Tuesday, March 31, 2009

Cap and Trade is Getting Closer

Congressmen Waxman and Markey have introduced the cap and trade bill. Welcome to the next step in the financial destruction of the United States. One must remember that it was Markey who pushed the Telecom Act of 1996 which led to one of the last melt downs and in turn resulted in the destruction of all telephone switch companies in the United States. That is a long story but we told it in 2002!

The is an Overview of the Bill and the full Bill. A quick scan of the bill will find that the words cap and trade are missing, at least from the one I just scanned. The Bill is 648 pages in length! It is a massive attempt to control all of the US economic development. It will destroy the remnants of coal and its target is roughly 20% of the 2005 emissions by 2050, assuming there is anything left of the United States at that time.

We will analyze this bill and get back to you. Hold onto your hats. China may be the only capitalist democracy left by that time! I am not kidding.

Sarkozy and the G20

In the Times of London today they remark that President Sarkozy will walk from the G20 if he does not get his way. Specifically:

"President Sarkozy yesterday threatened to wreck the London summit if France’s demands for tougher financial regulation are not met.

France will not accept a G20 that produces a “false success with language that sounds good but contains no commitments”, his advisers said.

Asked if this meant a possible walk-out, Xavier Musca, Mr Sarkozy’s deputy chief of staff for economic affairs, said: “A basic rule with nuclear deterrence is that you do not say at what point you will use the weapon.”"

This is what we have been saying for months.

Only The Brits Can Comment This Way

This is on the Times web site in London. Worth a look for its view of things....

The Wives and Husbands of the G20

There must be some deep analyses which can be done with this but I leave it to the viewer.

We Breached Contract Law, now We Breach Corporate Law

I assume when the President was at Harvard he took the basic course on corporate law. One of the classic texts is written by Robert Clark, who may very well have taught it at the time. It is a good text by Clark, entitled just Corporate Law. It covers the main points. The law has evolved but it is the backbone of our economy and our culture.

The body of corporate law is almost as old as contract law. When I commented on the AIG contract issue I said let them sue the Government but not just trash the all Contract law issues. However in the GM case we have a real problem. The US Government is NOT a shareholder of GM. It is a debt holder. It cannot, without the process of law, restructure the company, only the shareholders can. Well in the last few days, all of corporate law has been destroyed and it appears as if no one has noticed. Corporate law and contract law are the backbone of the capitalist system. The current Administration has just trashed both! Does anyone at all care? It appears not.

What should the President have done? Well like anyone one else, Kirk Kerkorian and others, you take it to the shareholders. You oust the Board in a legal manner and then the new Board replaces management. Debt holders, no matter how large, cannot oust anyone. Buy the stock and then call a shareholder's meeting, vote the stock, and then put your people in. That is the law. NOT what the current Administration just did. That just destroyed the law! This is a coup, we as a country have been taken over and no one is paying attention.

What others laws will be trashed next, the Constitution, perhaps, and all other inconvenient laws at the time.

Monday, March 30, 2009

Another Letter to Senators and Congressman; Health Care

The following was sent today regarding health care to my New Jersey Senators and Congressman.

"I have been a resident of New Jersey for thirty years and have resided at the same location for that period. I have doctoral degrees from MIT and the joint MIT/Harvard program in medicine. I taught at MIT until 1975 and then went into business. I returned to MIT in 2005 after I sold my companies. I have spent the last ten years of my active entrepreneurial career in Central Europe and am quite familiar with multiple health care systems. The current Administration's efforts are laudable because health care needs reform. The heavy handed approach of Hillary Clinton left a sour taste in the mouths of many. Hopefully the current Administration will be more open.

Having spent the last quarter of a century working in the field peripherally, as an investor and as an entrepreneur, I am personally aware of the many problems that are in the system.

Furthermore having returned to MIT, after thirty years, I can see the great advances that are on the immediate horizon. However, as a successful businessman and at heart an engineer, above all else, I see that there are things that require fixing and processes and procedures that need to be ordered and prioritized.

Unlike almost all of the current policy makers who seem to be worrying about how the pay for it, I believe that we should first understand what the "it" is and where it may be proceeding. Then, and yes possibly simultaneously, we can determine how to pay for "it". I believe it is an iterative process since we clearly see that many things are changing, all at the same time.

It is critical not to fall into the fatal trap of assuming that we are changing an old health care system, for the target is a moving target, and the motion of that target can be influenced for better or worse by your actions.

I have just published a set of White Papers on the health care issue1. The intent of the White Papers was two-fold: first, develop a simple analytical model to understand how it works and what the consequences of current thinking are. Second, to consider the alternatives of reducing demand and reducing costs as well as seeing what changes may fundamentally change health care as we know it. My conclusions are as follows in four simple steps:


All the policy makers assume that demand is inelastic, namely the demand by people for health care is independent of price. A simple counter example is cigarette smoking. Taxes on cigarettes have driven male deaths from lung cancers down 35%-40% from their peak.

The counter to that is the epidemic in Type 2 diabetes driven almost solely by obesity. If we were to continue the trend, we will go from the current 8% of health care being spent on Type 2 Diabetes and its consequences, heart, kidney, neurological, eye, and other problems to almost 20% by 2030! Type 2 diabetes is a simple disease to cure, just lose weight, exercise and drop the carbohydrate intake.

Taxing carbs, as Governor Patterson of New York suggested, is a great first step. Banning carbs, high fructose corn syrup, and frankly many carbs, will do more for reducing health care costs than reducing everyone's LDL! This is a superb example of how Government can cut costs by using taxation as a negative modulator. Cigarette smoking and over eating if controlled can prevent the two major threats to cost explosion in health care. They are preventable disease and preventable by demonstrated Government action.

The second area of disease management if remediable diseases, namely those which if screening is used then the impact will be significant reductions in long term costs. In this case I have analyzed the list of top screenable cancers. I have analyzed this and determining that it is possible by universal screening, the cost can be reduced by 5%.


Health care costs are assumed to be managed and controlled by external controls such as insurance companies and the Government. We argue that this is not the case. In fact there are facts to demonstrate that Government regulation is one of the significant drivers in the explosive overhead costs of health care.

Thus there are several things which will reduce the costs of health care delivery.

First, electronic medical records are critical but their development and introduction must be organic and evolutionary. Like the Internet, which was organically and evolutionarily developed via the Internet Engineering Task Force, the IETF, the EMR should see a similar development, facilitated but not controlled by the Government. It is well known that Government is not good at picking market winners and at managing ill defined programs. Thus the Government should facilitate and not manage.

Second, medical billing and collections should be fully integrated and automated. There is a plethora of such systems and medical practices are all too often placed in the position of financing insurance companies and Medicare via accounts receivable and bad debts. Third, a set of best practices oversight to reduce nosocomial infections, faulty diagnoses and misapplications of drugs is essential. The three of these and many more can reduce health care costs by 12-15%.

Third, there are many "housecleaning" issues that can dramatically reduce costs. These include control of nosocomial infections, misdiagnoses and treatments, and drug errors in hospitals. These issues have been around for years and account for well over 200,000 deaths per year in aggregate, not to mention well over a million cases of increased and costly morbidity.

We believe that the following specific actions are then required:

1. Billing Coordination

a.Implement single entry billing process

b.Implement short time payment

2.Electronic Medical Records

a.Develop profession supported EMR system

b.Utilize an IETF framework for implementation

c. Evolve it in time, not all at once

3.Nosocomial Infections, Mis-Diagnoses, Drug Errors

a.Implement best practices to reduce nosocomial infections

b.Utilize integrated EMR/Billing systems to reduce drug errors

c.Use the EMR as a means to track compliance with these areas requiring compliance


Genetic testing can be used for screening, staging, treatment and prevention. These applications of genetic methods will be explosively expanded in the next ten years. After that will be genetic applications to treatment and prevention. Thus in a twenty year span we expect to see a dramatic change in the delivery of health care whereby disease we see causing the greatest burden can be dramatically and economically managed in a totally outpatient basis. Thus we argue that any health care policy must not only consider this effect in its development but must stress these efforts in its implementation.

1.Screening: The screening for the BRCA gene in breast cancer and of many other genes in cancers can provide the physician with better insight to how best to treat the disease. Companies like Correlagen in Cambridge screen for genes for which remediation can be achieved, not just telling the patient that they may have a problem. Screening can dramatically reduce certain disease mortality and morbidity and also create an environment for more focused management and monitoring.

2.Staging: Looking for the presence of a Philadelphia chromosome in CML and other genetic tests can assist in the staging of the disease once it is detected. In prostate cancer, for example the staging can be done with the following genes: (i) TMPRSS2 Promoter and TES Transcription, (ii) Androgen receptor pathways, and (iii) PTEN and HER2.

3.Treatment: New treatment methods using targeted genes are in thousands of clinical trials. Again in prostate cancer we have: (i) Immune based gene therapy, (ii) Cytotoxic gene therapy, suicide genes, and (iii) Conditionally replicating oncolytic adenoviruses.

4.Prevention: The use of the vaccine in cervical cancer to treat the influence of papilloma virus is a prime example.

We know that looking solely at the past as prologue to the future to be patently false. Consider two past examples; infectious diseases and psychiatry.

In the early part of the 20th century health care was dominated by the management of infectious diseases. New York City had its own Tuberculosis hospital, Sea View Hospital, which was filled with TB cases which the City cared for. With the introduction of an aggressive public health care system in New York and the ultimate development of drugs such as Rifampin and isoniazid, cures or at least strong containment of TB could be achieved. Thus it is no longer the case that one needs massive numbers of beds for TB patients.

The psychiatric centers such as Willow Brook Hospital on Staten Island in New York City were filled with psychiatric patients until the early 1970s. With the advent of drugs such as haloperidol and the like they closed in just a few years. The Commonwealth of Massachusetts had in 1965 a total of 45,000 hospital beds occupied every day. 25,000 of those were for psychiatric patients. By 1975, the psychiatric beds were reduced to 6,000 and today they are less than 1,000.

Thus, if we planned health care in 1965 for twenty years into the future using the past and not recognizing the impact of the new "technologies" then we would have been grossly in error! This is a clear warning as the Government approaches this task.

Also it is critical to understand that if the U.S. continues to dominate the genetic medical field that it is also establishing a base for a truly expansive economy throughout the current century. This is an area where the Government, through its funding and clinical support, can be of significant assistance. I see this also missing from the discussion of a plan by the current Administration.


Finally, I address the issue of a plan and the principles of a plan. I strongly believe that the above prior three issues must be discussed before or at least contemporaneously with the health plan structural issues. Otherwise the "what" one plans for is not a true reality or reflection of the future. In fact, planning for the wrong "what" can cause a great deal more harm to the optimal path discussed above.

The following I believe are essential for any evolving health care plan:

•Catastrophic Coverage: There should be coverage of catastrophic incidents such as cancers, stroke, and long term disabling diseases such as MS, ALS, Parkinson’s and Alzheimer’s. The costs of these catastrophic diseases are on average low but to those who are affected they are disastrous. They are not preventable and in the most part currently not curable. Any one or family in one of these cases should be financially protected and should be available with the best of care, medical and palliative.

•Universal: Like the Massachusetts Plan, it must require all to participate. Unless the requirement for coverage is universal it cannot work. Arbitrage will occur and the system will not work as an insurance system but almost akin to a hedge fund, with the taxpayers paying for those who lose their bet. Coverage should not be denied and pre-existing conditions should not be factored into rates. Having Type 1 diabetes is a matter of fate not a matter of choice. Yet as we have stated earlier certain choice results such as Type 2 Diabetes and lung disorders related to smoking may have excess premiums applied.

•Choice: The Plan(s) must allow choice so that a patient may choose their health care provider and hospital. The physician must also have broad flexibility, since any stringent application of evidence base medicine or comparative clinical effectiveness applied too broadly is destined to disaster. Choice should also be allowed to selection of plans. Plans should at a minimum cover catastrophic coverage and other drastic forms of coverage. However any broadly based coverage and out of pocket expenses should be discretionary.

•Motivate Removal of “Bad Habits”: Use economic rewards and taxes to remove such things as obesity and improve screening.

• Reward Good Health: There must be a system which incentivizes good health practices and dis-incentivizes bad ones.

•Establish Public Health Facilities: Utilize Public Health Clinics in place of the ER as a means of dealing with those in need of non-urgent care. Facilitate this by staffing with Medical School Graduates with tuition repayment.

•Evolve Enabling Technology: Mandating technology solutions means the Government is choosing winners and losers and this always leads to increased costs and reduced quality of care. Thus allow the health care community to evolve their own solutions within the community and not have a Federal mandate. Federal "czars" breed politically correct solutions to non-problems and these solutions line the pockets of favorites at the expense of the taxpayers.

Finally it is essential that any health care plan look forward and not backward. Addressing the payment mechanism without addressing the other three more critical elements is a major failure. It will just keep the past frozen in the future. The current assumption is that the provisioning of health care will be a natural extension of the current practice. This is an approach of accountants and economists. They are the archeologists of our economy. We need future looking insight not recriminatory looks at the past.

My concerns reflect those of one who has successfully run business as well as having been professionally and academically involved in medicine. The problem that I see with many of the others proposing a health care policy is that their proposals all too often are just too academic. Books like those of Luft, Porter, Cutler and others, with their academically contrived plans, reflect views from the ivory tower of academe and grossly fail to do what any good business person would do. Namely they fail to look ahead as well as look at reducing costs. They all focus on the issue of how to pay for "it". That approach to me is vacuous.

These changes that we face in the provision of health care are sea changes that exceed those in health care in the past. It is essential I believe that we develop and implement a new health care policy in an orderly and business-like manner and just not rearrange the deck chairs which is a costly and non-productive exercise.

Very truly yours,

Sunday, March 29, 2009

How Not to Do a Health Care Plan

A proposal called the Health Care Dialog was issued Friday by a diverse group and commented on by the Wall Street Journal and Politico amongst many others. The Plan suggests:


...Seek to ensure coverage for all; strengthen public safety-net programs for low-income families; make private health coverage more affordable; and provide fair and adequate reimbursement for care.


...The Centers for Disease Control and Prevention estimate that eliminating three risk factors — poor diet, inactivity, and tobacco use — would prevent 80 percent of heart disease and stroke, 80 percent of Type 2 diabetes, and 40 percent of cancer.


• Develop infrastructure to close gaps in quality and outcomes.
• Conduct comparative clinical effectiveness research (CER) studies via a public-private partnership to provide additional information that can help improve care decisions.
• Expand and accelerate the development of meaningful quality measures.
• Expand reliable data sources to build an evidence base for quality care...."

They go on to say:

"The Congressional Budget Office (CBO) estimates that total health spending will rise from 16 percent of Gross Domestic Product (GDP) in 2007, to 25 percent in 2025."

Politico starts its report by saying:

"A coalition of special interest groups that met privately for months to reach a consensus on overhauling health care ended up sidestepping the most contentious issues: coverage mandates, a public insurance plan and financing..."

Whereas the WSJ says:

"A collection of health care groups calling itself the Health Reform Dialogue issued a set of recommendations today aimed at governing the debate over restructuring health care, and their ideas are generally consistent with the direction Democrats are heading..."

The Politico post appears as if some gang got together and put up their goody list whereas the second states that they aligned for the first time with the Democrats. What is amazing is how anything can come of a process like this. I have sat on many such panels and they result in group-think where any one having a good idea is shouted down by the others because they want their ideas included and the net result is the least common denominator.

The process of doing this health care reform is quite complex. I can see that academics are generally clueless, they generate arcane and often self-serving solutions that reflect their local politics less than true reality, a reality that they are in no way able to grasp. Physicians are too mired in the day-to-day practice of medicine and its ensuing overhead to get together and accomplish anything. Although the physicians often have the most to bring they are so close to ground zero that they cannot step back and propose. The physicians are not after all like lawyers who thrive on confrontation and posturing. Government bureaucrats have their agendas, lobbyists have their clients, and all other groups have the natural dynamics that lead the to LCD result.

Perhaps it is the ever present outsider who can bring some light to this issue. What seems to be missing again and again is the modulation of demand. Clearly the CDC recognizes the problem, cancers and type 2 diabetes, but somehow modulating obesity via market mechanisms may be politically incorrect.

As is remarked in the New York Times Magazine of today in the story about Freeman Dyson:

"What may trouble Dyson most about climate change are the experts. Experts are, he thinks, too often crippled by the conventional wisdom they create, leading to the belief that “they know it all.” The men he most admires tend to be what he calls “amateurs,” inventive spirits of uncredentialed brilliance like Bernhard Schmidt, an eccentric one-armed alcoholic telescope-lens designer; Milton Humason, a janitor at Mount Wilson Observatory in California whose native scientific aptitude was such that he was promoted to staff astronomer; and especially Darwin, who, Dyson says, “was really an amateur and beat the professionals at their own game.”

Thus it may take a Darwin working alone and working against the grain. It must then take a group who believe in the new Darwin and become zealot like in their promulgation of the well thought out solution. Groups just always seem to miss the mark.

Saturday, March 28, 2009

Perhaps The US Press May be Catching On

The New York Times has just written a piece regarding the difficulties that the Administration will face when it arrives in London next week and then travels throughout Europe. We have been arguing that for a few months now. It most likely will even be worse than anything that the US Press can imagine. The new policy in Afghanistan and the confusion over Iran and how to deal with the nuclear issue and then compounded with the fumbling on how to deal with the war on the southern border over drugs where the Administration says it is the US's fault, and on and on.

This meeting will top off his first hundred days by it being his first foray into international politics. Merkel and Sarkozy are not going to be as friendly as he would think and Putin and his entourage will test his metal at the first but only as a Russian can.

If the Administration thinks it has problems with those in its own party on the Hill, the Russians will challenge them in ways they have never seen before. They are brilliant at that. And all the while the Chinese, the rapidly evolving eminence grise of capitalism, are no longer smiling at the nouveau politique of the Administration, but they are seriously worrying about the world economy which they may very well inherit sooner than they had ever anticipated.

This will be a fun week. Then just to add spice to it all will be the mass of crazies marching the streets, ah good old Europe, home to all we hold dear in culture.

All the while Americans under 50 are asking what next the Government will do for them. Imagine an Andrew Jackson or a Daniel Boone writing back to Washington asking for help. I think not.

My Friend Enjoying the last of the Corn

Here is one of my friends enjoying the last ear of the autumn harvest. You can note that he is rather robust for one who has just managed to get through a Goreian winter, 10F lower than last. I guess global warming has done little harm. Happy spring Antnee!

Friday, March 27, 2009

Some More Thoughts on Health Care

As we have been speaking to people on the health care issue we have been giving talks to some physician friends and their input is quite useful, and essential. Here are some points of note:

First we see the health care problem as having four elements. They are shown below; demand modulation, cost reduction, genetic development and finally organization, namely how do you pay for it.

These four steps we will detail more in a short while.

Yet to develop a good health care policy we must understand that we must be wary of assuming that the past is what the future will be . We know that looking solely at the past as prologue to the future to be patently false. The chart below is descriptive of three major changes in the 20th century. There are of course many more.

Consider two past examples; infectious diseases and psychiatry. In the early part of the 20th century health care was dominated by the management of infectious diseases. New York City had its own Tuberculosis hospital, Sea View Hospital, which was filled with TB cases which the City cared for. This is no longer the case. The psychiatric centers such as Willow Brook Hospital on Staten Island in New York City were filled with psychiatric patients until the early 1970s. With the advent of drugs such as haloperidol and the like they closed in just a few years. The Commonwealth of Massachusetts had in 1965 a total of 45,000 hospital beds occupied every day. 25,000 of those were for psychiatric patients. By 1975, the psychiatric beds were reduced to 6,000 and today they are less than 1,000. This would mean that if we planned health care in 1965 for twenty years into the future using the past and not recognizing the impact of the new "technologies" then we would have been grossly in error! This is a clear warning as the Government approaches this task.

Looking to the future we must be careful to understand how we assemble the pieces or elements of the health care system.The chart below depicts the approach of Kuhn in his work on scientific revolutions. We believe it applies directly to health care as well.

The elements are the bits and pieces which make up health care. The paradigms are those examples which we hold as the basis of our beliefs. The world view is the almost religious understanding of how things should work. When the paradigm shifts, due often to new technology, the assembly of the pieces moves all over the board.

Now look at the elements as shown below. The question we pose is that if we see in genetic medicine the changes we anticipate in the next twenty years, this change will create a new paradigm, namely core example, and this paradigm will change the world view and in turn the architecture. Government should not address how to manage the past but ow to promote the future. By targeting genetic screening, staging, treatment and prevention we change the field of medicine. By rearranging the deck chairs we spend money and wast time and delay the future.

These thoughts will be provided in a new paper shortly. The understanding of how to approach the problem is critical. One needs a framework, a philosophy, so as to assemble a broad picture. As I have been reading the current collection of health care policy types they see to totally ignore these factors. Kuhn was brilliant in his articulation. He applied it to science but as I have looked at many other fields his approach stands the test of time in all areas and policy makers must take this into account. Antibiotics, psychiatric drugs, protease inhibitors, imaging systems, all of these changed the way we view medicine and changed the way it is architected. We truly believe that gene therapy will do the same. We also truly believe it will do so in a shorter time than most anticipate. Hopefully our Government leaders do not set it back because of their lack of understanding and that the policy makers do not just rest in their ignorance.

Cap and Trade: A Letter to Senators and Congressman

The following was sent to my Senators and Congressman on the issue of the current Administration's proposal on Cap and Trade:

"I have been a resident of New Jersey for thirty years and have resided at the same location for that period. The last time I wrote my Congressmen was when the Hillary Health Care plan was in the offing. However this time the proposed Obama Cap and Trade proposal is a devastating plan which will have massive negative unintended consequences. I have been a Professor at MIT and have returned there after I sold my companies and retired. I still reside in New Jersey. I have lived and still have contacts with people I befriended in over twenty countries where I had started branches of my company. Yet, they too have concerns about the current expansive spending proposed by this current Administration and the impact on the United States and in turn on them. China is not asking for a new currency because it dislikes the color of ours, it is doing so because it fears that ours may very well become worthless. I share their concern.

I have just published a White Paper on the cap and trade issue. The intent of the White Paper was two-fold. First, develop a simple analytical model to understand how it works and what its consequences are. It appears that no one has presented such an approach. Second, consider and evaluate the impact of the unintended consequences of this cap and trade proposal. We have found that it is essential to study these unintended consequences lest you find yourself back in the same mess we have in the financial markets.

The current Administration seems so hell bent to institute this cap and trade system that they are totally neglecting the downside risks! I summarize a few here.
The law of unintended consequences plays an ongoing role in all Government programs. Whenever the Government acts, there are reactions to avoid the actions. The unintended consequences are critical to understand and hopefully anticipate and if necessary avoid. Let me list but a few:


Coal is the livelihood for hundreds of thousands in the United States. Wheeling, WV is a lynch-pin in this world, and in the "hollers" of that region the mining of coal has been the base of centuries of human existence. This current cap and trade proposal by the current Administration will drive them totally into the Stone Age. One of many technological solutions is a "clean coal" which seems to be dismissed totally out of hand by the current Administration. Technologically ignorant people assume if it has not been done it cannot be accomplished. President Roosevelt was not such a Luddite; the atomic bomb was a glimmer in the eye as late as 1943. It took really just over two years to deploy. The same effort could be applied to coal and the creation of "clean coal". But for some almost religious reason it has been defaulted to be undoable.

One of my typical exercises when teaching at MIT is to tell my students on a Friday that "such and such" cannot be done. By Monday they have delivered a solution and showing me how little I knew. For in reality anything can be accomplished and the costs of these accomplishments can always be engineered to a realistic and economic level. Added to this will be the industrial collapse of many industries because of the dislocations of these industries and we would expect massive unemployment. The recovery would take generations. It would be costly beyond any trillion dollar Stimulus we have yet to see.


The Industrial sector is a major user of energy in the United States. One approach of controlling the CO2 emissions at the source would be to have the Industrial sector be controlled like the electricity sector. If we analyze the data as we have in our report, the industrial sector relies heavily on oil, gas and even coal. Coal is used for aluminum and concrete, it is a cheap energy source for creating these and also concrete as a chemical process also produces CO2.

Thus is we were to apply the same restriction here we would inevitably drive these industries from the US totally. The Information Technology industry is a heavy user of electricity and it too would find itself driven elsewhere. Thus one of the unintended and totally un‐thought about consequences is this driving of industrial entities, the residual ones at that, from the US to countries which have available and affordable power.


The problem of inflation is pandemic in this approach. Cap and Trade taxes will drive up costs of the energy sources which will drive up costs of production and on and on. The cap and trade proposal may very well set in motion a whole cycle of dramatic and destructive inflationary pressure. It may also have the unintended consequence akin to Gresham's Law that it may actually drive out "good fuels" and leave bad. For example as coal becomes non‐existent in electric power plants, there may be created a "Black market" for coal and furthermore wood may even replace coal in certain markets. It will be akin to prohibition, the demand will be intensified because of the inflationary and prohibitory pressures.

The home "still" of the 1920s will be replaced by the home coal burning stove and a new massive Federal police force will likely be formed to strike down the down-trodden pollution violators.


One of the things which seem to be coming out of this current Administration is a total lack of understanding of the entrepreneur and their role in creating value in this economy. This cap and trade proposal will remove vast amounts of money from those who invest and take risks in new ventures and place it in the hands of Government bureaucrats. The Government, with all due respect, has never invented anything. It has been the risk takers embodied by the entrepreneur. This massive destruction of capital from the American system will destroy that engine for generations.


As we have seen in so many prior cases, the environmental lobby, for reasons often known to only them, opposes anything. The use of wind has seen objection after objection. The deployment of large wind turbines across the mid country would be in the path of many migrating birds. Thus they cannot go there. Or the environmental impact statements would go on forever. Delay is often the deadliest form of denial. Delay can occur at the Federal, State, and local level, and the delay adds costs directly and derivatively. Furthermore delay will just result in the cap and trade algorithm driving up energy costs even higher with no ability to seek alternatives due to the delays. This is a countervailing power that the Environmental lobby has. As a personal not, I operate a nursery in New Jersey and have a strong personal interest in good environmental practices. However in my experience it is the extreme groups which give all the rest of us bad names.


You cannot get wind and solar or even nuclear unless you have a national grid. This is in and of itself a major task. What is an intelligent grid? It is an evolving and learned process of distributing electrical energy. It is very muck akin to the Internet. The Internet did not spring forth fully formed. It began in the late 1960s and slowly evolved assisted by thousands of highly intelligent and collaborative systems and development engineers. The power industry has been a backwater of engineering talent for the past fifty years.

Thus the competence set is just not there. Classic companies like GE most likely will not develop the smart grid by themselves. It will take a similar group of a broad base of smart and motivated engineers working in a collaborative manner with some support from a 1970s like ARPA. However the problem is that the people to do this just do not exist. Thus the achievement of this essential first step, the intelligent grid, is at best problematic. Ironically many of those who could do this have H1B visas and are soon to be shipped out of the US! Who is forcing this? The Unions. They want all Americans. The H1Bs want to become Americans and yet we throw them away. The system seems to devour itself in an endless fashion.

There are many other ways to implement a cap and trade system. The current Administration's proposal is a bald-faced tax, a regressive and extortionary tax which will hit the citizens of the state of New Jersey and of the United States. It will set our Country back economically into the Stone Age. I am asking you to think otherwise, since implementation of this tax will, in my opinion, destroy the United States.

Very truly yours,"

Wednesday, March 25, 2009

Some Thoughts on the AIG Bonus Issue

The NY Times today published a letter from a former employee, exceutive, of the AIG unit that had the major problems and the large bonus. The letter seeks sympathy for a job, well not quite well done but done.

Having never worked in the financial industry, I did have one opportunity in the mid 1980s at Salomon Bros but at the time my college room mate had just bought it and was Vice Chairman and the advice was that a baseball team did not need a brain surgeon, that organ was just missing in the business, it ran on gut. So I passed and was never happier, for shortly after that came 1987 and the collapse. I sought the security of high tech venture start ups. A secure safe spot in a troubled world!

To the point. In my world of venture start ups, you took the calculated risks, won some and lost some, but you were never rewarded if you failed, there just were no such things as retention bonuses. If you wanted another step up to try and hit another ball in another game you always cleaned up your mess if you left one and in many cases there just was no compensation, none, period.

You did it to gain credit, to maintain credibility. You just failed, so fix it and move on. As I have said time and time again, it is the entrepreneur who has created this country and its economy. It is that combination of Dutch and English adventure and focus which created a strong economy, not a Government, and not ab initio the financial community. The Dutch West India company did the financing but it was the actual Dutch in New Amsterdam, aka New York, who set about the business on a day to day basis.

Thus the self indulgent whining from those who may not have personally created the mess, and yet if one is an Executive Vice President there must be some nexus here, one would suspect, is both unprofessional and merely self serving. For those of us who have been in the trenches of entrepreneurial start ups, as they say, it comes with the turf. Get over it.

Tuesday, March 24, 2009

The Chinese Lecture on Capitalism

The Head of the People's Bank of China has just spoken about the creation of a new currency akin to what Keynes had proposed at Bretton Woods. Zhou Xiaochuan who heads the Bank, and curiously is a PhD Chemical Engineer and NOT an economist, a rather insightful observation in itself, has thrown down this challenge to the US a week ahead of the G20.

Some of what he has said is of note and a warning to the Administration:

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system....

I. The outbreak of the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system.... Issuing countries of reserve currencies are constantly confronted with the dilemma between achieving their domestic monetary policy goals and meeting other countries' demand for reserve currencies. On the one hand, the monetary authorities cannot simply focus on domestic goals without carrying out their international responsibilities and on the other hand, they cannot pursue different domestic and international objectives at the same time....

II. The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies...

III. The reform should be guided by a grand vision and begin with specific deliverables. It should be a gradual process that yields win-win results for all ...

Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency. Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform. Therefore, efforts should be made to push forward a SDR allocation.... Create financial assets denominated in the SDR to increase its appeal. The introduction of SDR-denominated securities, which is being studied by the IMF, will be a good start. Further improve the valuation and allocation of the SDR. The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and the GDP may also be included as a weight...

IV. Entrusting part of the member countries' reserve to the centralized management of the IMF will not only enhance the international community's ability to address the crisis and maintain the stability of the international monetary and financial system, but also significantly strengthen the role of the SDR...."

Hopefully the Administration is prepared for the G20 next week. The Europeans are preparing for world regulation of all financial markets and the Chinese are planning for a new world currency. The Geithner-Obama bailout looks a lot like a Paulson-CDS II type plan. It really creates a great deal of long term credit uncertainty. he Chinese are warning the US not to over reach on the US internal spending, namely excessive domestic programs, all at once. It is amazing to be lectured by the Chinese on Capitalism! This may be more telling than anything else.

Monday, March 23, 2009

Credit Default Swaps II: The Treasury Plan

The Treasury Plan to reduce the toxic waste was revealed today. Paul Krugman has taken some objections to the plan. The plan is shown below. It works as follow, hopefully:

1. Banks take bundles of their bad assets, mortgages or securities, and then place them in a Government auction. It is a highest bid auction. It is not clear if there is a reservation price and it is not clear just how mush transparency there will be. The devil is in the details here. This was the stumbling point for the Paulson plan. Here is where we see the first risk. No one shows. The reservation price is too low or non-existent or there is a total lack of transparency and no one can purchase without some due diligence. This really needs clarification.

2. The auction proceeds and the buyer pays 7.5% and the Government puts in 7,5%. Equal equity but the buyer controls.

3. The buyer then somehow gets debt from the market and the debt is totally guaranteed by the FDIC, and somehow the FDIC can underwrite the debt. This is really another credit default swap. This CDS II is the real devil in the detail. Somehow no one has seemed to identify this issue.

4. The buyer holds the security for a while until it can be sold. This is a risk factot three. It assumes that there is a greater fool to purchase this at a higher price. Somehow there is a cash flow behind the security or perhaps a secondary market. Again there is the risk of another set of CDS behind this. Hopefully they are regulated.

5. Then the Government gets paid back, hopefully, and the Government makes a profit, hopefully.

The risk factors are shown below. Note that there is a hedge created by the Government FDIC debt guarantee. This means that there is a maximum loss of 15%. One can imagine the many derivatives which can be generated on this hedge. The figure below also a probability distribution, lacking any black swans and long tails, that lets one look at the spread of the returns.

We believe that this proposal is most likely the best that can be done at the present. The risk is placed upon the Government and there is no underwriting of the risk. This is the same as the naked risk taken by AIG which got us in the mess. This is a movement of chairs on the deck of some ship, hopefully not the Titanic. One can perform a set of detailed analyses on this scheme but I believe it will all rest upon the auction. This was the same problem Paulson never seemed to solve. Geithner seems to "solve" this via the FDIC underwriting. Hopefully this gets some traction. If it does, and if the toxic wast can be moved and monetized, then hopefully the system is put back in motion.

All of this is set in motion awaiting next weeks meeting of the G20 in London. That will, as we have been saying, is critical.

Some Visitors

Interesting to see just one day of visitors. I guess that someone thinks this is of interest, at least worldwide. Google Analytics does a great job! Many thanks to those folks at Google.

From The Depths, Last Two Weeks Look Good

The results of today's market are presenting a hopeful trend. The bundle of goodies we have been watching since 1 December 2008 is shown below.

Back to our doomsday scenario, well the last two weeks have been looking good, we are still down 20% on an annualized basis but that is much better than what we saw before. We are also tracking M2 which given what the Fed did last week and the other pumping of the economy we would expect a substantial change (We have links to this and all of our other stats in the Telmarc Links location). This is shown below.

However we show below the annualized rate of increase of M2. We also plot the 60 day moving average.

For the last six months the M2 has been growing on a running average between 15% and 20% per annum. This is exclusive of the inclusion of the Feds recent actions since it is current until 9 March 2009. We anticipate that this may be the canary in the mine shaft and the only thing holding back a massive inflation tide if unemployment. If the Administration's plan works, that is stimulates employment and savings then this would be expected to expand dramatically and induce significant inflation.

Sunday, March 22, 2009

Public-Private Partnerships: An Example

In 2002 one of my companies, The Merton Group, set out to work with communities to establish public-private partnerships for the purpose of deploying municipal broadband in New England communities. We worked with over 35 towns and spent thousands and thousands and thousands in the process. We even got a multimillion dollar financing for Hanover, NH from the Rural Utilities Services (RUS). We met with selectmen, town councils, jumped through hoops and then we came upon the Franchise in Hanover, NH, home to the famous intellectual institution of Dartmouth, a bit tongue in cheek if you did not get it, and the alma mater of one Secretary of the Treasury Geithner.

What happened is most likely prologue for any and all public-private partnerships and further may exemplify the mindset incubated in Hanover NH.

After we received a RUS loan from the Department of Agriculture, and after Congressmen and Senators praised our work, we just needed a pro forma franchise as a condition precedent to closing the loan. Well, did the fun begin here. The Selectmen and Town Managers began to ask for more and more. They wanted to have us provide Universal Service. I said we have no obligation. They then demanded. I then replied that I would personally pay the bill of any household found in Hanover that qualified. It is not as if Hanover was readily open to the indigent. It is like Cambridge but with no poor people.

Then they demanded that we provide coverage to 95% of the town, despite the fact that the cable company, then Adelphia but soon to be Comcast had 45% coverage. They insisted, they demanded, welcome to a public private partnership. Soon it became clear that the cost of dealing with the town was more costly than the construction on a per subscriber basis! We eventually told the town that they had to give us a franchise pari passu with the cable company, we gave them 90 days.

Then, after no franchise, we walked. They then were furious that we walked. It was after all our money. I informed them that the Government had a 13th Amendment and that we could not be held as workers against our will and forced to pay out of our own pockets. We never took the Government money, we never built the network, and we learned a very serious lesson. Quasi intellectuals who purport to represent the people may often cause more damage as unintended or otherwise consequences.

Fortunately in this case we just wasted our time and money, we did not waste the taxpayers. I would not take that money unless I was assured that I could repay it, honor is an important virtue. At least to some.

Thus, public private partnerships like the one in Hanover, I think not!

Now I would like to make a few conclusions. This was based upon the fact that one hour after I posted this someone apparently from Comcast in Washington read this blog, I would guess because it mentions Comcast only in passing. Rather paranoid perhaps but it shows what the Internet can do. You see me and I see you.

Now to the conclusions.

1. The above experience shows that despite Washington's best intentions, in this case with RUS, there was tremendous intervention by the vested interests and this case it was the cable industry. They tried to get our RUS filing from USDA under a FOIA filing and they also lobbying the town to ensure we had a materially higher hurdle to climb over. Thus this conclusion is no matter what there are incumbents who will see whatever is done as a threat and they in turn will amass their forces to work against it. In my case above cable against any competitor. As from my 1 hour ping on a Sunday morning they seem to be still fearful. I await the next ping. Remember guys I went to MIT not Harvard!

2. Local governments have interests not necessarily aligned with the Federal Government. These interests may often be in addition to the Federal Government and to use the Galbraithian phrase they may become countervailing interests. Thus Hanover wanted total coverage and free service. A rather unstable request in the context of any economically stable system.

These two conclusions are what Geithner must face. Wall Street may have given him a hint of that but so far he has not shown it. Living outside the US while growing up does not give you a sense of local politics. Growing up on the streets of New York City may.

Saturday, March 21, 2009

Bank Bailout and Restricted Compensation

The Financial Times reported that bankers were quite upset over their loss in bonuses for 2009 via taxation. In reality anything the get will actually cost them since when one adds NY State and NY City tax plus Medicare tax one approaches 102%! But that aside. There is one question, where would they go to hide, perhaps Nepal, or Paraguay. The EU intends to orchestrate even stricter rules, and if one knows Russia, well let us say there is no home there, and China and India are already occupied. Then there is the infrastructure which supports them, the networks, and of course restaurants.

But wait, what do other industries do when upon hard times? Well the just tighten the belt all around. These folks are crying like babies. They caused the problem. It is not as if they invented the option pricing formula, that was Fokker and Planck! In any business, money talks, and they of all people know that. In this case it is the taxpayer's money, NOT the Government's. The taxpayers are now your bosses and they do not like it. Then there is the self centered former trader who had been paid bonuses of $750,000 and who now barely gets by as a Pizza delivery man. What in God's name did this person do with that money? That is 20 years salary of some poor Joe and his wife and three kids! They should be lucky that they even got the Pizza job given the way they seem to have handled money! As they say you cannot make this stuff up.

Some Interesting Links

From time to time there are links that may have more than passing interest. I will try to assemble them here.

CBO Obama Budget Analysis

G20 UK Links

G20 Plan

G20 and Global Trade

CBO Cap and Trade

Friday, March 20, 2009

Words Mean Something: The Prostate Story

The New York Times today has an editorial on the prostate papers in NEJM which we commented upon yesterday. The Times says:

"The studies — one done in the United States, one in Europe — both show that screening had little or no effect in reducing prostate cancer deaths."

That is NOT what the papers said. They said that the protocols used to screen had little or no effect. NOT that "screening had little or no effect". Really folks, words count.

The question the researchers should have asked was:

"What level of PSA yields a positive result regarding the reduction of mortality?"

or even better:

"What level of PSA and what level of PSA velocity yields a positive result regarding the reduction of mortality?"

They did not ask that question. They asked the question:

"Does a PSA test of 4.0 threshold reduce mortality as compared to two sample groups."

Well, as we also said the American sample groups were both "tested" albeit not as frequently, and the European sample groups were for all purposes untested. Thus frankly the level was wrong, which was known since 2003 as in NEJM, in the paper by Punglia et al, which showed that a PSA of 2.3 was required to get reasonable levels! The 4.0 level was outdated for six years. No wonder there was no positive result, in addition to the samples used.

Why worry about stupid reporters and editorial staff writers, well because it may become health policy! And that policy can kill. Consider if we did a test that said for women we screen for palpable breast lesions only larger than 4 cm in diameter. Then we would likely conclude that breast screening is ineffective since those screened and those not screened died at the same rate! Dumb, yes.

This demonstrates two issues:

First, the newspapers do not have the basic competence to read and report the facts. Words mean something and in this case lives hang in the balance.

Second, you may get answers to a question but it may very well be the wrong question. Ten years ago this may have been the right question, but we learned something. So does that mean we just continue a flawed study. I truly hope not.

Galbraithianist: neither Socialist nor Marxist

There are many who are calling the current Administration's ways Socialist or Marxist. We argue that it really is Galbraithianist. We explain briefly here using Galbraith's three major works:
American Capitalism, Affluent Society, New Industrial State. This trilogy established the Galbraith economic philosophy which seems to be what is dominating the current Administration in their goals and their actions.

Unlike pure Keynes philosophy which looks upon the economy as a system with knobs which one can manipulate the Galbraithian economist looks upon the economy from a power perspective. Namely that the Government has power for good and evil and that the Government has a duty to deploy that power for what it sees as good. The famous book by Bertrand Russell on Power is an interesting example of how power has been used through the ages. Galbraith's experience during his times in Washington showed him how power can be applied in a societal context.

American Capitalism

In American Capitalism Galbraith states (p 104-105):

"In one way or another nearly all of the great American fortunes are based on the present or past possession of monopoly power. ….Income inequality like monopoly distorts the use of resources. It diverts them from the wants of the many to the esoteric desire of the few…Unecessary inequality in income, unnecessary in the sense that it does not regard differences in intelligence, application or willingness to take risks, may also impair economic stability."

Thus to Galbraith, monopoly is evil and those with intelligence, hard work, and risk takers get rewarded but that excessive wealth distorts the true direction of the economy. The work by Piketty as shown below is an example of the current trend of socialist economists who worry that income distribution is skewed. In the Piketty plot we see the percent of wealth held by the top 1% of the population. We see the explosion now in the US reaching levels not seen since the beginnings of the Depression. However these are not monopoly amounts.

The current Administration picks up on Piketty and in page 11 of the 2010 Budget puts the Piketty curve. The curve has been updated to 2006 and is for the US alone. It is quite interesting to see that Piketty showed the curved back before the Depression in 1930 whereas the Administration shows it only to 1980. As one says, Statistics can be quite confusing! It can also be the hand maid of deception.

Countervailing power was the second theme of this work. As Galbraith says (p 111):

"In fact, new restraints on private power did appear to replace competition. They were nurtured by the same process of concentration which impaired or destroyed competition. But they appeared not on the same side of the market but on the opposite side, not with competitors but with customers or suppliers. It will be convenient to have a name for this counterpart of competition and I shall call it countervailing power."

To some degree there is a Marxian like dialectic at play here between the thesis, antithesis, and synthesis, yet Galbraith does not share the inevitability of the Marxist and is more a Darwinian in his though, albeit one where control or stabilization by the Government is a key player.

Galbraith continues (p. 136):

"In fact, the support of countervailing power has become in modern times perhaps the major domestic peacetime function of the federal government…..These measures, all designed to give a group a market power it did not have before, comprised the most important legislative acts of the New Deal. They fueled the sharpest domestic controversies of the New and Fair Deals."

Thus in his first work we see Galbraith positing two issues:

1. Income inequality leads to social unrest and income inequality is a result of the ineffectiveness of Government in permitting monopolistic entities to take advantage of the people.

2. Countervailing Power is a major element of Government's balancing the interests of the American people and the Government's use of this effects the establishment of new power groups whose new influence can modulate that of other groups. The Government has both the authority and the moral force to effect the establishment of these new entitlements and the support of these new countervailing groups.

The last point is again a bit Marxian in that there is the dialectic process at work again and in this case it does pit the proletariat against the capitalists. We see this in the current Administrations efforts in various venues. We see this in the President's own background as a Community Organizer. It is the Acorn empowerment and it is the Government's role as facilitator, not necessarily as the end agent itself.

Affluent Society

The Affluent Society claims three major things concerning consumption (See The Global Development And Environment Institute at Tufts University):

1. That the producers create consumer demand that the consumer is in many ways responding to the producers of the goods via advertising.

The consumer's mind has effectively been taken over by the producer. The producers, according to Galbraith, have the ability to produce what they can produce and get the consumers to buy whatever they produce.

2. That the relationship between consumption and some form of consumer utility function is near evaporating, that consumer buy when motivated by the producer and not as a result of some underlying exogenous need or utility.

This means that people are no longer the arbiters of their own fate, This was developed as a response to Madison Avenue advertising and the advertising age in the 1950s and 1960s. During that period people believe that by the appropriate form of advertising, media manipulation that people could be made to buy anything. The natural extension corollary to this is the use of the broad based media of toady by Government to make people believe whatever Government wants them to believe. This assumes that people have abandoned any inherent utility function. More importantly this assumes that people have abandoned values.

3. That the structural pressures to increase private consumption drives out the provision of public goods.

This means that to Galbraith the consumer was being directed by the producers to spend their money on goods from the commercial sector and as such the needs of the public sector were being neglected. This in Galbraith's eyes meant that the countervailing power of the government should intervene via taxation and reallocate the expenditures based upon trends as perceived by Government into public works which in the view off the government were more beneficial, and had a utility far in excess of the consumption which was occurring.

Galbraith has been quoted as to his environmental bent by telling the tale of a family who goes on a camping journey amidst roads in disrepair and streams filled with polluted waters.

New Industrial State

The New Industrial State was his third in the trilogy. I remember reading it when it came out in the mid 60s. There also at the time was the debate between Solow and Galbraith. This is well elaborated upon in the book by Parker on Galbraith. Indeed the Parker book is exceptionally well done albeit politically biased towards Galbraith and strongly anti-Republican. Parker relates the thesis that is at the heart of this book (pp 439-448):

1. The giant corporation is the "characteristic organization" of modern capitalism.

In the mid 60s there was AT&T, GTE, ITT and massive companies in all sectors. The age of the true entrepreneur was not yet there. In fact it was the Government which expressly prevented this. For the Government made AT&T a monopoly and the Government actually sucked massive amounts of capital in taxes, 90% marginal rates, and massive amounts of technical people into Defense and NASA efforts thus depleting the US economy for a generation. To some degree this is akin to the "green jobs" of the current Administration which will suck the people from "market driven" value creation to Government funded employment.

2. Shareholders, the nominal owners of the company, have little power over the company.

Again true then but shareholder suits did start up albeit they were eventually suppressed by the Government.

3. The members of what Galbraith calls the "technostructure", the techno bureaucrats in companies, own little in the company and seek low risk by not maximizing profits and fitting the classic economic model.

This is also now a changed paradigm. Again the entrepreneur changed this and then it was adopted en masse by the corporations where options now make management large owners in companies. Those massive compensation packages are truly light on salary but heavy on deferred option compensation. Yet profit maximization is deferred for long term market survivability. That is more a way of the market than of the change in corporations.

4. Corporations do not profit maximize but seek to sustain themselves and to survive.

This is clearly true of the large company, because if they maximized profit from quarter to quarter the way the market works volatility would be too excessive. However if we look at the recent financial crises there is clearly just the opposite. They went to extremes maximizing profit. The extremes took them to, and over, the brink.

5, Advertising and a national ideology of praise for growth in the consumption of consumables misdirects the collective energies away from the fact that the US is awash in affluence.

Galbraith is fixated with the affluence issue. Strange since in this period it was nowhere near what it had been during the pre-depression period or now.

6. The key resource of the US economy is not the large industrial capacity but the ability to mobilize organized intelligence in the business sector.

Galbraith saw the result of the deployment of intelligence during the war and after it in industrial areas. This included the application of statistics to marketing and the ability to target specific customers with specific messages. This was all new and he saw in it a major strategic advantage.

Current Administration

We look at the current Administration and in many key areas they exhibit Galbratian approaches to Government. Specifically we look at the following:

1. Power: Galbraith was a believer in power, and power to influence, to control, to manage. The Galbraithian power if held in the hands of a benign and fatherly government. The current Administration is a massive collector of power. It does so through the explosive expansion of entitlement programs.

2. Countervailing Power: The Galbraithian believes that Government can use its power to create countervailing dialectics in the economy between established classic capitalist entities and collections or groups which the Government believes can and should be represented. Acorn is a prima facie example. The groups being sponsored by illegal immigrants is another. These groups are empowered by the Government and then the dialectic is created. Countervailing power is in the end Government power as well. The Government facilitation if not outright creation and support of countervailing powers are the ways Government can exercise control of the people with an arm's length approach. It is an invisible to most approach. One must deconstruct the new entities introduced often through legislation to see what their true purpose is.

3. The Prevalence of Large Corporations: This assumes that there does not exist any class of entrepreneurs as we know them today. That business organically thrives to the point of monopolies and then continues in a risk adverse manner to persevere. That they are not driven by classic capitalist drives but by mere survival sustained forever. This history of capitalism is just the opposite. It is purely Darwinian. Just look at AT&T. The Administration's treatment of GM is an example of this belief of the countervailing power with the large sustained corporation and fails to understand that it is unacceptable in a capitalist world. The weak must not survive, that includes an over bloated labor union.

4. Advertising, or in our current day parlance, the new media, can control public opinion: The current Administration is a true believer and practitioner in that. They believe that, like the Galbraithian Corporation which uses advertising to promote its view, the Government can do the same. Thus, the President on Leno.

5. Government is the ultimate and optimum arbiter of all societal issues: Government is a benign and all knowing benefactor and is required to arbitrate between all the players. Government is essential. Government worked well when it worked big. The Government is the wise Oz, the wizard who is all knowing and all powerful. The market, specifically the free market, is a ruthless jungle from which the Government protects the citizens. Unlike a socialist who wants the Government to own the resources, the Galbraithianist wants the Government to arbitrate between the consumer and the corporations. This is clearly what the current Administration proposes and is attempting to do.

6. Concentration of Wealth is bad: The accumulation of wealth in the hands of a few is unacceptable and it strikes at the heart of American culture. It is the role of the Government to transfer such excessive wealth to those in need, need as determined by the Government. The Administration seeks to take wealth from those at the top incomes and to further flatten the distribution of wealth to all. In their mind the skewed distribution is almost immoral. There should be equality of wealth because wealth in a Galbraithian sense if inherently evil. Wealth however is defined on their terms.

7. The People can readily be motivated by media to act in accord with Government: People are artificially motivated to consume commercial products by corporations to the detriment of public services, goods, and the environment. The Administration's plan for cap and trade is an example of how the Administration seeks to flow money from the consumers, the people, to programs and projects that the Government believes are better. The Stimulus package is another step in the direction. Unlike the New Deal, the current Administration has taken massive moves in those areas.