be adjusted upward and, most importantly, the price of high-risk policies would have to be within a certain multiplier of the price of a standard policy. In essence, insurers would be incentivized to take on high-risk individuals because they would both receive higher payments and have access to a large pool of customers that they would otherwise not be able to access.

Of course, the plan would have to be structured so that employers would be encouraged to continue to provide health insurance.  Existing tax benefits to employers should be maintained.  Employers that choose to not provide insurance could possibly be taxed in proportion to worker’s salaries.  Thus, an employer with mostly low wage workers (and presumably a very low profit margin) wouldn’t be penalized for the business they’re in.  Conversely, companies with primarily high salary employees for which health insurance is (relative to salaries) a small cost would have an incentive to continue to provide health insurance for their workers.

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