Third World State

Why do businesses leave New Jersey, well in my opinion and experience it is the power problem, and especially JCPL. Power out as expected and on motor generators. I have done this more in New Jersey with JCPL than any other place in the world, from Korea, Thailand, Poland, Russia, and even GREECE!

Go to their site and you get nothing!

One wonders with all the "infrastructure projects" that a little prior planning would prevent poor performance! Just cycle around and every day I see hundreds of trees which would collapse in a moments notice. Perhaps with First Energy one gets Last in Service.

Thank God for my Chinese motor generator.American power just can't deliver.

Al Gore, What About This Snow!

Here we are still in the early Fall and we are getting 1" plus an hour. What happened to that Global Warming stuff? Yes July was hot, but August was downright frigid and well just look now.

And yes, I expect any minute now to lose all power, JCPL seems to have the worst record in the 20+ countries I have operated in. Well on to the motor generator set.

Perhaps a white Christmas too.

When will They Get It Right

I keep wondering if the writers of commentary will ever get anything right. This time it is George Will.

He states:

Every day, 10,000 baby boomers become eligible for Social Security and Medicare, from which they will receive, on average, $1 million of benefits ($550,000 from the former, $450,000 from the latter). Who expects difficult reforms from Romney, whose twists on ethanol make a policy pretzel? 

Now it is clear he does not like Romney, but as to the facts. 

1. Medicare pays $11,000 per year per enrollee. 
2. A man retires at 65 he lives to 82, I corrected that one. That is 17 years.
3. $11,000 times 17 is $187,000. Not the $450,000 above!

Dummy, dummy, dummy!

I wrote a White Paper on this which was picked up by the Fact Checker at the Post a few months ago, and he and I communicated on tightening up the numbers. Where is Will.

Frankly once you read that stupidity you just have to reject the rest of his writing, even if some may be correct. Wrong facts kill all other true observations.

Oh, and by the way, always remember the 3% of all the salaries the person paid into the program. Duh George Will!

Food Inflation 2011 and 2012

The inflation on food has been quite substantial over the past few years. For example a gallon of milk has gone from $3.00 to $4.50 in eighteen months, a 50% inflation and an annualized rate of 32.5%. The USDA has issued a report on food inflation for 2011 and 2012. The results are below:

Note the high levels of inflation, some exceeding 9& pa. Dairy is at 8% but that weights cheese eggs etc. Milk is hidden there.

The USDA report states:

Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher food commodity and energy prices, along with strengthening global food demand, have pushed inflation projections upward for 2011.

The all-food CPI increased 0.8 percent between 2009 and 2010, the lowest food inflation rate since 1962. Food-at-home prices increased by 0.3 percent—the lowest annual increase since 1967—with cereal and bakery product prices declining 0.8 percent and processed fruit and vegetable prices dropping 1.3 percent. Food-away-from-home prices rose 1.3 percent in 2010, the lowest annual increase for restaurant prices since 1955.

For 2012, food price inflation is expected to abate from 2011 levels but is projected to be slightly above the historical average for the past two decades. The all-food CPI is projected to increase 2.5 to 3.5 percent over 2011 levels, with food-at-home prices increasing 3 to 4 percent and food-away-from-home prices increasing 2 to 3 percent. While many inflationary pressures that drove prices up in 2011 are not expected to intensify and may even decrease in 2012, retailers have been slow to pass on cost increases to date. Price levels in 2012 will hinge significantly on several macroeconomic factors such as weather conditions, fuel prices, and the value of the U.S. dollar...

The price of food is a heavy burden on the lower income groups. I expect it to continue at a 10% rate for the foreseeable future.

Healthcare Cost Dynamics

In a recent posting in the Globe and Mail by Auld, the author makes the following argument:

The idea that a healthy lifestyle substantially decreases demand on the health care system has been repeatedly shot, stabbed, and poked at with sharp sticks, but it won't just die.

The zombie argument goes like this: poor health causes more use of the health care system. Poor health can be caused by an unhealthy lifestyle -- smoking, overeating, lack of exercise, and so on. Therefore, unhealthy lifestyles cause increased use of the health care system.

Therefore, policies which induce people to choose healthier lifestyles are rigorously justified since they mitigate such external effects and reduce demand on the public health care system.

The zombie notion that promoting healthy lifestyles is a good way of reducing demand on the health care system should be put to rest.

To simplify it he argues that:

Consider smoking, perhaps the most commonly studied health-affecting behavior. It is very well-established that smoking causes poor health. We can estimate the amount of health care used treating smoking-related illnesses by comparing disease rates for smokers and non-smokers and attributing some fraction of cases of various diseases to smoking. …

However, all people -- and I do not mean to shock anyone -- die some time, even including people who live very healthy lifestyles. Preventing someone from dying of a smoking-related illness only means that they will die of a non-smoking related illness. The effect of smoking on lifecycle health care costs is the difference between costs which are incurred if the person smokes and the costs which would be incurred if the person doesn't smoke. Whether improvements in lifestyle increase or decrease lifetime health care costs depends in a complicated manner on how a healthy lifestyle affects length of life and health care costs at any given age. Whether smoking or other unhealthy behaviors increase or decrease health care costs is an empirical question.

The evidence suggests that unhealthy lifestyles tend to increase health care use at any given age and reduce life expectancy, so more is spent per year but for fewer years.

Thus the argument is simply that:

1. We all die at some time.

2. Spending money to delay death is a waste.

3. In fact bad behavior results in earlier death and thus lower total lifetime costs.

Now perhaps some facts from Medicine would help. Let me compare what we could do in say 1967 when I first started studying the field and today, almost 45 years later.

1. Lung Cancer: Once detected first with a simple chest X ray and then with a lavage of the lung, a very painful process then and now, we might operate, after all whenever a surgeon sees a patient they see the opportunity to cut, but it was almost always nonproductive. Thus the patient died in 3 to 6 months and the best you could do was use morphine which just shortened the inevitable. The advantage was they really did not need much care, the medications were minimal and they ged before Medicare or Social Security kicked in.

2. Type Diabetes and Sequelae: Here is a counter example. In 1967 there frankly were few obese people, and children were almost never obese. Thus there was a low incidence in Type 2 Diabetes. In fact we treated Type 1 and almost ignored Type 2 until it was too late, namely kidney failure. There were no kidney transplants and dialysis was just coming out. However now with the epidemic of obesity and the resulting Type 2 diabetes and its sequelae, we have more patients, and we can now keep them alive for quite a long time at a tremendous cost. Here is a counter example to the lung cancer cases. If we were to change behavior then we could indeed save money. In a way this is the total counter to lung cancer.

3. STDs: Sexually transmitted diseases are causes of a variety of chronic and fatal diseases. Hep B, AIDS, HIV syndromes, Herpes, HPV, cervical cancers and oral-pharyngeal cancers to name a few. Now will promoting better health help here? Possibly, especially since AIDS maintenance is quite costly, and the Hep B liver cancers can be costly, etc it is possible to demonstrate a savings in a lifetime. Remember we all eventually die of something.

4. Alcohol and Other Drug Abuse: This has been an on and off again issue. Cirrhosis is a terminal state for some, it is the liver effectively decomposing and raising all the toxins in the system. Alcohol is a significant factor. Can health living deal with this? Possibly, but like  other drug abusers they generally peak out in mid-life and become terminal.

5. Cancer Screening: This is the preventive care problem as evidenced with the current debate over PSA screening. Does cancer screening as part of a healthy lifestyle work? Let me give a low cost example. Melanoma is growing in North American and may most likely continue. The incidence is increasing but the survival is also. Early detection, a semi-annual skin exam, for a ten minute procedure, can find the lesions while still Melanoma in situ and the lesion can be excised while still 100% curable. That is a good investment, and the lifestyle part of that decision is to stay out of the sun, perhaps less of a problem for Canadians than for Australians.

6. Congestive Heart Failure: Cholesterol, triglycerides, and the many other elements which give rise to cardiac problems leading to congestive heart failure are now part of management of a healthy life style. Why? Well in 1967 when you were diagnosed with Stage IV congestive heart failure you were sent home to put your affairs in order with some relatively inexpensive morphine. That’s all. Today we can manage it for quite a while even to the limit of getting a new heart. We are bombarded with ads saying to exercise, watch our weight, take lipid lowering drugs and the like. Does this save costs? Good question. The unhealthy behavior of eating pizza every day, smoking, processed foods, fats etc may lead to an MI, congestive heart failure, but now we can keep you going at a substantial cost. In 1967 we just sent you home!

Note what is happening, we are being able to keep people who live unhealthy lifestyles alive but at a tremendous cost. This is a clear example of externalities. Namely they get to live the lifestyle and we all end up with the costs. 

Let me give one more conflicting example. A 50 year old man decides to take up jogging because he thinks it is good for his heart. At 60 he gets prostate cancer and we pay for that. At 70 he gets retinal failure and we pay for that. At 80, now his hips are gone, and we pay for double hip replacements. Then the surgery was compromised and we have dual hip infiltration of some nosocomial infection, we pay for that. The list goes on. If he had not jogged he would not have needed the hip replacement and he may have even died at 55 from heart problems. So what is the answer?

Thus to reiterate the author:

Whether improvements in lifestyle increase or decrease lifetime health care costs depends in a complicated manner on how a healthy lifestyle affects length of life and health care costs at any given age. Whether smoking or other unhealthy behaviors increase or decrease health care costs is an empirical question.

In fact the question, as shown above, is also disease dependent as well.

Now along comes Frances Woolley in her inimitable style and asks the important set of questions. She responds with the following. I present her comments and intersperse mine:

The question that Chris Auld's article raised in my mind was: why? Why is it so hard to convince people that public health measures, like reducing smoking, might lead to increased health care costs in the long-run? I can think of a number of explanations.

1. Policy makers are stupid. That's not a good economic explanation; the basic premise of economics is that people are (usually) not (that) stupid. But it might be right.

There may be some validity here, I spent my time in Washington and saw for myself. But generally policy makers in the US are responding to a great number of influences and it is the amalgam of these influences which result in a final policy. Stupid, possibly, but influenced definitely.

2. Policy makers aren't stupid, but they want to raise money by suing tobacco companies.

Yes, that is a possibility. But what of the other healthy lifestyle issues. Take alcohol, we banned it under the Constitution, we saw what that did. The costs and social destruction was monumental. Could we argue the same for drugs as the libertarians do? Possibly.

3. Policy makers are paternalistic. Unhealthy behaviors are bad, either because they are morally reprehensible (the sin of gluttony), or because unhealthy behaviors make people unhappy. The zombie argument - "quit smoking for the good of the health care system" - is trotted out in order to induce people to behave better. Or in order to justify our moralistic views.

3a. Because people believe unhealthy behaviors are bad, the idea that these behaviors could be beneficial - that they could, for example, reduce health care spending - causes cognitive dissonance. Thus people refuse to believe it.

Now this is not a simple question. I have often tried to understand what makes a libertarian and what makes a progressive. Progressives believe that Government, assuming they are in charge, knows best and can do what needs be done. Libertarians view Government as a necessary evil and that the individual knows best. So what makes one person a libertarian and another a conservative, my two children are one of each, so it cannot be environment or genetics. Paternalistic may be for some but not all.

4. Policy makers have high discount rates. The person who quits smoking today will soon be at lower risk of suffering a heart attack - and at increased risk of living long enough to get Alzheimer's disease. But if a policy maker has, say, a 10 percent discount rate, $100,000 in health care expenses in 20 years’ time is equivalent to less than $15,000 in health care expenditures today. So present costs matter far more than future costs.

Yes, they do have high discount rates, Cust the costs now and just push it down the road to someone else. Yet if we have a good CBO one would think it would be their job to ferret out those costs and let the public know.

5. Policy makers only care about certain costs. Some types of illness place large burdens on Canada's publicly funded health care system - cancer, for example, which is largely treated in hospitals. Other forms of illness place burdens on informal caregiving networks. If you or someone you love is diagnosed with Alzheimer's for example, it will generally be up to you to provide home care, or arrange and pay for at least part the cost of long term residential care. If quitting smoking reduces cancer treatment costs by $1 and increases long-term care costs by $1.50, the publicly funded health care system might still have saved money. 

Possibly, and in fact in the US the concern is about deficit at the current time and long term debt. Not total costs. Frances ends with:

I don't know what the right answer is. But I did find Chris Auld's exploration of the issue well worth reading.

Like Frances I also do not know the right answer. In the end we are all dead.

GDP Issues: 3Q 2011

The GDP has grown at an annualized rate of 2.5% in Q3 as of the current estimates from the BEA. The above is the real and the chained data, chained being effectively adjusted for inflation. The good news is that the chained has returned to where it was before the collapse.

The above is M2 and its annualized change. M2 has been growing with a large increase in Q2 and early Q3. Now it has again flattened. That most likely indicates slowing of the potential for inflation.

The Monetary Base has stopped its growth since the FED has stopped its policy of dumping cash into banks.

Inflation and its components generated from M2, Velocity and Y or GDP change are shown above. Calculated inflation is about 2-3%.

Thus we see some growth, we see little inflation pressure, and yet we see a stalled economy. As I have indicated before the major source of hesitancy is from the current Administration and its punitive policies.