Detailed Abstractions

Ahhh… the NY Times – telling us how great it is to die in Rwanda of a heart attack with health insurance, than to survive a heart attack in the US without (via Cato here).  The premise from the NY Times is a Rwandan official who is just besides themselves when they met an American college student who doesn’t have health insurance.  Cato wonders what they are thinking when:

…[In Rwanda] Dialysis is “generally unavailable.”  As are many treatments for cancer, strokes, and heart attacks, making those ailments “death sentences” more often than in advanced nations.  Life expectancy at birth is 58 years, compared to 78 years in the United States.  Rwandan children are 15 times more likely to die before their first birthday (7 vs. 107 deaths per 1,000 live births) and 25 times more likely to die before turning five (8 vs. 196 deaths per 1,000 live births) than U.S.-born children.  (If you want to meet some Rwandan kids struggling to make it to age 5, read my friend’s blog, Life of a Thousand Hills.)  And yet, the saddest thing is a healthy-but-uninsured American college student…..

But the NY Times isn’t alone in their idiocy (as usual).  Via Reason.com (here), they wonder how a floating grocery store can possibly be a bad thing?

Nestle has put together a floating supermarket barge, and on Friday it sailed the product-laden boatmarket (superboat? grocerybarge?) into brave new Amazonian emerging markets…

My first reaction: Neat!…

Apparently that reaction is not shared by all. At Alternet, Michele Simon, a public health lawyer and author of Appetite for Profit: How the Food Industry Undermines Our Health and How to Fight Back, calls this an “especially disgusting news item” about which “writing about it is the only way I know to release my outrage. My version of screaming from the rooftop.”…

Yes, apparently many pundits from around the world are working tirelessly to keep all the options they have out of the hands of lesser people… for their own good of course.  As reason writer Ms. Mangu-Ward summed it up:

…Nestle is sending its boat into the hinterlands precisely because those hinterlands are now full of people who might be able to swing the purchase of the occasional chocolate bar, something well outside the scope of their financial lives just a few years ago. Hardly the sort of thing that makes me want to take to the rooftops–or the Internet–to express my outrage….

Arlen Specter….you remember, the guy who was going to lose his Senate seat so changed parties from Republicans to Democrats…. only to be soundly defeated in the primary?  Well, if you care, you can see an example of the last, desperate gasp of a man losing all of his power (via Politico here).

Good news on the medical front.  Via Bloomberg, Stem Cells From Own Eyes Restore Vision to Blinded Patients, Study Shows:

Patients blinded in one or both eyes by chemical burns regained their vision after healthy stem cells were extracted from their eyes and reimplanted, according to a report by Italian researchers at a scientific meeting….

For those that have been asleep for the past few days, quick recap:  an old, slightly senile reporter, who should not have had a job for about 20 years went on a radio show and said some really stupid and factually incorrect stuff (here):

[White House Correspondent Helen] Thomas caused an uproar with her recent remarks that Jews should “get the hell out of Palestine” and “go home” to Poland, Germany, America and “everywhere else.”…

Within a few short days, the controversy pulled faux outrage from every corner of society, including the White House itself.  Ms. Thomas went from being incorrectly seen as a sweet old lady, to now being seen as she really is.  She was in the process of losing her press credentials, was suspended from her job, and then decided to do what she should’ve done decades ago…. retire:

Helen Thomas , a veteran columnist for Hearst Newspapers, announced her resignation today shortly after the White House condemned her remarks about Jews as “offensive” and “reprehensible.”…

So basically what we have here – is a bunch of people who are upset over a crazy woman saying crazy things.  The reason they have to be feign anger is because they’ve been defending her childish behavior for years and telling us what a great person she was for standing up to power.

Now some may ask – isn’t some of the anger deserved?  & the answer to that is yes.  Telling any race of people to go back “home” to the countries which tried to wipe them out in a world wide Holocaust deserves societal scorn. But the truth is, we don’t typically heap societal scorn on 89 year olds.

We’ve rightfully come to understand that they not only grew up in very different times, but some are a little off.  Please note, this isn’t to say all 89 year olds will wax philosophically about hating the Jews, just that when your family elders who are 89 spout something idiotic or racist at the Thanksgiving dinner table, they are simply ignored.

I might have to talk to my daughter about what was said and how stupid and racist it was, but we generally don’t attack old people with a penchant for senility.   We ignore, deflect, and move forward all while secretly wishing it hadn’t ever happened.

So…. I’m not angry at Helen Thomas.  I firmly believe what she said was racist, idiotic, and juvenile, but she’s nothing more than a senile reporter.  It’s odd I know, but I don’t get upset when crazy people say crazy things.

Something else to note – this love affair the White House and major media had with Helen Thomas, is what got her into this problem in the first place.  There is absolutely no reason anyone should care what Ms. Thomas has to say beyond her reporting the facts she obtains from the White House press briefings.

I say this, because she is a reporter… well, she is a crazy woman with journalistic credentials, but nonetheless – her job for her entire life has been to tell the public news she’s heard from government officials.  She has never ran anything, never worked in a government capacity on anything she reports on, never even proposed she was/is an international policy expert… and she seemingly didn’t want that.  She wanted to be a journalist, not any of these other things.

However, since she “stood up to power” (IE: asked juvenile questions to those in power) and stood up to the right people (mainly Bush), she has been promoted from journalist to all seeing without so much as fake reason for why we should care what she has to say about anything outside of her official duties.

I know, it’s odd of me again, but I like my international policy information to come from people with knowledge of internal policy & while all these people might be smarter than I am… my mechanic, my doctor, my lawyer, and yes, even Helen Thomas… they simply don’t fit that bill.

What’s more frustrating that the faux outrage though is some attempts to wrangle this whole mess into some sort of free speech thing from the most unlikely of places (here via Reason):

…True, I find some comfort in knowing that this unprofessional crackpot never will haunt a president, common sense, or the public again. But I wince at the rapidity of her demise. And I feel a nagging anxiety about a journalist’s losing her job over nothing more than a controversial statement….

To be fair, the author goes on to admit this is a private decision being made by a private company which is not bound by the first amendment, but he writes as if firing a senile staff member after they’ve been shown to be a bigger liability than all their assets combined is about free speech.  To be correct however, it’s not.

To gauge the effectiveness of this argument, we can run it to its logical conclusion.  Not always, but this is a sometimes helpful trick to see whether an argument is valid or just whining. So let’s ask this question – IF we agreed completely that Helen Thomas should not be fired, what does this mean?

Doesn’t that also mean we are saying that if the publication she works for is losing money due to her exercising her first amendment rights, they still have no recourse?  They should just keep losing money?  & If it doesn’t mean any of this, then what’s the point of bringing it up?

While reading, I’m unsure where David Harsanyi is going with this other that to try to equate a private business releasing an employee with hate speech paranoia.  Though I’m pretty sure he doesn’t want to imply that Ms. Thomas can’t be fired, his argument is leading in that direction.

No, he likely doesn’t believe that she can’t be fired.  The more likely cause of his machinations is that of simple self preservation.

Because no matter how much Mr. Harsanyi wants to make this about free speech or hate speech idiocy and no matter how many other public figures want to make this about racism, the truth is there for all to see. An old lady, who likely should’ve retired long ago, said some crazy things that forced her retirement.

Proving how little we truly understand about addiction, a new study (via UK Telegraph here):

Bingeing on junk food is as addictive as smoking or taking drugs and could cause compulsive eating and obesity, a study has found.

According to the research, rats when given junk food, will crave it in a similar fashion to much harder drugs, as it all uses the same pleasure center:

…As these pleasure centres become less and less responsive the animals quickly develop compulsive overeating habits, consuming larger quantities of high-calorie, high-fat foods until they become obese.

The very same changes occur in the brains of rats that over consume cocaine or heroin…

I wonder if this will put to rest the nicotine is addictive as cocaine meme?  Or possibly destroy the idea of heroin addiction altogether?  Whatever it does do in the end, it should give us pause anytime we hear “as addictive as…”

John Stossel on government testing (here).  Among the other illuminating information, you can read about GAO’s audit of energy star products, including this gem:

…The GAO attached a feather duster to a space heater, sent the photo to the EPA, and got approval in just 11 days…

All told:

GAO sustained Energy Star certifications for 15 bogus products, including a gas-powered alarm clock.

Via WSJ, In War Between States and Feds, Utah Strikes Latest Blow:

All is not well between the states and the federal government….states in recent months have signed sovereignty statements….last week, more than a dozen states sued to strike down the new federal health-care law…..Now….Utah Governor Gary Herbert on Saturday authorized the use of eminent domain to take some of the U.S. government’s most valuable parcels….

This should get interesting.

Lastly, an interesting idea via HBR (here).  Asking CEO Tim Brown:

…what does it take to bring about such mass behavior shifts? Are there approaches that businesses could use, too, to influence behaviors on a micro level, and gain benefits on a macro one?…

In a great piece over @ The Christian Science Monitor, Arnold Kling & Nick Schultz argue well that Markets fail. That’s why we need markets:

…This seemingly paradoxical view is based on several overlapping strands of research in economics as it pertains to development, history, technology, business expansion, and new-firm formation. According to this view, entrepreneurs at work in the economy – in finance, high tech, manufacturing, services, and beyond – are constantly experimenting, creating new business models, techniques, and technologies that upend the established order of things.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.  But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

Not as eloquently as they did, I wrote about this earlier in the year (here):

…the dynamic system of the United States might have felt more pain that other countries during this crisis, but due to the mostly decentralized economic model, we will recover more quickly than most…

It then seems for most people to become a question of risk adversity.  Do we allow for individual freedom and understand that sometimes failure is a part of the process?  Or do we constantly attempt to control individual behavior for fear of potential negative consequences?

Only if we first believe in the premise that by trading freedom for stability, we actually get stability.  The CSMonitor article continues:

…When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers.

The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.

The second danger has to do with the nature of political economy. Politics creates its own kind of innovators who can be as destabilizing to markets as market actors themselves – but in far more pernicious ways.

Economists call these political entrepreneurs “rent-seekers.”…

…This gets to the key difference between markets and governments. When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs.

Because political failure is less publicly tolerable than market failure, the temptation becomes for policymakers to avoid acknowledging their role in creating or perpetuating problems.  Or they double down on bad bets. So rather than recognize the government’s central role in the housing boom and bust and quickly changing its ways, we see the federal policy apparatus continuing to throw good money after bad in the mortgage market and on Wall Street….

I wrote about this “doubling down”  (here):

…For those playing the home game, this means we are taking a problem caused by excessive credit and government incentives and trying to fix it by:

1. Preventing the normal contraction that needs to happen by artificially propping up failed business and bad home purchasing decisions.
2. Keep money cheap by keeping interest rates very low.
3. Then, repeat the same process that got you to the recession in the first place by incentivizing the market to buy a commodity (housing) which is still overvalued in some places….

…I’m not really into prediction making as it’s obviously fraught with so many problems, but I’ll never understand how the solution to cheap money and an over investment of housing, is to keep money cheap and incentivize home buying…

As historically known, the vast majority of centralized government intrusions into free markets and free people has led to disastrous consequences.  NBER research suggests that two of the reasons for the current global economic crisis are due to unfree markets:

…The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives;…

Everywhere we look objectively, freedom gives us more of everything.  Do you want to fix healthcare?  Using the government will likely lead to higher rates and more control, using individual freedom however doesn’t cost much as has been proven in other avenues such as food.  Something I think is just as important as healthcare, but been left to the market unlike health care.

& the market has responded.  Food costs as a percentage of disposable income has decreased from 23.4% in 1929, to just 9.6% in 2009 (here).

Meanwhile health care costs continue to increase with government regulation.  In just the past 5 years spending on health care as a percentage of GDP has continue to go up and is projected on that trend still.  In 2005 spending was 15.9% of GDP whereas in 2009 is it 16.9% and projected to be 19.5% in 2017  (here).

It seems that the overwhelming majority of evidence suggests to honestly help the most needy, freedom is not only a moral good, but a requirement for anything approaching success…. yet what seems to be an irrational fear of “economic crisis” many people can’t see the forest for the trees.

Yesterday,  the Federal Reserve, through the Federal Open Market Committee (FOMC) released an updated statement about their views on the economy, the prior one having been released on November 4th.

You can read the full text @ the Blog Calculated risk (here).  Among other things in the statement, the main changes in thinking since November are encapsulated in the opening paragraph:

Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months….

Of course it has!  With the FHA pushing home loans like Fannie & Freddie have (here @ DetailedAbstractions) & continuing to pay people to buy houses (8K dollar tax credit extended @ LA Times) and property prices declining as the market corrects prior bad incentives (here @ DetailedAbstractions), the result is obvious .  Given non-market, but economic incentives to purchase property, property prices in real terms decrease, therefore demand increases.

What this does not say however is whether this is sustained.  Lots of individuals for instance took advantage of the Cash for Clunkers program (here @ DetailedAbstractions) mainly resulted in a short-term boost in car sales, but at the expense of lower future sales.

This of course doesn’t mean the housing market isn’t on the rebound, but I see no evidence that really allows this conclusion at this time.

It continues:

…Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth.

Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

& there’s the rub…  The Federal Reserve is supposed to be an independent branch of the government outside of any specific administration, but when publishing statements which disagree with basic economic thought one might start to wonder.

In fairness, it could also be just simple self-interest in that they need to justify spending billions on bailing out bad companies., but to use the words, “policy actions stabilized the market” makes this seem unlikely, but I digress.

The main issue with this portion of the statement is that’s its simply untrue.  New policies such as “too big to fail” which the Federal Reserve admitted can’t continue (here @ Business & Media),  have seemingly become official  government policy (here @ Reason Foundation).

Additionally, there is widespread agreement that the new financial regulations the administration is pursuing will result in higher costs of doing business (here @ The Economist, here @ Cato, here @ Reason Foundation, among others).   These new barriers to entry will stifle new business creation, creating less incentive for economic activity.  Additionally, just as “too big to fail” was supposed to fix large interconnected companies, but instead ended up cementing that status for certain corporations, the new regulations are highly unlikely to prevent a  recession for similar reasons from happening again (here @ DetailedAbstractions).

All in all, it seems the Federal Reserve has taken a very short-sighted approach and produced a political paper, not an economic one.

Bank of America announced today it’s plans to repay the $45 billion dollars in tarp money to get out from under the restrictions of the government (AFP):

…The bank based in North Carolina said it would repurchase the preferred shares issued to the US Treasury as part of TARP, but would not immediately buy back the warrants, or options to buy additional shares.

“This is good news that the bank can get out of the TARP and can stop having to answer to public and government criticism,” said Jon Ogg at 24/7 Wall Street….

The policies BoA is trying to escape from includes restrictions on the top 25 individuals in the company including the CEO.  I and many others wrote about what a disastrous policy from the new administration this truly was (here):

…Even without bothering with the fact that the government is not in any position to understand what kind of compensation any single employee should have, this is still a radical and arbitrary move that if continued can work to destabilize the economy.

…this decision is an anathema to a free society breaking not only the contract rights of ordinary citizens, but also violating all individuals by pushing a blatant ex  post facto punishment…

Just two days earlier, I also wrote about BoA’s issues with getting a new CEO hired under all the government restrictions (here).  Indeed, at least four potential candidates have simply stated they don’t want the job.

Now, if these policies were actually designed to do this, incentivize those companies with TARP money to pay it back as quickly as possible, bravo!

Taking the language from the administration I doubt it, but it’s always good news when a major business under intense governmental scrutiny shows the quickest to its financial health is to remove the additional scrutiny.

This also  parallels with a recent NBER Paper on the global economic recession (abstract here, full paper purchase price $5).  In the full paper they try to prove the thesis that the main problem with the global economy is that investment money from developed countries should be flowing into developing countries, but instead developing countries such as India and China have investment income flowing into developed countries like the US & Britain.

& This seems pretty intuitive.  In general, investment money will flow to inefficient markets, industries, and companies in an immature market.  The reason is easy – it’s more and faster bang for the buck.  However, in a mature economy like the US and as we move forward in time, there are less and less efficiencies to be gained through anything other than new technologies.

In an immature market it’s the opposite case.  Industries and companies are new.  Small amounts of investment money can return great efficiency gains and therefore monetary gains.

Some people try to blame us citizens, consumerism, and capitalism in general for this failure, but that’s actually the opposite of the truth as well.  The reason Chinese citizens save so much more of their disposable income than do US citizens isn’t because they are more frugal, but have less real options to invest domestically even though major efficiency gains are theoretically possible.

As the abstract states:

…The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives; and the inability of the US economy to adjust to the perverse incentives caused by huge money inflows leading to a breakdown of checks and balances at various financial institutions. The financial crisis in the US was but the first acute symptom that had to be treated. A sustainable recovery will only occur when the natural flow of capital from developed to developing nations is restored….

This doesn’t mean the US doesn’t have fault – so long as we continue to allow the government to write blank checks of any amount without respect to the deficit and ignoring huge unfunded liabilities such as MediCare – we seem to be on a sure path to a back slide.  I’m not really into prediction making as it’s obviously fraught with so many problems, but I’ll never understand how the solution to cheap money and an over investment of housing, is to keep money cheap and incentivize home buying (here).

Either way, it’s good news for BoA, with investors showing their interest with heavy after hours trading (here).

In a story that might have more than it appears, GM announced it will not go through with a deal it announced in early summer to sell their German division Opel.

The story really first appears as the auto company bail-out was in full swing in the US.  GM had pushed a reorganization plan that cut jobs in all countries.  With German Chancellor Angela Merkel getting pressure due to the global economic crisis and facing a re-election, Opel became more important than first assumed (@BusinessWeek):

….On Tuesday, though, German Chancellor Angela Merkel said Opel was not a “system-critical” corporation. “There are system-critical financial institutions,” she told her conservative party’s parliamentary group, according to the Rheinische Post newspaper. “But there are no system-critical industrial firms.” It was Merkel’s indirect way of saying that Opel is less important to Germany than its crisis-stricken banks. Her statements were intended to counter earlier comments made by the head of the left-leaning Social Democratic Party that Opel was indeed “system relevant.” She added, however, that Opel should be given a chance to survive and that like all companies, it has the “right to apply for state aid.”…

It not only became more important, but Chancellor Merkel started treating it as imperative to re-election (@France24.c0m):

What are the odds that a government agency tasked with identifying research priorities, research performance management, and reviewing the impact of completed research will come up with a solution that doesn’t involve the government?

Today & tomorrow the EPA are meeting for just this reason (@eScienceNews):

…The goal of the meeting is to develop a collaborative framework to ensure future research and development dollars are spent wisely and in a coordinated manner….

Of course it doesn’t really matter what the answer is, because “spent wisely in a coordinated manner” is almost mutually exclusive to good R&D.  As should be expected by now, the EPA is wasting money on answering a question for which recent literature already exists.

Back in 2001, a Jack Welch underling, W. James (Jim) McNerney, Jr was hired as 3M’s CEO.  In the fanfare associated with being a protege of Mr. Welch, when Mr. McNerney joined 3M, investors had high expectations of pushing some of the GE magic onto the 3M culture.

One of the first and most prominent of these culture changes Mr. Mcnerney instituted was a heavy does of SixSigma.  From the beginning, leading business thinkers were asking whether pushing a very creative culture into the narrow focus of SixSigma might not work.  Or at least, it should not include the whole company.  Sure, use SixSigma for accounting procedures, but leave out R&D.

Of course proponents of SixSigma disagreed.  If it can help manufacturing and then be translated to service related products, why not R&D?

Regardless of the writing public, 3M went forward with implementing a SixSigma policy that included training all workers to a Green-belt level and use SixSigma methodology for every department, including R&D.  How’d it fare?

As you’d expect, the results are mixed.  But asking former 3M scientists, engineers, and the like?  Overwhelmingly they tend to agree it wen too far (@DesignNews):

…While 3M emerged financially stronger from the McNerney era, many long-time 3M researchers, engineers and scientists chafed under the strictures of Six Sigma. Critics argue that excessive metrics, steps, measurements and Six Sigma’s intense focus on reducing variability water down the discovery process. Under Six Sigma, the free-wheeling nature of brainstorming and the serendipitous side of discovery is stifled. Proponents contend such methodologies’ rules keep researchers on track and accountable for producing. Striking the right balance between the application of Six Sigma and unencumbered research is often seen as key….

In fact, a then board member and the former 3M scientist who developed Post-It Notes stated that he believes that in the SixSigma environment, Post-It Notes would simply never have been developed.

History is also rife with examples.  In the book, Sex, Science and Profits: How People Evolved to Make Money,  written by Terence Kealey (review @ Reason.com):

…Kealey shows in nearly every case the crucial inventions of the past two and half centuries were called forth by markets, not invented by scientists working from ivory towers. These include the steam engine, cotton gin, textile mills, railroad engines, the revolver, the electric motor, telegraph, telephone, incandescent light bulb, radio, the airplane—the list is nearly endless…

In fact, a government-funded research paper showed public money can hurt innovation.  Mr Kealey writing about it(@AllBusiness.Com):

…n fact, the evidence shows otherwise. In 2003, the Organisation for Economic Co-operation and Development published The Sources of Economic Growth in OECD Countries, reporting on a comprehensive regression analysis of the factors that might explain the different growth rates of the world’s 21 leading economies between 1971 and 1998. This indicated that only privately funded R&D led to economic growth, and that publicly funded R&D did not. Worse, the public funding of R&D crowded out private funding, and thus slowed economic growth…

No worries though, I’m sure the government will tell you, that this time is different.   Just ask them.  They completely understand it’s failed many times before, but what you (read: citizens) are too ignorant to understand, is that those failures were under other people and not the worldly, brilliant, omniscient, and yes, even death-defying leaders of today.

& if that doesn’t work for you, remember that it’s “Green”, which we all know are now established unqualified goods.  As such, regardless of how much money taxpayers have to spend to subsidize “green” stuff, the end results are worth it.

Last, but certainly not least, if both of these arguments don’t work to mitigate your concerns, welcome to the club: Disgruntled Americans Against Government Stupidity (DAAG)