Maybe Economists Talk That Way: Which is Why They Seem Always Wrong!

On the ABC Sunday talk show hosted by the former Clinton staff person had Paul Krugman of the NY Times as a guest and he states about the Brits and their alleged malicious and deliberate data manipulation as follows:

"PAUL KRUGMAN, NEW YORK TIMES: All those e-mails -- people have never seen what academic discussion looks like. There's not a single smoking gun in there. There's nothing in there. And the travesty is that people are not able to explain why the fact that 1998 was a very warm year doesn't actually mean that global warming has stopped. I mean, that's loose wording. Right? Everything is about -- we're really in the same situation as if there was one extremely warm day in April. And then people are saying, well, you see, May is cooler than April, there's no trend here. And that's what -- the travesty is how hard it has been to explain why that's bad reasoning."

I have seen academic discussions, I have participated in academic discussions, even with emails. At least at MIT, in the engineering department ,it is the facts and the logic that trumps all. You can present a theory but you better be able to back it up with facts. Macro economists have perpetually swung equations around with little prognostic effect. In fact I have seen better witch doctors. Just look at how they fight over competing theories none of which seem to work.

Even more so look at Harvard under the Summer reign, as described in today's Boston Globe. They state:

"Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members....

In the Summers years, from 2001 to 2006, nothing was on auto-pilot. He was the unquestioned commander, a dominating personality with the talent to move a balkanized institution like Harvard, but also a man unafflicted, former colleagues say, with self-doubt in matters of finance."

This is the same team which is guiding us through the calamity we are in now. If I ever tried to hire any one of these characters as a CFO in a start up, the Board would fire me on the spot. When your own money depends on the decisions you make, you find people with a proven track record.

Now back to the Brits in that school somewhere in the hinter lands of the British Isles, East Anglia. Well its not Oxford or Cambridge, so what could one expect? The emails boil with petty anger and incessant ranting of their intents to control the facts, hide and or destroy anything which contradicts their theory, and they work as if driven by some religious belief. And for this they want another 20% of our economy to dry up! What right do they have, what stupidity does the scientific community have to allow this to occur. Yet it is the same scientific community supported by Government contracts, the community whose research is supported if and only if they tow the line.

One should look towards Karl Popper and his theory of science and his principle of falsifiability. The discussion of Karl Popper on the Stanford Philosophy web site, a useful summary, states this theory as follows:

"These factors combined to make Popper take falsifiability as his criterion for demarcating science from non-science: if a theory is incompatible with possible empirical observations it is scientific; conversely, a theory which is compatible with all such observations, either because, as in the case of Marxism, it has been modified solely to accommodate such observations, or because, as in the case of psychoanalytic theories, it is consistent with all possible observations, is unscientific."

One can thus simply state that, based upon what we know of these characters at East Anglia, that they have just allegedly been falsified by the Popper approach and the theory should be thrown out the window with last night's bed pot and its contents! Yet we have the apologist Krugman, for reasons that go well beyond any human reason justifying their actions. One truly wonders why this is done, yet as a macro economist one would suspect that reason and reality were never truly in reach.

The Baseline Portfolio; One Year Later

The Baseline Portfolio we started a year ago, to the day, is shown below. It has amassed a 32% annual return on face value plus a 5.5% return from dividends. This is a total of about 37% up from December 1 of 2008. The only element still down is Verizon for reasons we cannot fathom. Yet this portfolio does memorialize the ups and downs of the year, especially just after the current Administration took over. More on that on the morrow.

Global Warming, Deer, and Japan

Daylilies, or Hemerocallis, are indigenous to China, Korea and Japan. In the recent article in the Mainichi Newspaper they state:

"Global warming brings deer and destruction to Oze National Park wetlands.

The Nikko Yellow Daylily, a perennial flower that grows all over the grassy wetlands here, turns the fields into a yellow carpet come July. Last year, however, there were almost no flowers to be seen, and it wasn't just the late spring frost that was to blame. It was deer, who came with big appetites to ravage the wildflowers...

Destruction caused by deer feeding was first observed in Okunikko in 1991, and since then the thousands of Shirane Violets that once bloomed on nearby Mt. Shirane have been almost wiped out. Meanwhile, bamboo grasses have also fallen prey to the deer, and are being replaced by plant varieties the animals are less partial to. An Utsunomiya University study found that, as vegetation types changed, the number of butterfly species in the area dropped from 69 in the 1980s to 26 in 1996. The Mt. Shirane deer also increased around the base of the mountain, and went searching for new feeding grounds...

Deer normally inhabit plains and grasslands, but starting in the Meiji period, overhunting and development drove the animals into the mountains. Restrictions on hunting, combined with logging transforming forest into grassland, gave the deer new feeding grounds. Furthermore, it is snowing less, the number of hunters is dropping, and wolves became extinct, allowing deer numbers to increase."

The last paragraph details the problem, deer, not global warming. I have been hybridizing daylilies for 25 years and have kept detailed environmental as well as breeding records. I ,unlike the Brits and their destroyed temperature data, have retained mine. The problem is man and the explosion of deer due to man's intervention with the natural predators. There are now three to five times the number of deer in New Jersey than there were at the time of the Revolution. They are like rodents, eating and destroying the flora at a voracious pace. Frankly they do more damage to flora than any other effect.

The reason is that they have no natural enemies, not even man. Worse they are protected by man. They are vectors for Lyme disease and other diseases. They eat local plants when small, and the result is that other forms of vegetation survive, forms which in turn drive out the local plants. The problem is not global warming but the failure to control deer.

In fact in the New York and New Jersey area we have seen lowered temperatures and greater precipitation in the last 25 years. Our latest annual report details all of these effects. Reading articles like this makes one wonder if the "researchers" have a clue what the speak of. I think of Popper and his theory of science and that to Popper if one can show the contrary, an exception, then that suffices to deny the theory. I believe that the data we develop for the past 25 years is prima facie evidence of the deniability axiom.

There is no clear data or evidence of any kind that "global warming" is driving the deer to eat the daylilies. In fact there is clear evidence that the deer have expanded due solely to their loss of predators. They have moved to the top of the food chain. In fact the deer destroy the flora and if one recognizes that the flora absorb CO2 then the deer are a proximate cause of the increase in CO2! Perhaps then the logical conclusion is that the deer are the cause of global warming and not the opposite as stated by the Japanese academics! In fact the deer are uniformly and globally destroying high CO2 consumption flora almost everywhere. One should remember sources and sinks of any substance, including CO2. If man is the primary source of CO2, which may be debatable now that the Brits are revealed for what the Brits have always been know for, then plants are the primary sinks. The primary source of destruction of plants I contend is not man, but deer, yes you heard me, deer.



















Let's just look at the facts. Global warming did not drive the deer to eat the daylilies. They like daylilies, it is deer candy! Anyone who has ever grown daylilies knows this. I have been chasing deer for decades. They jump 8' fences, they attack people, yes I have been attacked by a deer, a violent creature, evil, dangerous. The equation is simple. Deer eat daylilies, like 5 year olds with candy. Yet the more they eat the more deer they produce and the more they eat, and so forth. It is uncontrolled growth, uncontrolled deer growth! There are no predators. The old predator-prey equation is missing a term. The daylilies just increase deer herds! It is not Global warming! Then the deer eat everything else, native plants, endangered species, everything!

Thus the conclusion is also clear. Get rid of the deer. Enforce the second Amendment, get everyone out there this time of year and shoot a deer! Bambis are disease carrying CO2 increasing monsters! Oh well, at least I tried.

McLuhan, Google, and the Redefining of "Facts"

In 1992 I wrote a paper on the philosophy of Multimedia Communications. That was after a 12 year period of trying to make changes in the rapidly evolving area, both at Warner Cable and NYNEX, now Verizon, as well as having taught the topic at MIT for two years. At the time I wrote:

"Peter Drucker, in his biographical sketches of his contemporaries, remarks on his first encounter with McLuhan. It was during a presentation that McLuhan was making on the results of his do doctoral studies. His presentation reflected upon the impact that the printing press has had upon the university system in the late Middle Ages. He contended that the modern university came into being in the sixteenth century because of printing, which changed not only the method of instruction but, more importantly, what the university intended to teach. He further contended that the cultural results of this period had little to do with the Renaissance and was all a direct result of the printing press.

To quote Drucker, who paraphrased McLuhan;

"Did I hear you right," asked one of the professors in the audience, "that you think that printing influenced the courses that the university taught and the role of university all together." "No sir," said McLuhan, "it did not influence; printing determined both, indeed printing determined what henceforth was going to be considered knowledge."

Thus this led to McLuhan's famous phrase that the medium is the message. Specifically, as we developed a new medium for human communications, we dramatically altered the nature of the information that was transferred and the way in which the human perceived what was "truth" and what was not. The television generation of the 1960's was an clear example of the impact of television versus film in portraying the war in Vietnam as compared to the Second World War.

The perception of these two events was determined by the difference of the two media that displayed them to the pubic masses. Television allowed for a portrayal that molded more closely to the individual humans impact of the events as compared to films overview of the groups involvement's. Both media deal with the same senses but they are different enough to have determined two different outcomes of the wars. This conclusion is a McLuhanesque conclusion but is consistent with the changes that McLuhan was recounting in the 1960's in his publications."

Thus with Google and the like, the statement that the media will define what is truth, knowledge, fact, is more compelling than ever before. One just need read Auletta's recent commentary on Google to see two things. First the change predicted by McLuhan is happening again, and second, that Auletta does not see the historical context and misses the insight of McLuhan.

Cost Reductions: Facts and Fantasy

In a recent NEJM article a Rand group presented results from a recent study they performed regarding means and methods to reduce costs. The chart below is our rendering of those results from that article.



















As they speak about the need to reduce costs they state:

" To achieve this goal, spending on health care over the next decade would have to be reduced by 6.2% from the amount the Centers for Medicare and Medicaid Services estimates the country would otherwise spend. This proposed reduction provides a framework for evaluating the options now under consideration. We recently produced quantitative estimates of the likely impact of 12 policy options for reducing health care spending in Massachusetts, 2 and we have extrapolated from that work to produce estimates for the country as a whole. We identified 8 options that evidence suggests have the potential to reduce spending and are broadly applicable to the United States. For these options, we developed high and low estimates..."

We show these 8 options above. Note the following as we have discussed many times:

1. Bundling: This is another term for "cram down" on physicians. It is the bright spot in the legislation since everyone is hanging their hat on it. Simply a bundling is the taking of say a hospital and giving it the core responsibility for caring for a specific health care event, such as an MI. The hospital then chooses all the physicians and it may most likely choose those who bid the lowest price to belong to the bundle. It is akin to the Government using equipment supplied by the low price bidder, you often get what you pay for. Besides bundling breaks the relationship between a patient and their physician and also institutionalizes the hospital's way of doing things. It will result in a stagnation of medical care improvements. The hospital administration will cram lower costs down on the physicians it selects. If patients hated HMOs they will come to truly despise hospital administrations.

2. Rate Regulation: This is nothing more than cost control. You control costs then you reduce services then you ration. Simple. I really begin to like these Rand Geniuses, they come us with such a brilliant group of suggestions! Let us keep going.

3. HIT: Well Rand has been pushing this for years. Yes it ultimately has a use, and yes it will improve health care but as one learns in medical school, if all else fails listen to the patient. Osler was not wrong. I have been watching the younger physicians hiding at their terminals or now their iPhones, as if they were practicing medicine. Or the middle age docs typing like crazy, two fingers, just like me, and not looking at the patient, not once. HIT will evolve and it will arrive, but not in anytime frame for any cost savings. Sorry Rand, that's life.

3. NP-PA: This is just triage, we see it all the time in the emergency room. Yet there is the question of where to triage with whom. Triage with a nurse may be less cost effective than triaging with a physician. For example if we triage with a physician then the second step may be the correct one whereas if we triage with a nurse there may be many more intermediary steps and quality drops as well. This has been demonstrated anecdotal but should be studied. The issue is that Rand just assumes the answer is correct and just uses the lower costs.

4. Medical Homes: This may have some value as I have studied them. This is for the chronically ill person, Type II Diabetes and the like.

In summary, these are all wishful thinking with little if any facts to back them up, and with indeed many examples to demonstrate their clear lack of effectiveness. The problem is Rand feeds this stuff to the Administration and then Congress and somehow it is considered ex cathedra. Rand does provide a "warning" in the last paragraph but one would suspect that such a warning belies the strength of the picture. Congress just does not read, anything! Including health care bills. One should be very careful of "shingling a roof in the fog".

The Effectiveness of Screening for Cancer

Cancer is a complicated disease. This is an understatement. Yet there is at the gross level some simplicity. There are a few basic facts.

1. Cancer is generally clonal, one cell goes wild and keeps reproducing.

2. The reproduction rate is not quite doubling, some progeny do not survive, thus depending on the status of the tumor the growth rate is between 1 and 2 per generation. Sometimes it is less than 1 and it even regresses.

3. When there are 10E6 cells the tumor can be seen under CAT or MRI. When there are 10E9 cells it is palpable, when there are 10E12 the patient dies. Almost.

4. Cancer growth and evolution is a classic epigenetic systems process in cell growth and replication. The cell loses its ability to die, it just keeps growing and replicating itself with its functionality reduced to it replication and nothing else.

This is the simple story of cancer. We show a simple model for 4 cancers below.



















Note that in this model we assume rapid growth for ovarian cancer and slow growth for prostate. This may not always be the case. For example there are certain prostate cancers which grow very aggressively, the reasons are not yet known. We show the groth below in two scales.



















The above is on logarithmic scale and the one below is linear.



















This shows two factors. One is that certain cancers grow so quickly that one mus have to screen on a quarterly basis to have any effect. That is very costly. Second some cancers grow so slowly that screening will result in surgeries that are not necessary since the cancer will never grow large enough to kill the person. Thus between too fast and too slow are many others, and too fast may not be too fast and too slow may not be too slow. That is the conundrum.

In a recent JAMA article the authors state:

"Early detection may not be the solution for aggressive cancers because many may not be detected early enough for cure. Some small "curable" breast cancers, categorized as low risk by National Institutes of Health criteria, have a high mortality risk when analyzed using prognostic molecular profiles such as the NKI 70 gene test. Biologically aggressive cancers present with a higher stage despite screening. Interval cancers, those that present clinically between routine screens, have a higher growth fraction and are more likely to be lethal compared with screen detected cancers. In the neoadjuvant I-SPY (Investigation of Serial Studies to Predict Your Therapeutic Response With Imaging and Molecular Analysis) trial, in which the mean tumor size was 6 cm (accrual 2003-2006 in the United States), 91% had poor prognosis biology²⁷ (using the NKI 70 gene test), which is much higher than the 33% poor prognosis proportion in women undergoing routine screening.²¹ Of women undergoing routine screening in the I-SPY TRIAL, 85% of the malignancies were interval cancers and only 15% were screen detected, suggesting that locally advanced cancers reflect the growth curve.... Similarly, the most lethal prostate cancers are those with rapidly increasing...

Screening is most successful when premalignant lesions can be detected and eliminated as in the case of adenomatous polyp removal during colonoscopy screening or cervical intraepithelial neoplasia ablation by colposcopy after detection by pap smear. Perhaps most important is that screening for cervical and colon cancer and the removal of preneoplastic lesions have been accompanied by a significant decrease in their invasive cancer counterparts; this has not been seen in breast and prostate cancer. Ductal carcinoma in situ, rare prior to widespread screening, now represents 25% to 30% of all breast cancer diagnoses (>60 000 new case-diagnoses annually are not included in the invasive cancer statistics), the majority of these lesions are low and intermediate grade. Ductal carcinoma in situ is considered to be a precancerous lesion and standard of care is excision and adjuvant treatment. However, after 2 decades of detecting and treating DCIS, there is no convincing evidence of substantial reduction in invasive breast cancer incidence. The 2002 decrease in incidence leveled off in 2005 and is attributed to a reduction in postmenopausal hormone therapy use, not DCIS removal.^"

The authors then suggest actions which we have detailed earlier in our BOOK on Health Care. they rephrase them as follows:

Biomarkers to Differentiate Significant- and Minimal-Risk Cancers. To help move toward a more effective solution, the first step is a change in mindset in scientific discovery efforts and clinical practice

Reduce Treatment Burden for Minimal-Risk Disease. Many diagnosed tumors will follow an indolent course for the patient's lifetime⁴² or are probably cured with surgical excision alone.

Develop Tools to Support Informed Decisions. Information about risks of screening and biopsy should be shared with patients before screening. At the time of cancer detection, risks and benefits of treatment for specific biological subtypes should be shared

Focus on Prevention for the Highest-Risk Patients. Ultimately, prevention is preferable to screening by reducing the risk that a patient will have a diagnosis, experience undesirable effects of treatment, and confront the specter of recurrence. For both breast and prostate cancer, available agents are proven to reduce cancer risk: finasteride and tamoxifen or raloxifene.

Demonstration Projects: Tactics for the New Strategy. To reduce morbidity and mortality from breast cancer and prostate cancer and to execute the proposed strategy, a comprehensive approach, using large demonstration projects to create a learning system, integrating both clinical care and research is needed. By spanning the spectrum from screening to treatment and survivorship, learning from diagnosis, treatment, and outcomes can be applied to developing tailored strategies for screening and prevention."

The problem is a bit more complex, however. It requires screening first, then staging. Screening is a difficult one since what is known today about the genetics of cancer growth for the most part reflects what is activated in a rapidly growing cancer. There are certain genetic predisposing genes but the problem is what turns them on and when.

A Difficult Choice: Rationing or a Rational Decision

Cancer Research UK relates the tale of the refusal of the National Health System to pay for a cancer drug which has been shown to be effective against primary liver cancer and kidney cancer. The bottom line is the drug costs $4500 per month and extends life 4 months. That is $18000 for the life extension.

The article states:

"Firstly, this treatment is expensive. Although the drug’s manufacturer (Bayer) have offered the NHS a ‘buy three get one free’ deal, they are unable (or unwilling) to lower the drug’s price to a level that the NICE appraisal committee feels able to accept. Bayer’s efforts to lower the price to about £3,000 per month still do not bring it within NICE’s limits of what it regards as an acceptable use of taxpayers’ money. NICE have talked about the other treatments that the NHS could buy for its money. And, to an extent, they have a point...But as our chief clinician Professor Peter Johnson pointed out on BBC’s Today programme this morning, sorafenib works. Most patients with advanced liver cancer can’t be operated on – and surgery is the only treatment that can cure the disease. For people for whom surgery is not a suitable option, there are no alternative treatments – and average survival is about eight months as a result. Clinical studiesshown that sorafenib can extend people’s lives for an extra four months on average. And as part of the appraisal process, NICE heard from doctors who have experience of using this drug and who have seen in practice the benefit that it can give."

This is a difficult ethical choice. The Brits do their analysis with QALYs and this using their analysis just falls outside the bounds. Is 4 months of life worth $18000? Should we even ask that question? What if the patient or their family were to pay half, one quarter, three quarters? Is there any middle ground? We have discussed before the position of those in the current Administration based upon their own words, and those words imply that they would not pay, not a penny.

This is also akin to the current breast cancer debate. Frankly there is no simple answer here. Life has value, yet four months, with significant discomfort may or may not be valuable, to the person to whom it matters, the patient. This question posed here is worth discussing, and not creating a health care system which prohibits its discussion.

Happy Thanksgivings

Happy Thanksgivings to all, including my backyard friend above. It is always good to see such fearless an attitude.

Comparative Clinical Research and The Dark Side

The New England Journal has published a brief article bemoaning the CER, CCE, words in the Senate Bill. They state:

"Although most observers agree on the value of funding CER, many are unaware that embedded in the legislation are provisions ceding substantial influence to the medical products industries that have a major interest in the outcomes of such research. In the currently proposed legislation, there are two general constructs for the conduct of CER. The Senate Finance Committee bill mandates the creation of an entirely new private–public research entity and, owing to industry lobbying, guarantees industry three seats on this entity’s 15-member governing board, as well as representation on its methodology committee (the relevant portion of the bill, .... begins on page 1129).

This approach contrasts with that generally taken by science agencies in the United States, such as the National Institutes of Health (NIH) and the Agency for Healthcare Research and Quality (AHRQ), which have strict conflict-of-interest rules to ensure that science is free of inappropriate commercial influence. Unlike the Senate Finance Committee bill, the bill from the Senate HELP Committee and the versions developed in the House make the AHRQ responsible for CER, thereby recognizing and preserving the independence of the scientific process. The Finance Committee bill also includes language requested by industry lobbyists (pages 1138–1139) that threatens to withdraw federal funding for 5 years from any investigator who publishes a report on research funded by the proposed institute that is not “within the bounds of and entirely consistent with the evidence.” Determinations regarding such consistency would be made by the newly created research entity, which would have industry involvement both in its governance and in study design. To allow scientists — and their institutions, which receive the support for the conduct of research — to be punished for the publication of work that is not approved by this entity is essentially to cede authority over the dissemination of government-funded research to a body that is at least partially controlled by persons with a potential commercial interest in its outcome. This move would be a major retrograde step that would both inhibit the conduct of CER and call its integrity into question. In addition, because researchers and their institutions will seek to avoid such punishment, this provision is likely to result in prolonged arguments, taking place out of public view, regarding which data are acceptable to publish, thereby impeding and delaying publication. The American public, which would be paying for this research, deserves better."

We have been following this since HR 3200 and before. The CER/CCE will "kill" medicine as we know it. Only what the Government says is true will be allowed and those with differing views will be persecuted. I suspect that hidden in the IRS related text they will be driven to extremes. One should read this Bill very carefully, which does take time, but given what damage it will do to this country and its people it is worth the effort.

The IRS, Health Care, the Senate Bill, and a New Tax Code!

In counting the number of pages devoted to the Internal Revenue Code in the Senate Health Care Bill I have counted 105 pages, and have read most of them. This looks like a new tax bill, yes it does mention health care, but it seems in the 105 of 2074 pages total, that is 5% of the Bill, we have added dramatically to the IRS Code. This Bill may be a bane for physicians and patients but will be a boon for tax attorneys and accountants! Thanks Congress, you have done it again!

The FED, the Banks, and Recovery

In June of this year we wrote a White Paper on the FED Balance Sheet and the impact on Bank Excess Reserves. We are revisiting that discussion almost six months later. At the time we noted the enormous excess reserves and we noted further two things. The holding of them by the banks would retard any recovery, as we have seen in the continued unemployment stats, and that the excess money when released could cause significant inflation. The good news is no inflation and the bad news is slow recovery. We also noted that the uncertainty from the White House and Congress would result in a slow if not a negative response from small business which would further slow recovery if not result in a second dip.

We now look at the data again.

1. The FED's Balance Sheet continues to expand as shown below.



















In June we hoped for a slow drop but in fact we see it continues to rise.

2. The Reserve Balances still increase as the FED pumps money into the Banks. We show that below.



















In fact there has been a growing increase since August for reasons we cannot know at this stage. The data is just not there.

3. The FED holdings are shifting. The shift may be an indication of a change. We first show the distribution in June and now the one for November. These are shown below back to back.

For June we had:



















For November we have:



















We summarize these below for the past year:



















There is a clear growth in shorter term and a decline in the long term. The trend is noticeable in the mid term yields. However there is a decline in the very short term. This may be good for mid term low inflation.

3. The Monetary Base is still a concern. The ratio of M2 to the MB is still low and declining. Frankly we had hoped for some improvement here but it is not doing so. There is no significant loan action and the Banks Balance Sheets are still weak. We show this below:



















4. The Excess Ratio is still high but it seen as declining. We show this below.



















These bank reserves are still much too high yet the latest numbers show a healthy decline from the summer and in fact seem to be returning at least to last fall values. These should be watched carefully.

5. The ratio of cash to checkable deposits in M1 is still volatile and on average reduced. This may not be a serious problem yet. We show this below:



















The conclusion is that we are long way from a recovery. The money is still frozen and people are not spending. The uncertainty in business and the consumer driven from the chaotic actions of the Congress will most likely keep things this way through 2010. We are now looking at a 11.5% max unemployment number. We had estimated a 10.5% but the slowness in a monetary readjustment is a concern.

The Breast Cancer Debate: They Just Keep Digging a Deeper Hole

It is reported in the WSJ today that the Vice Chairman of the Federal Government Rationing Board, the AHRQ, has said:

"Diana Petitti, a professor in biomedical informatics at Arizona State University who is vice-chairwoman of the panel -- the U.S. Preventive Services Task Force -- said she felt its conclusions were misinterpreted. "The task force is not against women having mammograms in their 40s," Dr. Petitti said in an interview. Instead, she said, it is in favor of women in that age range deciding on their own, after consulting with their doctors, whether to undergo regular screenings."

Excuse me madam, but the patient always made the decision, they were never forced into anything, that process ended in May 1945 in Germany. Either these people never listen to what they say or worse they actually said what they think. The physician can make a suggestion, a recommendation, but the physician does not tell the patient what to do.

Let me review the facts:

1. True fact, more women will die if the recommendation is followed.

2. Yes, there are false positives. We all have gone through that process eventually in life. Better a false positive than a false negative. Does the patient suffer some traumatic result, yes for a while, is there the possibility of some damage, sometimes, and does it cost, yes, but what if the patient wants to pay themselves.

3. This is rationing pure and simple, it is the beginning of what we can expect from a Government controlled plan.

Another Modest Proposal

I just returned from the hospital after watching a few procedures and thought of a wonderful way to reduce health care costs and at the same time improve quality. I checked this out with the nursing staff, and yes indeed I did have to run fairly quickly in the opposite direction, it did strike a chord. Here it is, and I offer this great idea free of charge to all the Democrats.

Pay minimum wages to all health care workers, make it law, but then allow the patients to pay tips, yes that's correct, tips. If the patient is satisfied, well, they should show it. Tips are paid by patients and the minimum wage is what the Government pays to the staff, and yes even the hospital. So if a good doc saves your life, how about a $15,000 tip. Yes, you heard me, a good fat tip. The IRS would love this, NOT.

In addition, tips may be paid before and/or after a procedure. For example if you have a very nice care and you want to get out of the garage quickly, you may tip the parking attendant say $20 when you arrive, so that they remember you. It works, you will get great service. In New York, if you do that, then after some event, even if you arrive after 100 others, somehow your car comes up next! Great service. So consider tipping your surgeon beforehand, that way there is a clear economic incentive. Let the surgeon know that there is more where that came from. And the tips can be in cash, or even gold bars, so that it becomes inflation proof. A new market can be made for tip insurance, and perhaps CDSs for tips. This can jump start the economy, in a heartbeat!

So I also tried this out on the staff at the local restaurant near the hospital, they thought it was great, and they said that all those fat egotistic ner'e do well Wall Street Bankers, why they could give say a $20,000,000 tip, a mere 0.1% of their bonus this year alone! And the folks who can't cough up a tip, why the staff gets to know who those folks are, and the next colonoscopy, why they will remember the experience all too well.

So my readers, rush to your local Senator and Congressperson and tell them, shout it out, tips!, yes tips are the solution.

Thank God I don't practice.

The Senate Health Care Bill

The Senate Democrats have just posted the Health Care Bill. It is even longer than the House Version. It is not clear what it is called since it seems in this version to be called:

IN THE SENATE OF THE UNITED STATES—111th Cong., 1st Sess.

H. R. 3590

To amend the Internal Revenue Code of 1986 to modify the first-time homebuyers credit in the case of members of the Armed Forces and certain other Federal employees, and for other purposes.

Then it continues:

(a) SHORT TITLE.—This Act may be cited as the ‘‘Patient Protection and Affordable Care Act’’.

Hopefully this is just a page 1 error. Not a good sign. Or is this just a back door way to get this legislation passed with just 50 votes, it is an amendment to a House tax bill for the Armed Services funding of their housing needs. What a dirty pool bunch of folks! Enjoy it over the Thanksgiving holiday!

The Debt, the President, and China

The Financial Times Reports with a headline "Obama warns on US public debt pile" that in an interview with a FOX correspondent that the US may face a second recessionary slump resulting from the excessive debt. One is tempted to say "You can't make this stuff up!" It is not as if anyone has not been screaming about this for the past year. Yet one suspects that there may have been some lecturing in the wood shed by the Chinese as regards to the less than sterling economic policy rendered from the White House. The venue, namely FOX, the former outcast, and the statement, namely curtailing Government spending, is interesting to say the least.

The FT gives the following quote:

"“It is important though to recognise if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession,” said Mr Obama."

The issue simply is that the debt, and its ongoing growth, is a direct result of the current Administration. The FT further states:

"The timing of Mr Obama’s remarks, which came at the end of his trip to China, is likely to fuel speculation that his Chinese hosts delivered stern private warnings about the consequences of continuing high US budget deficits. China, the biggest foreign holder of US Treasury bonds, has become increasingly vocal in its fears on the value of its dollar assets."

This is akin to the CEO of some start-up meeting his investors who see his business running out of funds with nothing to show for it and having the "come to meet the Lord" meeting. The problem is that anyone experienced in the real world would and should have seen this much earlier. Hopefully the Bankers to the US, namely China, got the message across.

The Breast Cancer Debate and HR 3962 CCE

The recent report by the Agency for Healthcare Research and Quality modifying the recommendations for breast care screening has created a firestorm. I address the issue here from two perspectives. As a simple engineer at heart I look at the numbers in a quick back of the envelope manner and show that the increased deaths in this now uncovered group is substantial. Second I look at what this recommendation is really all about. Bottom line it is the beginning of the new health care regime under HR 3962 and its progeny. Namely reduction in care, increased mortality, and thus lower costs. One need merely think how many women would be removed from Medicare if proper care was removed at earlier ages.

In contrast the Dean of Harvard Medical School has stated that the current Bill will most likely make things worse.

To do a simple analysis one need spend no more than an hour getting data from NCI SEER and then doing a few calculations. We use that data and do them here.

1. First we look at the demographics of women in various age groups obtained from the census projections. These are shown below.



















This is our base. Our target will be the group removed by AHRQ. Namely the under 50 group of women. The number in that group from 2010 to 2050 is shown above.

2. Then we look at incidence data taken from SEER. We did this quickly so we have grouped data but that is reasonable for what we need to do. We show this below.



















The above is over time which shows a decline. We will neglect that decline in incidence on an ongoing basis which is not unreasonable for this analysis.

Thus we use the 2006 incidence as shown below.



















3. Now we ask what is the mortality rate and what had mammography done to reduce mortality. This we show in the following Figure.



















Namely for this group it has reduced mortality by 50%. Not a bad result. Namely we can state that in the early 1970s with no mammography and the treatment at that time the mortality was twice as high. We can also say that if we remove mammography we increase mortality by a factor of two in this group.

4. Thus what can we conclude. If we take the population data and use mortality rates with and without mammography we can plot the total mortality over the next forty years with and without mammography and the excess deaths as a result of this recommendation. We do so below.



















5. The conclusion is that many more women will die needlessly. Simple, 45 minutes on the computer, no brainer! So why would anyone want this to happen, since almost all of us have women in our families who have suffered through this. Dumb.

The AHRQ argument is that it leads to false positives and makes women uncomfortable. So does a high PSA for men, and so does a colonoscopy. Yet the benefits to survival and quality of life are tremendous.

My fear is that AHRQ is the camel's nose in the tent for Comparative Clinical Effectiveness and Government control over health care procedures. If every procedure becomes mandated then we need less physicians and we can have a nurse practitioner say "no" just as much as we can a physician. If we loved the HMO days I suspect we will just love CCE and Government controlled health care.

As Dr. Flier states in his aforementioned WSJ article:

"In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it. Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care's dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction."

What especially concerned me was seeing an interview with a Dr. Gregory, one of the AHRQ panel members, last night and her less than lucid and knowledgeable responses to objections to the conclusions. It was a terrifying interview, for people like that can dramatically change health care to the worse.

Baseline Portfolio Update

We have updated our portfolio which we introduced December 1 of last year. It is averaging a 40% annualized rate of return from that date. It was originally a $25,000 bundle of stocks in core businesses and it has gained almost $9,500 in gain and $1.500 in dividends. We are tracking this since it represents the bundle of typical stocks. If interested look at prior Baseline Portfolio listings.

An Imbalance in Telecom Services

There is a strange imbalance in local telephony. Consider the chart above. If a local common carrier provides local telephone service it must pay E 911, Universal Services and FCC Interconnect Fees. In reality the customer pays these as line items on their bill. Now the CATV company provide the identical services but has no obligation for these charges. Yet the CATV company sets up a separate common carrier shell to get bill-and-keep interconnection, namely no cost, with the local telco. Thus the CATV company will always be less if its costs are comparable. This puts the wireline common carrier at a disadvantage.

Now the FCC has ruled as follows:

"FCC 04-27 MEMORANDUM OPINION AND ORDER Adopted: February 12, 2004 Released: February 19, 2004

3. The Act defines “telecommunications” as “the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” “Telecommunications service” is defined as “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.” “Information service” is defined as “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service."

Thus both are really providing the same service. Yet why the difference. One of the rulings was the Pulver Free World Dialup, FWD, decision which states:

"22. We find that even if some form of an end-to-end analysis were deemed applicable to FWD, FWD would be considered an interstate information service in accordance with our “mixed use” doctrine. Where separating interstate traffic from intrastate traffic is impossible or impractical, the Commission has declared such traffic to be interstate in nature. Based on the record in this proceeding, it is evident that it is impossible or impractical to attempt to separate FWD into interstate and intrastate components. This “impossibility” results from the global portability feature of an FWD member’s unique identification number, enabling that member to initiate and receive on-line communications from anywhere in the world where it can access the Internet via a broadband connection. Moreover, FWD’s technology does not enable Pulver to determine the actual physical location of an underlying IP address. Finally, it is evident that more than a de minimus amount of FWD’s offering is interstate. Therefore, we would analogize the FWD offering to those previously deemed exclusively interstate by the Commission where it has applied its “mixed use” rule."

Thus the FWD decision allowed the door to open for the VOIP types of services. Convlved reasoning, yes, but it is the FCC.

Now the next decision was the Vonage Decision. It consists as follows:

"FCC 06-94 REPORT AND ORDER AND NOTICE OF PROPOSED RULEMAKING; Adopted: June 21, 2006 Released: June 27, 2006

14. On November 9, 2004, the Commission adopted the Vonage Order, in which it preempted an order of the Minnesota Public Utilities Commission (Minnesota Commission) that applied Minnesota’s traditional “telephone company” regulations to Vonage’s DigitalVoice service – an interconnected VoIP service under the definition subsequently adopted by the Commission. Without classifying Vonage’s service as either an “information service” or a “telecommunications service” under the Act, the Commission held that DigitalVoice cannot be separated into interstate and intrastate communications for compliance with Minnesota’s requirements without negating valid federal policies and rules. The Vonage Order made “clear that this Commission, not the state commissions, has the responsibility and obligation to decide whether certain regulations apply to DigitalVoice and other IP-enabled services having the same capabilities.” The Commission further indicated that it intended to “resolve important regulatory matters with respect to IP-enabled services generally, including services such as DigitalVoice, concerning issues such as the Universal Service Fund” in the IP-Enabled Services proceeding.

15. Since the Vonage Order, the Commission twice has adopted regulations for certain provider of IP-enabled services. On May 19, 2005, the Commission adopted its first Report and Order – the VoIP 911 Order – in the IP-Enabled Services proceeding. In that order, the Commission defined a particular category of IP-enabled services – “interconnected VoIP services” – as services that (1) enable real-time, two-way voice communications; (2) require a broadband connection from the user’s location; (3) require IP-compatible customer premises equipment; and (4) permit users to receive calls from and terminate calls to the PSTN. Declining to determine the statutory classification of interconnected VoIP services at that time, the Commission asserted its ancillary jurisdiction under Title I of the Act to require interconnected VoIP service providers to supply 911 emergency calling capabilities to their customers. On August 5, 2005, the Commission adopted another order in which it determined that providers of interconnected VoIP services, as defined in the VoIP 911 Order, are subject to the Communications Assistance for Law Enforcement Act (CALEA). The Commission’s decision that CALEA obligations apply to interconnected VoIP services was consistent with the approach taken in the VoIP 911 Order, in that the decision rested in part on the fact that interconnected VoIP services allow customers to originate calls to and receive calls from the PSTN."

This opened the E 911 requirement but in a slow roll manner. It also opened up the CALEA requirement as well. There should be some resolution in equity between these carriers. We see that many rural telephone companies which had survived on interconnection fees as subsidies for rural telephony are being driven out of existence by this simple arbitrage of the CATV company. We have specifically seen companies such as Comcast ruthlessly use this Trojan Horse attack to drive customers to their system, We believe that the Fairpoint collapse was a result of this type of arbitrage. We would like to see the FCC resolve this on some basis of equality. Clearly the Universal Service Fee is a tax and should frankly be eliminated as should the FCC Line Charges. The E 911 should be the same for all.

"How Markets Fail": A Review

"How Markets Fail" by John Cassidy is but one of a growing number of books attempting to explain both the world of finance and its underpinnings and the resulting collapse of the financial markets. The book is exceptionally well written and deals with all of the critical elements of what got us where we are today. Yet it is worth considering the many issues he discusses in light of other factors.

The book is divided into three parts as presented by the author in the first Chapter. Part I is a review of the classic economists and up to the present. Part II is the behavioral economists and their influence in understanding herd dynamics and stickiness in the market. Part II focuses on the current crisis.

Much of what is written is written well albeit with a strong political bent. For example just out of the box the author states on p. 9 in his introduction of Part I that "Markets encourage power companies to despoil the environment and cause global warming; health insurers to exclude sick people from coverage; computer makers to force customers to buy software programs they don't need; and CEOs to stuff their own pockets at the expense of their stockholders." Now if that quote does not set the stage for all to come nothing else will. It is clear that the author has a strong bias against the free market and denies any personal responsibilities on the part of the individuals. It is a restatement of the victimization approach to economics. He believes that the market, whatever that may be, makes the decision to dump polyphenols from a GE plant into the Hudson. In reality it was the management, the people in GE who did that, not the market. Yet, this theme that capitalism is the forcing function or deus ex machine for all the evils of mankind seems to continue throughout the book.

On p.11 he states that "The subprime boom represented a failure of capitalism in the presence of bounded cognition, uncertainty, hidden information, trend following and plentiful credit." That is in part true but it was the legislation and the regulatory environment that stimulated this process and yes the greed and outright dishonesty of many who participated. Greed and capitalism are not a one to one mapping. Greed has existed in every environment, suffice it to say that it is one of the seven deadly sins.

On p. 12 he calls the problem that Prince had at Citi as an example of the Prisoner's Dilemma. Frankly it was not even close in a game theoretic sense. It was Rubin along with Prince working with the residual of the Sandy Weill collection of companies in a highly leverage state in a financial downturn that most likely led to their downfall.

On pp 17-18 the author speaks towards the issue of having knowledge but not having the ability to conceive of the consequences. He uses Pearl Harbor as an example. Frankly there were many such examples of how this was anticipated ranging from the Navy's War Plan Orange to the well read book by Hector Bywater, The Great Pacific War, detailed in the 1920s the actual plan of the Japanese. In fact the Japanese planning organization actually use the Bywater plan in its own effort. The same types of issues could be said about the attack on 9/11, data was there but "management" was clueless. In fact the collapse of 2008-2009 was presaged by the same market and housing and banking collapse of 1987. Then we had a 25% one day drop in the DOW, a 20-25% drop in housing, and the S&L collapse. The difference was that then people held a reasonable amount of equity in their homes and 401Ks were not as prevalent. The Government took the actions to move from a risky position to a riskier one. Thus it was not the Market but the Government whose hands are dirty. Cassidy seems not to consider that.

On p 23 the author starts his use of Galbraithian dicta. This in and of itself sets the tone. Galbraith in his three books for public consumption on his view of economics, American Capitalism, The Affluent Society, and The New Industrial State, makes the assumption that the battle is between the poor defenseless consumer and the massive impenetrable corporations. It requires the use of "countervailing power" to balance the interests and that is where the need is for all benevolent and all knowing Government is seen as the arbiter of fairness and justice in such transactions. Per Galbraith and the author, the Market is both inefficient and lacks a Rawlsian justice in its allocation of what is produced.

On p. 38 the author details how Hayek was considered a "right wing nut" when he was a student at Oxford in the early 1980s. Well it was Oxford, what more need be said. Hayek's proposition that markets are aggregators of information was an essential and critical observation as was his understanding that centralized organizations had problems dealing with the division of knowledge (p. 41). In fact one need look no further than to an entrepreneurial company versus a large corporation to see the effect of this gross inefficiency of central planning, and the best example is the old Soviet economy, centrally planned, yet incapable of functioning.

On pp 63-68 the author has an interesting and lucid discussion of Arrow's welfare economics. One should remember that Arrow is the uncle of Larry Summers, now in the White House, and once the Treasury Secretary. This discussion is used as a justification of redistribution economics. Namely the basis of the distribution of wealth generated by some is definable by some hypothetical utility function which in turn holds across all people. This utility function has certain mathematical characteristics that are assumed to reflect reality. The net result is that markets, namely free markets, can generate what are termed efficient outcomes, and that efficiency and equity, again a Rawlsian justice schema, can be achieved. Arrow's analysis is just that, and analytical schema. The results are just as good as the assumptions, thus one should beware that the assumptions are just that, assumptions.

On p 65 the author gives a somewhat backhanded compliment to Johnnie von Neumann, a man who amongst those who know and understand his magnificent contributions consider him one with few if any equals. The author calls him "some sort of genius". He was a genius, not "some sort of". He was brilliant and a true polymath with seminal contributions across the spectra of human knowledge. The author then goes on to characterize von Neumann's life as "loquacious and virulently anti-communist, he drank heavily, told off color jokes, was married twice, and died of cancer..." One is amazed as to the cavalier and heavy handed characterization of the life of a person who has so great respect and has made so great a number of contributions. This one statement is a classic example in my opinion of the less than fair, equitable and knowledgeable writing on the part of the author.

On p 78 the author begins to take focus at Friedman and his monetary theory analysis. He states "Friedman liked to invoke the ancient "quantity theory of money" which many of his critics considered hopeless out of date" Frankly the Friedman theory of money was not ancient, it was an new innovation. In fact the theory of money in and of itself was less than ancient, for economists as such had been around at best in some form since the 1650s.

On p 81 the author begins his critique of Friedman and uses the example of the elimination of Federal regulators. That was actually the work of Alfred Kahn and was documented in his classic work, The Economics of Regulation. It was in the Carter Administration that the antitrust suits against AT&T and IBM were started and it was Asst Atty General Baxter under Reagan who dismissed one and settled the other. AT&T was a monopoly and it had a strangle hold on the US telecommunications business. The explosion of entrepreneurial spirit and innovation in telecommunications and the information age was the direct and immediate result of its splitting.

On p 91 the author speaks of the Black Scholes model. He states: "Some of the mathematics used in these theories is pretty befuddling which explains why there are so many physicists and mathematicians working on Wall Street..." Well let me set the author straight, these equations arose from engineers, from the likes of Norbert Wiener and Rudy Kalman, from Stratonovich in Russia and Ito in Japan, and from my book written in the late 1960s, Stochastic Systems and State Estimation. They were used to model and design estimation and control systems. As engineers, we frequently warned people about the limits of models and the concerns of instabilities. Black and Scholes appear to have taken little heed of those issues resulting most likely in the collapse of Long Term Capital Management. One should note that the "equations" which were the underpinnings of the Black Scholes model were also used by the engineers who designed the navigation and guidance systems for the Apollo space missions. But as ones used by engineers they had engineered into them safety margins to assure against the instabilities of real life. Unlike the engineered solutions of Apollo, the Black Scholes approach were used by bankers who ran them to the edge, to the edge of the envelope if you will, and thus these models when applied suffered from the smallest of perturbations and instabilities and thus collapsed.

On p 193 he infers that Volker was the architect of the 19% interest rates. Actually they were the legacy of Nixon and the collapse of gold, Ford and the total lack of confidence, and finally Carter and his gross mishandling of the economy and the final oil crisis. Volker inherited these and then righted them, albeit with high unemployment.

On p 115 the author introduces the Pigou Club of Mankiw at Harvard. Simply this is the group which says that you tax the thing you do not want to happen. This is the way the economist thinks. Rather than solving the problem, you tax it. An engineer would try to find a way to remedy it. The result is the engineer's approach is lower cost, social and otherwise. One should wonder why China's senior officials are mostly engineers whereas we in the US have mostly lawyers with economists in the shadows.

On pp 118-124 the author tackles the Coase approach to life. Coase looked simply at the problem of unintended consequences, their costs, and the remedies thereto. For example a railroad company has tracks and the grass adjacent to the tracks catches fire and burns the wheat of a farmer. The courts may allow a law suit to be filed and the jury may rule in favor of the farmer who gets paid for the damage. If however the farmer loses the suit he may get together with other farmers and then they may pay the railroad to fix the problem. Either way there is a "free market" solution to the problem, yet the costs may flow one way or the other. The author clearly dislikes Coase and his free market approach. He uses the aforementioned GE and Hudson River example. He then follows Coase with the obligatory Global Warming issue on pp 123-124.

On p 128-133 the author starts looking at antitrust issues. Antitrust laws were there to protect competition and not competitors. They were designed to protect the system not the incumbents. The author speaks of Baumol and his view that monopolies did not need to be exposed to competition but the threat of competition. It was Baumol along with Willig who developed the theorem of interconnection pricing, the Baumol-Willing Theorem, which was an ad hoc propiter hoc argument to sustain the AT&T monopoly by allowing the incumbent to collect a "tax" from the competition based upon the premise that AT&T had more customers and that in and of itself had value as some externality. This was in many ways at the heart of the failure of the 1996 Telecom Act whose goal was to allow competition to exist. The author again returns to Galbraith and his book, The New Industrial State, which claims that corporations are dominant controllers of the economy run by technocrats. It is ironic that at most half of the companies Galbraith cites are even in existence today. Their "power" did not keep them from going out of existence. The entrepreneurs, the true engines of growth in the economy, came along and redefined the business under their feet. Consider the telecommunications equipment manufacturers, there is now not a single one in the US, they are just gone. He states Galbraith's claim, "the initiative in deciding what is produced comes not from the sovereign producer, through the market, ... rather, it comes from the great producing organization which reaches forward to control the markets that it is presumed to serve and, beyond, to bend the consumer to its needs..." This was Galbraith's view, and it reflects a 1960's mentality. It however has clearly been shown to have been broken by the mass development of new entrepreneurial businesses, from Microsoft, Apple, and Google.

On p 130 he states, "Then there is high technology sector, where monopoly is endemic." That is clearly false by example. The high tech market is very fluid with new entrants changing the landscape day by day. Yet Intel has a hold, but there is Qualcomm and many others who have disintermediated the broad base of semiconductors for uses well beyond just computation. He continues speaking about the concept of "network externalities" which means that having more users one gets to retain position. That is at best questionable. Just look at wireless versus wireline. The wireline side dominated the business until 2004 when wireless took over. This violates the Baumol-Willig Theorem and lets one see that externalities can be shifted again and again. They are not sustainable barriers to entry.

On p 137 he speaks of the Internet and uses the term "package switching (sic)" It is "packet switching". This was a seminal disintermediation introduced into the telecommunications world view. The story told by one of the Internet founders is that they tried to get AT&T to work with them but AT&T through its arrogance as a monopoly player wanted to control it all. AT&T did not understand that ARPA could reinvent communications, which it did, and this resulted in the never ending decline of the old AT&T.

On pp 158-159 he speaks of insurance and speaks of Arrow stating that the Government should run insurance. That is questionable. Well one should examine the Arrow paper more carefully. He states that health care is a service and as such is different. Ken Arrow, in his well read paper entitled Uncertainty and the Welfare Economics of Health Care, states the following special characteristics of health care in his view:

"A. The Nature of Demand The most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing, but irregular and unpredictable..."

My simple answer is that there are many people in such a service business, just look at the plumber. Look at the lawyer. Look at the electrician. There are lots of businesses out there that are the same in their demand characteristic as health care. Arrow continues:

"B. Expected Behavior of the Physician: It is clear from everyday observation that the behavior expected of sellers of medical care is different from that of business men in general. These expectations are relevant because medical care belongs to the category of commodities for which the product and the activity of production are identical."

Consider lawyers, they are service providers. There are hundreds of professions, accountants to name another, where the product and the activity are the same. The definition is the personal services industry, it even has an SIC code! But this was an 1963 article, in the days of Galbraith, where economists viewed the world as large corporations against the common man! Prof Arrow, in my opinion, is in error with this attempt at both generalizing and specializing. Arrow continues in his paper:

"C. Product Uncertainty: Uncertainty as to the quality of the product is perhaps more intense here than in any other important commodity. Recovery from disease is as unpredictable as is its incidence. In most commodities, the possibility of learning from one's own experience or that of others is strong because there is an adequate number of trials."

One need just go to a civil or criminal trial, especially with a jury, because the practice of law is similar, the outcome is always unpredictable.

The author makes many other statements and I chose just a few to counter. The writing is exceptionally good, smooth, and explanatory, but the twist in his presentation is an obvious and transparent attempt to justify his political position. Free markets do work, entrepreneurial behavior is the key element to our success, and the goal of the Government should be to take all actions as is necessary to defend and support that effort. This book seems to ignore that goal. Yet it is worth reading to gain insight, and the book is one of the best out there. My favorite book in this area is the recent one by Donald MacKenzie, An Engine, Not a Camera (MIT Press, 2008) which is a superb tale by a highly respected expert in the field. An Engine, Not a Camera: How Financial Models Shape Markets (Inside Technology) The two should be read side by side.