Thursday, April 30, 2009

Is it getting fixed?


















The portfolio we created in December has turned around tremendously. The annual rate of growth since the time of purchase is now 4.8% and add to that a dividend yield of 5.5% and we have a return of 10.3%! Now if you break it you fix it, and if you fix it you can claim its yours. The question of a DOW 5000 may still linger but the turn is truly amazing. The DOW would not reflect this because of the weighting or lack thereof of the financial stocks. This portfolio is all core. We will continue to watch but so far so good!

Views on the Costs of Health Care

There were two articles today which reflect on the ultimate cost containment in Health Care. The first is by Boudreaux who is a conservative professor of economics at George Mason. The second was in the NY Times discussion Obama and his grandmother. Boudreaux states the old adage that if several people have dinner and all agree to equally split the cost then this is an inducement for one or more to order the highest priced item on the menu. There are several flaws in that argument but let that stand. The second is the problem of Obama and his grandmother. he was dying of terminal cancer at 86 and she broke her hip. She had the hip repaired and died two weeks later, from either the cancer or broken hip. The issue was should Medicare pay for hip surgery for someone who is going to die anyhow?

These two stories are quite different but reflect in essence the same problem.

First, why do people go to physicians and hospitals:

1 Primarily in youth due to accidents and in old age due to chronic ailments. Broken bones and congestive heart failure. Chronic illness in the aged is frequently life style related; smoking, drinking, over weight, and failure to have preventing care. Some of the chronic old age problems are genetic, but less than half.

2. Many older people do not go to seek medical care until it is a more sever problem. They generally avoid care because they fear the worse. The avoid care during that period when it can be mediated and the impact reduced. It is a deadly cycle. You see that 65 year old widow in the emergency room at 3 AM Sunday with an impacted colon ready to burst because for the last month she feared she had cancer and was afraid to see the doctor. Now, in addition to the neoplasia she has septic shock! How does one stop that, she had Medicare, yet she was terrified. She did not select Boudreaux's fillet Mignon, she was terrified. Economists have no experience of the emergency room and the fears of the elderly.

3. The Obama problem is a simple one, human dignity. If his grandmother needed surgery then he had a moral duty to see that she received care. We as a society have a moral duty to see that such a person is cared for. Yet, at what level for society? If society decides it is palliative, then a person of substantial means like Obama has an overriding duty, honor thy parents, to see that she is taken care of. The end point is a moral imperative, respect and care. The way to that end point may be open for debate. Who has responsibility, those with the means such as Obama, or society in general. Who gets the fillet Mignon and who gets the chicken?

4. Stuff happens. There is a percent, albeit much smaller than the percent of chronic illnesses, of people who have catastrophic illnesses. These are the brain tumors, the ALS patients, the MS patients, the ones who have gotten various leukemias, melanomas, and the like. Here society also has a moral imperative to assist those people so that their families and the person themselves are not financially destroyed as well as physically. The 39 year old mother with a glioma and three children, with a husband working two jobs is what I am focusing on. This requires the rally round approach, there are few people like this, more than there should be, and yet we as a society have a moral duty to assist them as best we can.

This Boudreaux points to a small group of people who choose the Beef Wellington. There are just not that many. Patients do not choose one surgery over another. A patient with a disorder seeks to be cured or at least regain some quality of life for as long as possible. I have no idea what the Boudreaux argument is based upon. The Obama story is more complicated. Clearly the end point is without doubt, but who pays for that end point is a question. Should multi-millionaires get Medicare at the same cost as say a retired telephone company lineman? That is the way it is today. Most likely that will not be the was it will always be.

DOL Statistics




















The DOL has just issued the most recent labor statistics. The unemployment rate is now at 8.5% which is lower than we had anticipated. It appears as if the bottom may be approaching sooner than expected. However the PPI is down 1.2% and that is an increase in that number from a month ago. The CPI is lower by a small amount. Perhaps the bottom can be controlled. However we are still concerned about the problems in commercial real estate and high yield debt conversions.

Wednesday, April 29, 2009

Increased Funding of R&D

Greg Mankiw posted a reference to an old paper by Goolsbee which states:

"Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high. The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity. "

This was written a decade ago. Since then many changes have occurred. Where is the money spent. Hardly in Defense R&D. That is so for two reasons. First a decreasing DOD budget. Second, there are fewer and fewer people who can get clearances. This is a reflection of the fact that fewer and fewer students with US citizenship and backgrounds amenable to security clearances are going into engineering. The good students went into finance, even with engineering degrees.

The students are going into various types of biotech, in the broadest sense. Yet that profession is one which is mired in a Medieval structure of first requiring a PhD, then working as a post-doc, then working the way up through the bench and support work, and hopefully as a principal scientist able to obtain ones own funding. Unlike the old DOD world where engineers could get funding to create something, and in the 1950s and 1960s that was DOD funding, the same is not for biotech, there is a drastic cultural difference. This means that there is a tremendous time lag between the investing of money and the result.

In the 1950s and 1960s the Government spent money educating scientists and engineers and once the graduate degree was obtained the individual could go out and practice, even to the extent of starting their own company, obtaining DOD contracts, such as from ARPA, and then also developing commercial applications. Much of this pump priming in that period led to the foundation of the venture investments in the 1980s and 190s. There is a long time lag even when the archaic institutional structures were not in place.

However, even if the lag were there, it would be strategically useful for the Government to fund the flow of doctoral students, especially those who are US citizens. The problem today is that the funding is for the most part at the doctoral level for non US citizens who then struggle to stay but in the long run get sent back to their country of origin. This is a double loss for the US. First we lose the talent and second we create a competitor elsewhere! Doubly dumb but that was what Congress and the Unions wanted.

There is another concern about government funding. That is what I have called the Apollo Effect. Namely by creating the funding for education and then creating Government projects, the educated students were taken from the work force and sent to work in Government projects. This meant that their productivity in creating new economic value was dramatically reduced. As a member of the Apollo Effect group, almost a generation of creative engineers were sent off to design space missions to the moon while the Japanese were developing a strong technology base to compete with the US in the 1980s. The only thing that saved the problem from continuing was the Nixon financial collapse.

Thus some conclusions:

1. There are significant time lags for R&D investment.

2. The Government is the worst venture investor in the world and further Government projects soak up truly creative and value producing efforts.

3. Students must be motivated to obtain graduate degrees in science and engineering. However, it also must be recognized that there are just a few people who have the competence and drive to perform. Thus there should be a balance of funding growth of US citizen students and at the same time maintaining the superb quality of those students. India and China have created systems with quality. The Indian Institute of Technology is a world class institution where the best of the best go. The US must maintain its selection criteria.

4. The growth areas are engineering, science and especially the biotech areas broadly speaking. The Government should spend with minimal strings attached. The Government should not pick winners, just good horses.

Turn Arounds, GM and the 800 pound Gorilla

About twenty five years ago I started my entrepreneurial career by doing turn arounds. I did six in three years. It was a learning experience which was considerably difference than doing a start up. You came in at a totally different stage. By the time you entered as the turn around CEO all of the remaining management and Board members knew that there was a real problem and that time was of the essence. Thus you did not have any illusion that if you only tried strategy X a bit longer it would work.

The turn around strategy consists of the following steps:

1. Fire half the people. It really makes no difference what half. Once I had a sub of a major US company and to meet the appropriate legal guidelines I fired everyone whose Social Security number ended in an even number. That way I was not being fired. It really makes no difference who you let go. Trust me. You get to keep both good and bad people and the agony of doing anything else is not worth it.

2. Restructure your liabilities real fast! One must remember that Chapter 7 Bankruptcy can be file by 3 or more creditors against you. Thus you must be willing and ready to do it to yourself. It is going to war and you may have a good chance of getting killed. The creditors will bark and scream and you must let the know in no uncertain terms what you intend to do. I did a company in Texas once where we had $200,000 in cash, and owed $2.5 million to creditors. I asked them to a Friday meeting, in the Texas heat. They arrived in their gun toting pick up trucks and sat in front of me. I had been there at most two weeks at that point. I bought a case of bourbon and told them they had two options. Agree to a restructuring of equity for debt or I had my lawyer on the courthouse steps prepared for a Chapter 7! If they agreed I would break open the bourbon. I hate bourbon. I walked out into the blazing Texas sun and waited the ten minutes I had given them. When I came in one big rough Texan, I think he provided components, stood up and spoke for the group. He said: "For a g...m Yankee you have b...s, open the bourbon!" I solved the liquidity problem.

3. Speak to the customers, try raising prices. On one of my deals I had a major customer in Houston. I had to go there on an awful hot July day and meet with them. They were in the trash business. I met them for lunch with my COO, I had just fired the sales head at the airport, and after three martinis, I get him to stay and we then went to Gilley's that night! I really hate Martinis and Gilley's later burned down.

4. Find a buyer real quick! Having restructure the company, cleaned up the balance sheet and kept the customers, at least for a while, the final step is to get a buyer. As the turn around person everyone at this point hates your guts, so you must find a new management team, and the best way to do that is a new owner.

Now to GM. The following is the Balance Sheet for GM as of the end of last year and pro forma for June 30, 2009. I have made some assumptions and calculations.

























A simple analysis of the GM issue appears to me to be a case where all four rules have been violated. Also when I look at a restructured balance sheet I cannot in any way ever see how, given the union commitments, that they can ever survive! Just look at this balance sheet. You cannot have the $60 billion in commitments and survive. The numbers do not add up. The US Government may pump more money in but that does not solve the problem, it is just taking the money from the taxpayer, now and for generations to come, and paying off the union. The 800 pound gorilla will not solve the problem. It will just make the imputed labor costs per vehicle grow exponentially, and if one wants lower costs "greener" autos then the percent of the sales price for this overhead will make any such vehicle unprofitable.

Well, it will all be played out in a few days! This is what happens when politics trumps economics, I mean real economics not the academic kind!

Inflation and Money Velocity


















We have used the data from the release earlier today from the BEA to calculate the imputed inflation rate. It went from 2.8% down to 1.5% for the first quarter. Despite the fact that M2 continues to grow the consumer is not spending and V, the money velocity is kept low as evidence by the continued decrease in GDP.

GDP Overview

The Bureau of Economic Analysis has just released the GDP numbers. They are presented in a summary manner here.


















Note the continued drop. The recession is sustaining itself. We will present the velocity of money calculations shortly as well. This will be the concern for the potential of inflation which we are still concerned about.

The percent change is shown in the following:



















Surprisingly the percent change did not increase. That may be a hopeful sign.

The three major elements are shown below.



















The details of all elements of the GDP Services are presented here:

Tuesday, April 28, 2009

An Interesting Curve on Housing Defaults

The following curve is in a Brookings report by Swagel detailing the financial collapse.
























The interesting fact is that the "old" loans were defaulting at 12-14% per annum up through 2004. Then as the prices expanded and as the Alt a and sub-prime mortgages explodes simultaneously we see the default rates also explode. The question is what did you expect. Many of these were obvious at the time of issuance. The report is interesting and worth the read. However I suspect it will take time to sort out all of the details.

Monday, April 27, 2009

The University and The New York Times

In an article today in the New York Times by a Professor of Religion at Columbia University makes several proposals as to how to change the graduate education in America. It proposes a six step program.

Before continuing let me make a short disclosure. In 1960 when I applied to Columbia, I thought that staying in New York would be worth while, I was denied admission because I went to a Catholic High School. Donald Barr the Associate Dean sent me a nice four page letter telling me that a school like Columbia was for open minds and not Catholics. I still have the letter! I read it every time I think of Columbia and their sense of superiority. MIT fortunately did not bar Catholics, Jews or even non-believers, Hindus, or Muslims. Columbia felt that it was so advanced in its thinking that only a select group not tainted by some black arts religion could prosper.

Thus a religion professor at Columbia is in itself an oxymoron. How could a school which abhors religion have a professor of religion. Oh well, the facts are always a bit cumbersome. Thus perhaps the author of the op-ed may have a problem which is not academically related but of a local origin.

Now to his points.

"1. Restructure the curriculum, beginning with graduate programs and proceeding as quickly as possible to undergraduate programs. The division-of-labor model of separate departments is obsolete and must be replaced with a curriculum structured like a web or complex adaptive network. Responsible teaching and scholarship must become cross-disciplinary and cross-cultural."

This is classic pan-culturalism. When Harvard educated physicians I hope that they still teach them the art and science of medicine. Understanding the patient is also important, but the key point is becoming an expert in your field. At MIT we still inculcate as much as we can in the time allotted. It is getting a drink from a fire hose. There are inter disciplinary departments but each student and faculty member brings their own expertise. Academics who have remained in the academy are perforce of the system narrow specialists. Rarely do they think broadly because of the fear that they may not get tenure. That is a problem of the system, but it is a way the system works to create some consistency in academics.

"2. Abolish permanent departments, even for undergraduate education, and create problem-focused programs. These constantly evolving programs would have sunset clauses, and every seven years each one should be evaluated and either abolished, continued or significantly changed. It is possible to imagine a broad range of topics around which such zones of inquiry could be organized: Mind, Body, Law, Information, Networks, Language, Space, Time, Media, Money, Life and Water."

Wow, this is a good one! I can see this in say nephrology, water! How about a gastroenterologist as in networks. In the sciences, engineering, medicine, law, and even business, there are core bodies of knowledge and their related practice which must be acquired. You learn the basics, you learn to apply, and you learn to expand. The proposed new age curriculum is bizarre. There exists laboratories, centers, and the like which are supra departments, and departments are all too often administrative homes, but they department is often not a stranglehold on learning in a growing and active field. MIT has the Broad Institute, the Whitehead Institute, the Research Lab of Electronics and on and on. They come and go as new knowledge requires new linkages. It works my good professor. Yet why would one ever suspect it would work at Columbia! Remember my letter! Religion does not fit there except as perhaps a basis for history.

"3. Increase collaboration among institutions. All institutions do not need to do all things and technology makes it possible for schools to form partnerships to share students and faculty. Institutions will be able to expand while contracting. Let one college have a strong department in French, for example, and the other a strong department in German; through teleconferencing and the Internet both subjects can be taught at both places with half the staff..."

Distance education is starting to explode. MIT has had a distance program between Cambridge and Singapore for over ten years. It now uses Internet II and advanced video. It is for a Master's Degree program. Many other institutions are doing the same such as NYU. There may be some merit here for some core undergrad courses but on the same hand there should be a massive restructuring of costs.

"4. Transform the traditional dissertation. In the arts and humanities, where looming cutbacks will be most devastating, there is no longer a market for books modeled on the medieval dissertation, with more footnotes than text."

The MIT Media Lab has been doing this for decades. Not that it is readily transformable to other fields. Various theses in the sciences and engineering perforce of what they do have multimedia content. I remember twenty years ago when I taught the first course in multimedia communications at MIT I spent a great deal of time educating the students on just what the concept meant. Yet in mathematics the dissertation may be all of 20 pages and if one looks at say Einstein's dissertation is is about that length. In my day the target was 200-250 single spaced pages. The thesis was a part of the process. It taught you how to collect and present your ideas.

As I did the thesis I also was finishing my first book, which lasted a lot longer than the thesis. My book was targeted at a market, it was written to get a job, the thesis was written to get a PhD. As Einstein did his thesis as a prelude to his real thinking, and he did it while in Bern not Zurich, and he did it independently, perhaps that is something we could see again. All too often having doctoral students is a means to an end for faculty who just want free help.

"5. Expand the range of professional options for graduate students. Most graduate students will never hold the kind of job for which they are being trained. It is, therefore, necessary to help them prepare for work in fields other than higher education. The exposure to new approaches and different cultures and the consideration of real-life issues will prepare students for jobs at businesses and nonprofit organizations."

The graduate does not have to teach. We expect most physicians to practice medicine or at least do research. We expect PhD engineers to go into industry, develop new ideas, create new companies. We expect lawyers to practice law. Business School grads, albeit more of a sophisticate trade school education, go back to business. However if you study fine art, English literature, religion, perhaps you took the wrong major. There once was a time that high school students looked at the Sunday NY Times classifieds for jobs and chose their major on that basis. Physicists, Chemists, Biologists, are all needed in today's world. A PhD in the footnotes of Duns Scotus, or the analysis of the scholastic arguments of Aquinas, albeit an interesting exercise, do not get one a job. On the other hand, those studies are always of value to mankind, it is always good to have say 50 scholars around in that area at any one time. But educating a continual flow of them is useless, except for keeping the already dysfunctional faculty employed.

"6. Impose mandatory retirement and abolish tenure. Initially intended to protect academic freedom, tenure has resulted in institutions with little turnover and professors impervious to change. After all, once tenure has been granted, there is no leverage to encourage a professor to continue to develop professionally or to require him or her to assume responsibilities like administration and student advising."

On this issue I agree but with a reservation. Tenure is process. It is a process whereby the non tenured faculty member must publish and get acceptance by their peers. It has become a quite complex issue. I remember forty years ago that almost all the professional papers in engineering were written by one person. You knew who did what. Now every paper looks like a NEJM article with ten to twenty authors and you have no idea who has done what. In addition forty years ago the paper was written and your credibility was determined by who cited it. You had to go out and promote yourself. If you did so then the cites came in if the paper was useful and this added to the pile.

The process of obtaining tenure is critical. There must be some way of vetting, there must be some rules that we all accept. Then there must be a reward at the end. The Academy is the most political organization in the world. The old adage, "Why did you leave Cambridge to go to Washington?...To get away from the politics." is spot on. Thus there are continuing intrigues because of collections of bright minds and tremendous egos. There may be no way to avoid that. Perhaps tenure is there as a way to buffer that. Perhaps tenure has a purpose despite its downsides. Or perhaps it is the cause of these problems. One does not know.

The bottom line is that the US professional graduate schools are the best in the world. hey are competitive, flexible, and productive. The problem is that the overhead has exploded. There are too many Deans, Associate Deans, Executive Deans, Associate Executive Deans, and the like. I am still amazed when I walk down the corridors at MIT which once held class rooms and I find more Deans. It is like a fungal invasion in Florida! Secondly, Federal Program mandates had massively added to the burden ensuring all the appropriate government mandates are met. Cutting the overhead from the undergraduate program is more essential than fixing religion at Columbia.

Sunday, April 26, 2009

Herr Professor Doctor Gustave M Squirrel and his friend Albert

We have just posted the latest in the Squirrel Chronicles. This one is about a squirrel, one Gustave, who studied under Max Planck and returns to Bern in 1903 to see his ailing mother. He befriends a young patent clerk, one Albert Einstein and the tale describes how three of the great papers were written from the perspective of a well educated squirrel.

This presents the development of the photoelectric effect, Brownian motion and relativity from a slightly different perspective.

If all else fails, listen to the customer!

Just a brief not before the structured bankruptcy of GM. I have had a few Cadillacs over the years, some good some not so good. I have one with 300,000 miles and another with 225,000. They both get 27 mpg on the highway, just shy of my Honda. Last November I went to the local dealer and inquired about a new car. I left my phone number, name and whatever else, and asked him to call me.

Did I ever get a call. No, dealers do NOT call customers, dealers never lower themselves to reach out to a customer, that is a sign of weakness, they lose the negotiating edge. It may be in Lesson 1 in dealer school.

I was amazed that the dealers en masse still assume the world has not changed. If you went into a dealer you could start negotiating and still walk away feeling and knowing you have been had. I do not feel that way with my Dell. The price is there on line. I can compare to HP and a stack of others including the religious change to an Apple and make a decision. Can you do that with a car. No!

Perhaps one of the fundamental flaws is not the quality or mileage issue, perhaps it is the sales and distribution channel. It has been for decades an arrogant customer come to me approach and never would they ever think going to the customer. When was the last time Cadillac sent a thank you not, an email with a deal, never. Does the company need a change, yes, and that includes the dealers who must learn that they rely on the customer. Perhaps that is one reason why things are in such a mess!

Monday, April 20, 2009

More Thoughts on Pigou

Yesterday I posted a remark about the Mankiw Pigou Club and Congressman Inglis proposal. Let me go back and review.

1. The objective is to reduce carbon emissions.

2. The approach is to tax them. But the tax is placed at the point of generation not at the point of consumption.

3. The generators of electricity, for example, pay the tax, then pass it down to the consumer. This is about $3,000 per HH per year.

4. Inglis then posits that the Government will give the money back so that the consumer is unhurt. Here I would depart from reality if anyone would in their wildest dreams believe this, but give the man his due, after all he is a Republican from South Carolina.

5. Now how does this change anything? The consumer is revenue neutral. If this thing ever works. The consumer brings no demands on the producer.

6. The produce increases revenue, and keeps the profit margin fixed and thus has no motivation to change. After all they are all monopolies! Somehow these economic geniuses have seemed to let that fact fall through the cracks. There is no alternative.

7. Thus there is no incentive to change.

8. If the carbon tax was not made revenue neutral then there still would be de minimis change since again the producers are monopolists and the consumer has no alternative. The current Administration knows this and is relying upon this revenue to pay for all their plans.

9. Every system conceived has a natural response mechanism. Any adverse effect will cause some anti-body reaction as well as developing secondary pathways to avoid the adverse effects. Thus this Pigou proposal is just that, a pig proposal!

Sunday, April 19, 2009

Orphan's of Verizon

We had used Fairpoint as an example of what happens when Verizon found some group to buy off their junk. Two are front and center. First is Idearc which took the yellow pages and declared Chapter 11 March 31st of this year. The second we have been following is Fairpoint which is struggling to say the least. The following is the financial stats for both. They show the debt problem we have been arguing is one of the next collapses to occur.
























Note that we cannot overemphasize the impact these ongoing bankruptcies will have. Verizon got rid of the junk but someone bought it. They also got rid of Hawaii Telephone which also had its problems, an orphan of the Carlyle Group. They filed for bankruptcy in December 2008. More than likely Fairpoint will also suffer the same fate. The question is why did the regulators ever allow this to happen. Four states, almost 10% of the states in the US were allowed to have their telephone systems sold to owners in a manner which clearly was not viable. This was know before the sale in New England but the regulatory agencies just disregarded all facts. Generally they lack the competence to undersand the issues.

At the other extreme is the wasteland which has become the playing field for the VCs. We know that all too well. The Financial Times states:

"Entrepreneurs fighting for more government support for start-up companies will find plenty of ammunition in the latest venture capital investment figures. VC investment in the US fell by half in the first quarter, according to Dow Jones VentureSource – to its lowest level in 11 years. Investment in the UK is also down sharply. Series B rounds, injections of $10m-$20m into more established companies, have been particularly hard hit as financiers struggle to raise new funds from institutional investors. Start-ups risk withering on the vine.

Governments are under pressure to help bridge the funding gap. The UK is mulling a government-backed fund of funds that would give cash to existing VC groups. There is a 50-50 chance some kind of start-up support scheme will be included in the chancellor’s Budget this week. Entrepreneurs in the US have proposed similar schemes"

Now the orphans of Verizon are bad enough but if we get the Government involved in VC that will be the death of the entrepreneur in the United States. The VC business is ruthless, brutal, and Darwinian. People hate VCs unless you are one. I have played both sides of the street. My investors were unbearable at times, but it was their money, and mine. My investments were a real mixed bag, despite the due diligence. The VC world requires smart people who take risks at the edge and can make decisions quickly to maximize returns and minimize losses. This is not what the Government could ever do. Thus beware, avoid Government help at all costs. Imaging having the IRS, worse Homeland Security, on your Board!


Pigou Club: Another Set of Economists Miss the Mark

I am an admirer of Greg Mankiw and his blog as you may see below. But I cannot for the life of me see what drives this irrational tendency to support this Pigou club. Let me explain.

The Pigou Club alleges to be believers in the Pigouvian Tax. This is a tax on things we do not want people to do. This means that using the economists terms there are negative externalities. Let me give a few examples.

1. Smoking Causes Lung Cancer. Thus was tax cigarettes at an astronomical rate to get people not to smoke. Today that me be $7.00-$10.00 per pack! But people have an alternative. They can give up smoking even if it is a trying experience. They are not deprived of anything by not smoking.

2. Carbs make you fat and fat leads to Type 2 Diabetes.: Thus we would tax carbs. The $0.05 tax per 12 oz can of soda is an example. We could tax all empty carbs, we could tax high fructose corn syrup, if that made sense, and people would not have a major life change. In fact they may get a little nervous from a lack of a sugar rush but that is all.

Now consider a Mankiw type charge.

3. Driving causes congestion. Apparently Mankiw dislikes traffic. Then again he is in Cambridge and I am in New York, most of the time, so he wants to tax people at say $1.00 per gallon in addition to what is there to get them to stop driving. There is a negative effect. People need to drive, they do so to go to work. There are real people who do not work at Harvard who have to drive say to Lynn, or Lowell, or some other place where they cannot get public transportation. There is thus a burden on these people because unlike the sugar or tobacco case they have money taken from them and given to the Government and they then lower their standard of living. This is true Professor Mankiw, I see this in West Virginia, Kentucky, and many other states. Perhaps not in Massachusetts.

4. Carbon Dioxide is Bad and Cap and Trade Reduces it: Well let's go along with the CO2 issue for a moment. Yet as a commercial horticulturalist I could do with warmer weather, I lost a good percent of my seedlings to an overly cold winter, but I digress. Facts are so annoying. Makiw supports the plan proposed by Congressman Ingliss. Simply Ingliss proposes the same Cap and Trade as does the Administration but he says that the Government should give the money back to the taxpayer. Has he gone out of his mind. Has the Government ever given anything back. Just look at Social Security, we pay and they take. Then they complain they cannot meet their obligations. At least the current Administration is not a dreamer. They just want to tax and take away for what they believe is in their best interests.

Consider a simple Cap and Trade calculation.

1. In electrical power today there are 2.4 BmTn of CO2 emitted from electrical power generation.

2. Ingliss proposes a $10 to $100 tax per mTn. This is a tax of $24 B to $240 B.

3. There are 300M people and 80M HH in the US

4. This is a tax of $300 to $3,000 per HH per year.

5. There are current 35M people over 65 collecting Social Security with about 1.5 people per HH. This means that there are 24 M HH of those over 65. They collect $12,000 per person per year.

Thus we will tax the old at a rate of 25% of their gross income! What a great idea Congressman and you too Professor. This will soon take care of the Medicare problem, they will all just freeze to death. I have not included auto taxes on top of this.

Thus the Pigou Club has a strange idea. If there is some bad unintended consequence, a negative externality to be correct in the jargon of the economist, then we tax the user no matter if the result is another unintended consequence to them, such as their death! Only economists can create such a logic!

Intelligent Design: The Economy by Obama

In today's NY Times an article by Richard Stevenson states:

"In a series of comments in recent weeks, Mr. Obama has begun to sketch a vision of where he would like to drive the economy once this crisis is past. His goals include diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy."

This is the most concise and well stated way of defining the Obama economic policy. It is quintessential Galbraith! The Affluent Society and the New Industrial State. Let us look at the goals again:

1. Reduce Consumerism: This is accomplished by the raising of taxes and the imposition of considerable Government controls.

2. Increase Savings: Good thing we will not have any inflation. That's a joke. Why save if your money will become worthless.

3. Redistribute Wealth. The world is NOT composed of just greedy bankers. Some people actually create things. Why not just tax the heck out of the Hollywood types and athletes. They contribute nothing to society. At least a banker delivers money to entrepreneurs who create the value which makes a society function.

4. Create a more Activist Government: That means that the people who work for the Government know more than all those who take the risks to create new value in an economy. Regulation is needed in many areas but the taking of regulation to the point of managing an economy has been proven to be unworkable. Evan in countries where the best and brightest go into Government it does not work. In the US the opposite is true. Why would a bright and creative engineer go into Government instead of starting their own company.

This one paragraph is a brilliant statement of what will go wrong. Intelligent Design assumes intelligence, and an intelligence which is based upon a modicum of knowledge of the economy. None of these designers have ever generated dollar one in salaries for people by creating jobs. Why trust them with our future?

Friday, April 17, 2009

Two Interesting Charts: The FED May be Working


















First look at M2. As of a week ago it is still coming down. In view of the fact that we do not have the GDP numbers we cannot judge the imputed inflation rate but that should be available soon. This seems to indicate that the Feds actions are working and there is a drop in the potential for inflation.

Now look at the following. This is our target portfolio. It is the first time during the current Administration that we are positive. The swing seems to be consistently on the positive side.



















We are still concerned about commercial real estate and the problems of high yield bonds for the less than stable companies we have analyzed previously.

However, the set of indicators seems to say that we may be getting out of the mess thanks to the Fed.

Reading between the Genes: The NY Times Again

There were several articles in this weeks NEJM regarding the attempts to determine the genes that cause various diseases. Since I have been writing about the use of genetic techniques to reduce health care costs and change health care delivery, I thought that a brief note on this issue was worth the while. For the five documents, the 3 NEJM commentaries, the NEJM paper and the NY Times article show what I believe is an example of people talking past each other.

I have been arguing that genetic use for disease susceptibility or screening, staging, treatment and then prevention was to be a major prat of health care change in the next two decades. The Times states "Genes Show Limited Value in Predicting Disease". However the process that the Times is reporting on is the wide band assessment of genes and their propensity to predict a future disease state. Simply the results state that there are oftentimes dozens of genes, SNPs to be precise, which each may have a relative risk of 1.05 towards having the disease at some future time. The many SNPs may add in terms of increasing risk but how exactly they do it is yet known. Thus if say there were 20 genes which gave a propensity to a certain disease and the greatest relative risk was 1.05 and the others reduced that relative risk down to say 1.005, then if one had all 20 the cumulative relative risk is unknown, but greater than 1.05. Following this?

Well what does it mean? It means that many companies like 23 and Me may be selling somewhat useless and in some cases somewhat concerning tests since the results are hardly predictive. The Times kind of says that, but not really. However there are real genetic testing companies like Correlagen.

Correlagen tests for genes which are known to present a clear and present danger from a set of genetically based disorders and for which disorders one can take remedial action. This is meaningful. This is also totally ignored in the papers which appear to address the broad spectrum of all possible cases.

Secondly, it says that we yet fully understand the process. We understand many cancers much better. The now classic Bert Vogelstein model of colon cancer shows how multiple hits on cells in the colon result in cancer. We can use that information in a clinical staging analysis. We cannot screen with that since there is nothing there until the hit occurs. We cannot predict who will get hit by an auto before they are hit.

The multiple SNP model in the paper by Goldstein is of concern however. It addresses the Type 2 Diabetes issue. Again as we have argued from evidence that more than 95% of Type 2 Diabetes is caused by obesity and that when the weight is reduce to below a 22.5 BMI the blood sugar returns to normal and the HbA1c also returns to the 4.5 to 5.5 range. Namely evidence of Type 2 Diabetes goes away. Thus is there a set of genes that correlate with Type 2, and are these genes ones which are more related to eating than to the disease. The studies performed thus far are ambiguous at best.

Thus the Goldstein assertion is questionable. His assertion regarding height may be of merit but we at this point know little of height yet we do know that as childhood and maternal nutrition are improved height increases generation to generation. Is there a similar correlation between nutrition and genes and not between genes and height directly. These are the problems that the geneticists face and oftentimes failed to include.

The paper by Hirschorn is of interest since it does present the issue of pathways. Namely as we have shown in other species, it is the complex interaction of genes, activator and repressor genes, and their control of secondary metabolic pathways that results in may of the effects which we see. No single gene is the sine qua non. It is the network of genes and the secondary pathways that causes what we often see as a disease.

Thus in many ways the Times sensationalizes the story while missing the point. The point is that the problem is more complex than what the researchers had originally set out to resolve. Well that is the nature of research. The answers are most likely hidden in the complex genetic networks that are currently under analysis. Single genes are not the answer. Complex networks are. By stating as the Times does that Genes Show Limited Value is outright wrong. What is shown is that what has been done to date needs to be expanded not abandoned. This is the second time in a month that the Times having reported on the health care area has grossly mis-stated the implications. One wonders how one can rely upon such reporting for assessing other issues.

Tuesday, April 14, 2009

Rawls and Health Care

Fifteen years ago I wrote a paper on universal service in telephony. I compared the Rawslian system with the Utilitarian school and the Benthamites. In the paper I was commenting on the Baumol-Willig theorem, a tautoligical proposition crafted by a few economists at the beckon call of AT&T to justify the incumbents control over the network. I stated:

" The Baumol Willig theorem states that we want to maximize the welfare of the populace while keeping the profits of the monopolies high. This is a classical example of an ad hoc propiter hoc theorem. Clearly the result is that we tax the people and subsidize the monopoly.

The other issue is how do we measure welfare.

If we are a Rawlsian then we measure welfare as the welfare of the least of us and not the average welfare. Rawls states that if we maximize average welfare then we disadvantage the least of us and this is not just.

Thus as a Rawlsian we demand Universal Service. We must insist that all people have access to all service elements, whether it makes economic senses or not, we do so via wealth transfer. Hopefully, this political theory should now not seem too foreign. Ralwsians favor the implementation of access fees and the implementation of Universal Service. Indeed, the true Rawlsian would impute Universal Service to even computer terminals as has been stated by Vice President Gore.

In contrast is the classic liberal, now called libertarian view. It is more a combination of minimal government involvement and maximizing utility to the consumer. This is the philosophy of the utilitarian. Here we assume that government has a de minimis role and that the market follows of its own accord and that the market, in an Adam Smith fashion, will clear any inefficiencies of distribution and pricing mechanisms.

It assumes that each business should stand on its own stead and that utility is maximized on average. The result from the libertarian school, as opposed to the contractarians or Rawlsians, is the elimination of access fees and the elimination of universal Service."

I then went and described the Rawlsian approach, one which I thought would never raise its head again. I stated:

"Rawls has proposed a theory of justice that is a statement of what many proponents of antitrust theory ion the mid-fifties and sixties promulgated. The essence of Rawls’ theory has three elements;

Original Proposition: There exists a means and method for a society to establish a Contract amongst and between themselves. This Contract thus created in this society of the just is one that maximizes the return on every transaction to the least of the individuals in the society.This approach to contractarianism is one related to individuals in a non-bargaining environment establishing between and amongst themselves a “contract” to govern their society.

There are two elements contained herein.

The first is the essence of a contract, and in fact a form of social contract between the members of society and amongst them as a whole.

The second element is that of a view towards man as a constrained and unconstrained view of
human nature.

The unconstrained view states that man, individually and in concert, has the capabilities of feeling other people’s needs as more important than his own, and therefore we all act impartially, even when the individuals own interest are at stake.

The constrained view is to make the best of the possibilities which exist within the constraint.

For example, the constrained view of universal service is one which would state that if it costs a certain amount to provide the service, an there is a portion of the society not able to purchase the service, then there is no overriding need to provide it if such a provision is uneconomical and places a significant burden on the other member of society.

The unconstrained view, as a form of socialism, states that if there is the least of us in want for whatever the telecommunications revolution has in store, then they should have access to it at whatever cost. One can see that the current trend in Universal Service is such an unconstrained view, especially as viewed by the current Vice President in his actions over the past four years.


Rawls approach to this contract is one wherein the individuals in the society collect themselves as individuals, and agree to a plan for the operations of that society.


First Principle of Justice: each person shall have equal rights and access to the greatest set of equal fundamental personal liberties.

Second Principle of Justice: social and economic inequalities are to be arranged so that they both, (i) provide the greatest benefit to the least advantaged., and (ii) attached to positions available to each individual under conditions of fair equality of opportunity."

Thus to my surprise I read in this weeks JAMA an article entitled, The Ethical Foundation of American Medicine, In Search of Social Justice. In their view the Rawslian approach is key to the way in which health care should be provided. They state:

"Rawls’ theory of justice, often referred to as social justice, has gained prominence since the 1970s as a dominant theory of justice. This theory has 2 major principles. The first, that “people should have maximal liberty compatible with the same degree of liberty for everyone,” defines limits of individual liberty by focusing on the liberty of others. The second, that “deliberate inequalities [a]re unjust unless they work to the advantage of the least well off,” focuses on social consequence and responsibility for actions.

Considering the body of research and news reports that describe inequalities in US health care access and quality,10 and the fact that these inequalities do not work to the advantage of the least fortunate, it is clear that the US health system does not meet these criteria for being just. It seems that the structure of incentives in the current health system stimulates behavior that marginalizes considerations of social justice, leaving it seldom emphasized, relative to the other 3 core principles of medical ethics."

Unlike other theories of society, the Rawlsians argue that there exists a social contract with all so that all should receive what the least receive and no more. Thus if I have the financial resources to seek medical care for the prevention of colon cancer by annual colonoscopies and the law permits payment only for five year colonoscopies, the Rawlsian would either deny me my annual choice or make it annual for all, and then have all people pay the added costs. The Rawlsians establish "rights" extra those Constitutionally and legally established and then take the position that if the least of a society do not have them fully then none shall have them. It states that those who have been successful should not in any way use that wealth to disenfranchise those who do not.

The Rawlsian school also removes burdens from people. If you happen to be one of the 30% who are morbidly obese in the US and most likely suffering from Type 2 Diabetes, so be it, it is not your fault, despite the fact that you consume well in excess of 2000 cal per day, you must be dealt with as a faultless and blameless victim. Those who struggle to maintain health must therefore pay for the victems who out of total abject neglect do not.

The article in JAMA continues:

"For example, physicians attempt to maximize income while caring for the needs of their individual patients, but this means that some physicians choose to accept fewer, if any, Medicare and Medicaid recipients, as well as self-pay patients. Some physicians argue that to keep their practice financially viable, they have to see fewer patients for whom they are inadequately reimbursed.

Yet for each of the physicians who decide they can no longer care for these patients, the responsibility of care falls to another clinician. This increases the burden on those other clinicians and exacerbates the income disparities among them. In circular fashion, this increases the focus on revenue and reimbursement, rather than on social justice.


A second factor that may contribute to the imbalance of medical ethics in practice involves the cost of education and level of student debt....

A third important factor is the US culture of “individualism.” While general western philosophy has shaped US culture, the unique history of the United States has created a special emphasis on individualism, entrepreneurial capitalism, and personal responsibility. Specifically regarding health care, many other western nations have some form of universal coverage supported by their government and treat health care as a public good. In the United States, health care only intermittently has been treated as a public good and an intense debate regarding the promotion of government health programs vs the philosophy of individual responsibility and allowing market forces to work is ongoing."

The authors recognize the unique character of the United States and then as classic Rawlsians they reject it in a backhanded manner. The US has not only created the special emphasis on individualism, entrepreneurial capitalism, and personal responsibility but has built its culture, society and success on those pillars. They are at the core of our society and they are what make us what we are, they are the success of the United States. The authors as true Rawlsians, are vehemently opposed to those core principles. That should be a terrifying thought.

Monday, April 13, 2009

Yale Discovers the Sugar Tax

In a NEJM paper this week, the authors from Yale present a proposal for taxing sugar in sweetened sodas. We have proposed a much broader tax on carbs since it is the candies and sugared snacks which add to the load. One must remember that 3500 calories (Kcal) equal one pound. A typical adult burns at most 2000 per day so that if one consumers three 180 cal cans of 12 oz of soda, that is 540 cal per day or if this is in excess of the 2000, which it is, this is 56 pounds of weight gain per year! Which by the way is seen in many obese adults and even children.

The old law of mass, namely input less output equals net accumulation applies. Thus taxing the consumption of all carbs is much better than just sodas.

Yet the authors have a wonderful quote from Adam Smith:

"Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation."

Adam Smith, The Wealth of Nations, 1776

Saturday, April 11, 2009

Hofstadter, Obama and George Will

We have written about the Galbraithian approach of the current Administration. That influence is one of power and the use of the technique of one side playing off against the other with the Administration above the fray, albeit benefiting from it.

On the other side there is a world view perspective which we believe flows from the Columbia University bloodstream of which Obama took part of as an undergraduate, It is the heritage of the Hofstadter view of the world.

A year ago George Will wrote an article in the Washington Post entitled "Candidate on a High Horse". In that article he states:

"The iconic public intellectual of liberal condescension was Columbia University historian Richard Hofstadter, who died in 1970 but whose spirit still permeated that school when Obama matriculated there in 1981. Hofstadter pioneered the rhetorical tactic that Obama has revived with his diagnosis of working-class Democrats as victims -- the indispensable category in liberal theory. The tactic is to dismiss rather than refute those with whom you disagree.

Obama's dismissal is: Americans, especially working-class conservatives, are unable, because of their false consciousness, to deconstruct their social context and embrace the liberal program. Today that program is to elect Obama, thereby making his wife at long last proud of America.



Hofstadter dismissed conservatives as victims of character flaws and psychological disorders -- a "paranoid style" of politics rooted in "status anxiety," etc. Conservatism rose on a tide of votes cast by people irritated by the liberalism of condescension."

To best understand the Columbia culture one need go no further than looking at Richard Hofstadter, the late Professor of History, a person who had significant influence of the cultural underpinnings of Columbia University in the 1950s and 1960s. Hofstadter was also a self proclaimed intellectual. To him and the clique he was associated with, the intellectuals were a chosen group who circled around academe, and Columbia was considered a major focal point at the time, and they saw what truth was and from them truth would be disseminated. Their intellectual work was considered by them and their followers to be without peer.

Hofstadter wrote several books, amongst them The Age of Reform and American Political Tradition. His writings were not of the type which included any original research but were more targeted at a broader non‐academic audience. Though not a general press type writer, he did achieve success in his wider audience of liberal devotees.

In an article in The Nation; America, Through a Glass Darkly, by Jon Wiener in the October 23, 2006 issue, Wiener while reviewing the Brown biography of Hofstadter states:

"The American Political Tradition, published in 1948 and widely regarded as Hofstadter's best book, is still selling briskly almost sixty years later: Recently it had an Amazon ranking of 4,400, which would be envied by most historians with books on the market today. (Brown's, for example, was at 22,000 on the same day.) Knopf's 1948 publicity marketed the book as a work of consensus history: "In this age of political extremism, this young and brilliant Columbia historian searches out the common ground among all American parties and factions." In fact the book was more subtle, and much more interesting, than that.

Hofstadter wrote the book from a vantage point on the left. While others, like Daniel Boorstin, celebrated consensus, Hofstadter was openly critical. It opens with a description of an "increasingly passive and spectatorial" state of mind in postwar America, a country dominated by "corporate monopoly," its citizens "bereft of a coherent and plausible body of belief" and adrift in a "rudderless and demoralized state." "

This shows that Hofstadter is still held in high esteem by the left, since this was so well received in The Nation.

But let us look at Hofstadter a bit more closely. Hofstadter makes the following comments in 1963, the year Kennedy was killed in office:

“In these pages I have been mainly concerned with the relationship between Protestant evangelicism and American anti‐intellectualism, simply because America has been a Protestant country, molded by Protestant institutions. It would be a mistake, however, to fail to note the distinctive ethos of American Catholicism, which has contributed in a forceful and decisive way to our anti‐intellectualism. Catholicism in this country over the past two or three generations has waxed strong in numbers, in political power, and in acceptance. At the middle the nineteenth century it was, though a minority faith, the largest single church in the country and was steadily gaining ground despite anti‐Catholic sentiment.

Today the Church claims almost a fourth of the population, and has achieved an acceptance which would have seemed surprising even thirty years ago. One might have expected Catholicism to add a distinctive leaven to the intellectual dialogue in America, bringing as it did a different sense of the past and of the world, a different awareness of the human condition and of the imperatives of institutions.

In fact, it has done nothing of the kind, for it has failed to develop an intellectual tradition in America or to produce its own class of intellectuals capable either of exercising authority among Catholics or of mediating between the Catholic mind and the secular or Protestant mind. Instead, American Catholicism has devoted itself alternately to denouncing the aspects of American life it could not approve and imitating more acceptable aspects in order to surmount its minority complex and "Americanize" itself. ..

In consequence, the American Church, which contains more communicants than that of any country except Brazil and Italy, and is the richest and perhaps the best, organized of the national divisions of the Church, lacks an intellectual culture. "In no Western society," .Q. W. Brogan has remarked, "is the intellectual prestige of Catholicism lower than in the country where, in such respects as wealth, numbers, and strength of organization, it is so powerful." In the last two decades, which have seen a notable growth of the Catholic middle class and the cultivated Catholic public, Catholic leaders have become aware of this failure; a few years ago, Monsignor John Tracy Ellis's penetrating brief survey of American Catholic intellectual impoverishment had an overwhelmingly favorable reception in the Catholic press. .."

Hofstadter keeps seeing the Church and its members as one and the same. Although he states that the growth of a Catholic middle class has presented a challenge to the Catholic Church, he lumps the Catholic middle class in with the Church hierarchy as dolts. One must also remember that this is also the Period of Vatican II with dramatic openings in the Catholic Church, for better or worse. Hofstadter then continues:

"Two formative circumstances in the development 'Of early American Catholicism made for indifference to intellectual life. First in importance was the fiercely prejudiced Know‐Nothing psychology against which it had to make its way in the nineteenth century. Regarded as a foreign body that ought to be expelled from the national organism, and as the agent of an alien power, the Church had to fight to establish its Americanism. Catholic laymen who took pride in their religious identity responded to the American milieu with militant self‐assertion whether they could and Church spokesmen seemed to feel that it was not scholarship but vigorous polemicism which was needed….

The Church thus took on a militant stance that ill accorded with reflection; and in our time, when the initial prejudice against it has been largely surmounted, its members persist in what Monsignor Ellis calls a "self‐imposed ghetto mentality."

A second determining factor was that for a long time the limited resources of the American Church were preempted by the exigent task of creating the institutions necessary to absorb a vast influx of immigrants‐almost ten million between 1820 and 1920‐and to provide them with the rudiments of religious instruction. So much was taken up by this pressing practical need that little was left over for the higher culture, in so far as there were members of the Church who were concerned with Catholic culture, exceptionally unproductive in all areas of scholarship, achieve their best record in the sciences."

At the time of this book by Hofstadter, Catholics were educated in secondary and College levels at Catholic institutions, but there was also a clear breakout into the secular world. Even in New York, CCNY became equally populated with Catholics and Jews, not all Catholics went to Fordham or St. Johns, many, like the Jewish immigrants, could only afford a CCNY education. The Catholic Church frankly performed a great social function in New York by setting up schools, hospitals, and orphanages. The City could not handle the social issues presented by the influx of immigrants.

By having these institutions, the new working class could productively contribute without costing the tax payers the added amount that would have been necessary for health and education. The Catholic institutions also taught an ethic that reduced crime, it made what the Italian and Irish gangs did sinful and used its social pressure in a manner which we see little of in many of today's churches."

Hofstadter then continues:

"As one might have expected, the way of the Catholic intellectual in this country has been doubly hard. He has had to justify himself not only as a Catholic to the Protestant and secular intellectual community but also as an intellectual to fellow Catholics, for whom his vocation is even more questionable than it is to the American community at large. Catholic scholars and writers tend to be recognized belatedly by their.....co‐religionists, when they are recognized at all.

All of this concerns, of course, not so much the anti‐intellectualism of American Catholicism as its cultural impoverishment, its non‐intellectualism. But it will serve as background for a more central point: a great many Catholics have been as responsive as Protestant fundamentalists to that it is against modernity of which I have spoken, and they have done perhaps more than their share in developing the one‐hundred per cent mentality. In no small measure this has been true because their intellectual spokesmen‐who are now growing in numbers and influence‐have not yet, gained enough authority in the Catholic community to hold in check the most retrograde aspects of that revolt, including its general suspicion of mind and its hostility to intellectuals. "

American Catholicism for Hofstadter became a pervasive genetic disorder seemingly to infect any person who professes to be Catholic and moreover any person in any way related to the Catholic Church, such as a Catholic High School Graduate. Hofstadter states that the Catholic holds a hostility to the intellectual, namely Hofstadter and his ilk.

The hostility is that the Catholic thinker may disagree with them, and this disagreement to Hofstadter is prima facie evidence of dollardism. Hofstadter, and the Columbia clique, somehow view that they are prophetic and without fault or error in their intellectualism, that they solely have seen truth, and that it is their word ex‐cathedra from Morningside Heights which contains the truth and the light. The arrogance of these men, and they were all men at the time, is appalling. It fundamentally rejects any other thought process.

"A great deal of the energy of the priesthood in our time has been directed toward censorship, divorce, birth control, and other issues which have brought the Church into conflict with the secular and the Protestant mind time and again; some of it has also gone into ultra‐conservative political movements, which are implacable enemies of the intellectual community.

Catholic intellectuals on the whole have opposed the extreme and (from the point of view of the faith) gratuitous aspects of this enmity, but they have been unable to restrain it. Indeed, one of the most striking developments of our time has been the emergence of a kind of union, or at least a capacity for cooperation, between Protestant and Catholic fundamentalists, who share a common puritanism and a common mindless militancy ....."

He then goes on:

"For evidence that Catholic clergy and laymen alike are unusually hostile to freedom of thought and criticism, even on subjects remote from dogma see Gerhardt Lenski: The Religious Factor (New York, 1960)."

This is a broadly damning statement. Hostile to freedom of thought and criticism, even on subjects remote from dogma. Catholics at that time were becoming lawyers, scientists, mathematicians, engineers, physicians, and they were certainly not hostile to criticism in these fields. Perhaps they took positions orthogonal to Hofstadter's but that it acceptable in and discourse amongst thinkers. Yet disagreement with an intellectual is anathema.
In Hofstadter's Age of Reform he further states:

"At the so‐called grass roots of American politics there is a wide and pervasive tendency to believe ‐ I hasten to add that the majority of Americans do not habitually succumb to this tendency ‐ that there is some great but essentially very simple struggle going on, at the heart of which there lies some single conspiratorial force, whether it be the force represented by the "gold bugs", the Catholic Church, big business, corrupt politicians, the liquor interests and the saloons, or the Communist Party…"

In The New York Times review of the biography of Hofstadter by Sam Tanenhaus states:

"These were Hofstadter’s subjects in his most productive years, the 1950’s and 60’s, when he nested among a nucleus of thinkers at Columbia that included the social theorists Daniel Bell, Seymour Martin Lipset and Robert K. Merton and the literary critic Lionel Trilling. Together they formed a loose federation of like minds and temperaments. All were secular Jews (or in Hofstadter’s case, half Jewish). Many had weathered chastening experiences on the left. Most were influenced by European social science, in particular by psychoanalysis and depth psychology, which offered more fruitful diagnostic methods than the tired formulas of Marxism and the class struggle.

The Columbia group did much to create the vocabulary of mid-century liberal thought in America as it sought to move beyond ideology and toward a kind of broad public doctrine or “orthodoxy,” as Brown puts it.

"In Hofstadter’s case this meant exploring in a systematic way “the sociological penumbra of political life” — the murky substratum of desires and impulses that underlay the surface pageantry of American politics. He was much impressed by “The Authoritarian Personality” (1950), a survey of contemporary American political attitudes compiled by a team of researchers under the direction of the German √©migr√© Theodore Adorno. Hofstadter adapted Adorno’s “social‐psychological categories” in his essay “The Pseudo‐Conservative Revolt,” an attempt to uncover the hidden sources of McCarthyism. "

Tanenhaus continues:

"In the boom years of the 1920’s, for instance, millions of small‐town and rural “native stock” Americans, alarmed by the ascendancy of the country’s pluralistic urban culture, had embraced the organized bigotry of the Ku Klux Klan and flocked to the punitive crusades of anti‐evolutionism and Prohibition.

The pattern was being repeated in the 1950’s, also a boom period, only now it was a curious alliance of upwardly mobile white ethnics (many of them Catholics) and downwardly sinking displaced WASPs, who looked to secure their status as authentic Americans by converging upon “liberals, critics and nonconformists of various sorts, as well as Communists and suspected Communists.…. And if, as Hofstadter maintained, political issues now reflected a wider cultural debate over “the capacity of various groups and occupations to command personal deference in society,” then the largely Jewish inhabitants of what Brown calls the “Claremont Avenue ghetto” were, for all their seeming detachment, as deeply embroiled in the struggle as Midwestern rubes or urban Catholics."

The characterization of Midwestern rubes and urban Catholics and their antithesis which he calls the Claremont Avenue Jews7 are somehow in a massive cultural struggle, with these bone headed rubes and Papists pitted against the small enclave of intellectuals who have singular knowledge of the truth.

The small group of left wing intellectuals, according to Hofstadter, has taken the place of blacks, evolutionists and anti‐prohibitionists, and the rubes and Papists are unjustly and in total ignorance attacking them as a result of their social status! The irony is that the Irish Catholics and Italian Catholics in New York at that time were still Police and Garbage Collectors and had just returned from the War.

Neither Hofstadter nor Bell had done the country the honor of such service and kept their comforts on the hill at Morningside Heights while the Irish Catholics, Italian Catholics and Protestant rubes from the mid West lost their lives defending their rights to call them dolts! Yet their attitude was and, in many ways, remains pervasive at Columbia.

In Hofstadter's writing, The Pseudo‐Conservative Revolt, in the book edited by Daniel Bell, The Radical Right in 1955, and updated in 1963, Hofstadter writes:

"Paradoxically the intense concerns of present day politics are shared by two types of persons who arrive at them, in a sense, from opposite directions. The first are found among types of old‐family Anglo Saxon Protestants and the second are found among many types of the immigrant families, most notably the Germans and the Irish, who are frequently Catholic."

He then goes on to describe the Irish Catholics as just slightly above Neanderthals and acting like sheep in their movement to what he has termed Pseudo‐Conservatives. What is amazing is that Kennedy had been in office for two years at this point and one would assume that Hofstadter were aligned with the Kennedy wing, if one reads what Brown writes in his biography. Yet the continually telling diatribes against Catholics are never ending.

In Brown's biography of Hofstadter (p. 122) he further reinforces the anti‐Catholic and moreover anti‐Irish Catholic views held by Hofstadter as well as Daniel Bell9. In fact Brown states:
"Much of Bell's scholarship during this period focused on the cultural origins of McCarthyism. Like Hofstadter, with whom he worked closely on The New American Right project. Bell observed in the defensive posture of isolationists, anti‐communist Irish and German Catholics, and other recent immigrants an eagerness to support a messianic approach to foreign policy as a show of loyalty."

Bell graduated from CCNY in 1939 and avoided all military service during World War II. He spent the time as a reporter for The New Leader magazine which was a front for the Socialist Party of America. The magazine was a hotbed of socialists and left leaning followers like Arthur Schlesinger. Bell completed his PhD at Columbia in 1960 and then went on to Harvard.

But it appears that Bell was just another of the many faculty including Hofstadter who looked at Irish Catholics as the enemy, as ignorant and superstitious religious zealots who had nothing to contribute to the Academy. The irony was, and still is, that there is no true in‐bred Irish in New York, New York is the ultimate melting pot, intermarriage between nationalities, religions, races, and whatever. Bell became putatively a Harvard and made a name for him with the publication of several books.

George Will continues in his piece regarding Obama, and in so doing brings the Hofstadter mindset into the current time10. He states:

"The emblematic book of the new liberalism was "The Affluent Society" by Harvard economist John Kenneth Galbraith. He argued that the power of advertising to manipulate the bovine public is so powerful that the law of supply and demand has been vitiated. Manufacturers can manufacture in the American herd whatever demand the manufacturers want to supply. Because the manipulable masses are easily given a "false consciousness" (another category, like religion as the "opiate" of the suffering masses, that liberalism appropriated from Marxism), four things follow:

First, the consent of the governed, when their behavior is governed by their false consciousnesses, is unimportant.

Second, the public requires the supervision of a progressive elite which, somehow emancipated from false consciousness, can engineer true consciousness.

Third, because consciousness is a reflection of social conditions, true consciousness is engineered by progressive social reforms.

Fourth, because people in the grip of false consciousness cannot be expected to demand or even consent to such reforms, those reforms usually must be imposed, for example, by judicial fiats."

The Will article was written a year ago. It holds more meaning now given the events of the past few months. To understand the current Administration, one must, as we have argued, understand Hofstadter and Galbraith and the culture of Columbia University from the 1950s. It was a culture that rejected the common mass at that time, the "uneducated Catholics", the blue collar masses, since the Columbia educated elite knew what was best.

Friday, April 10, 2009

Health Care Costs and the OECD

The OECD has recently released several statistics on health care costs in the US and Europe. We present some of them here and we look at some insights which may be gained from them.

First we present the Table which shows the health care costs as a percent of a nations GDP. This is below.


















In the above we not that the US is at 15%. Thus at a $14 trillion GDP we have a $2.5 trillion health care costs. The next simple question is, is this because our physicians are paid more or are there other dominant factors. To address that question they have also presented other data.

The following shows the costs of physicians, general practice including internists and specialists as a percent of the average wage in a country.


















Note that the US is second here and the Netherlands is first. Austria is third and it is close to Luxembourg and Canada. For general practitioners the salaries of the top 8 are almost the same as a percent! The Netherlands total costs are 2/3 s of the US whereas their physician costs are a 1/3 more for general physicians. This anomaly persists throughout the data.

The conclusion is that it is NOT the physician that is causing the problem in the US. We have argued that it may very well be the chronic diseases such as those due to obesity that are indeed the true cause. The OECD also recently released a study on obesity.

The first chart below is for obesity in men. Obesity is a BMI in excess of 30. The US clearly dominates in this area with an explosive growth rate. The US has an obesity rate in excess of 30%. The relationship between diabetes (type 2) and obesity is almost 1:1. This means that we can expect almost 30% of the males in fiver years to have Type 2 Diabetes and then its consequences.

Sweden and France are at 5%, one third the number. This alone may account for much of the difference. We argue in our other White Papers that this was indeed the case.

















Now the second chart is for obesity in women. The results are the same. In fact women are even more obese! The impact on women can be even more severe in that is causes increased infant mortality and increases in breast cancer as well as the plethora of all other Type 2 Diabetes disorders.

















Now we look at overweight which is a BMI between 25 and 30. For men we show it below from the OECD study. The overweight category is a precursor of the obese stage. Most overweight persons become obese in 10 year time span. The results for men are shown below. 70% of US males are overweight! That means we can anticipate truly explosive health care costs unless we remediate this immediately!

















Finally the last is for overweight in women. The rates are comparable.

















The result is clear. The major reason for health care cost difference in our opinion are solely related to obesity and the resulting Type 2 Diabetes effects. This is a preventable disease. It can be resolved by taxing.