economists should remain humble and open-minded when considering how best to fix an ailing economy.
What are the major financial decisions made by households? The purchase of durables like automobiles and appliances, the purchase of homes and retirement planning. But the house bill H.R. 3126 exempts financing provided by automobile dealers, any person regulated by the Securities and Exchange Commission, any person regulated by a state insurance regulator, smaller banks and credit unions (those with $10 billion or less in assets), mortgage, title, credit insurance, real estate brokers and agents, attorneys and most retail transactions involving credit. The Senate proposal has fewer carve-outs but does exclude small banks and credit unions, merchants, retailers and other non-financial institutions that extend credit to consumers. So who is left to regulate?
What they fear more than anything else is losing access to the tremendous money pump they have at present. The large complex financial institutions, in case you haven’t noticed, are making money hand over fist. They are greatly enabled this by the fact that they have a very low cost of funds. Why? Because they have unpriced too-big-to-fail guarantees and access to the Fed. This means taxpayers are underwriting the low internal cost of funds that these firms have. They can turn around and invest these in their own proprietary trading, hedge funds and asset management businesses--things they're afraid of losing.
"If you think about it from the recruiter's perspective, especially in a job market that's not particularly robust, the recruiter has more choice," says Julie Morton, associate dean of career services at Chicago Booth. "If I am a recruiter and I have more choice, I'm always going to home in on the student who is really gung-ho about my company, about my industry, and about this function of the job." An easy way for recruiters to sift through the increasingly competitive applicant field is to eliminate students without both academic course work and prior experience related to the job opening.
There is widespread agreement that selling everyday goods at far below market prices, which costs the Iranian government an estimated $100 billion a year, makes little economic sense. It encourages over-consumption of gasoline and other products, discourages domestic production and makes Iran more dependent on imports, economists say. The subsidies are also regressive, because the rich pay the same artificially low prices as the poor and consume far more. And they encourage smuggling.
We're a lot better off today than we were a year ago. This week I'll be giving thanks for that.
The real issue is that some institutions expose the entire financial system to risk by decisions taken within a single firm or business unit. That is what systemic risk is--it pollutes the financial commons. Making financial institutions smaller or simpler doesn't really address systemic risk. It may make it easier to identify, but it doesn't fix the problem.For the past year, Cooley has been advocating the approach proposed by Ben Bernanke:
... they are discussing the "polluter pays" principle that I have been writing about for over a year as the way to think about systemic risk. On this view, the way to discourage the accumulation of systemic risk is to measure it, price it and make firms pay for creating it.
We can solve the too-big-to-fail problem without destroying global finance.
Those who are waiting for this recession to end so someone can again hand them work could have a long wait. Those with the imagination to make themselves untouchables — to invent smarter ways to do old jobs, energy-saving ways to provide new services, new ways to attract old customers or new ways to combine existing technologies — will thrive. Therefore, we not only need a higher percentage of our kids graduating from high school and college — more education — but we need more of them with the right education. ...
Just being an average accountant, lawyer, contractor or assembly-line worker is not the ticket it used to be. As Daniel Pink, the author of “A Whole New Mind,” puts it: In a world in which more and more average work can be done by a computer, robot or talented foreigner faster, cheaper “and just as well,” vanilla doesn’t cut it anymore. It’s all about what chocolate sauce, whipped cream and cherry you can put on top. So our schools have a doubly hard task now — not just improving reading, writing and arithmetic but entrepreneurship, innovation and creativity.
Results have been mixed, dividing researchers who study government enticements. They generally agree on one point: Money goes only so far. Other major factors governments need to consider, apart from a greater role for fathers at home, include the acceptance of working mothers and a supportive corporate culture.
Without other major changes such as shared responsibility for child rearing, "All the money in the world may not make a long-term difference," says David Coleman, a professor of demography at Oxford University.
This is moral hazard run mad – a system in which a few giant banks get to operate as hedge funds with a government guarantee that if they blow up, their losses will be socialised.
The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work.
Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise.
The moment these new rules take effect, health insurance companies will promptly discover they have a powerful interest in reducing rates of obesity and chronic diseases linked to diet. A patient with Type 2 diabetes incurs additional health care costs of more than $6,600 a year; over a lifetime, that can come to more than $400,000. Insurers will quickly figure out that every case of Type 2 diabetes they can prevent adds $400,000 to their bottom line. Suddenly, every can of soda or Happy Meal or chicken nugget on a school lunch menu will look like a threat to future profits.Pollan makes some speculative arguments about how this would play out, focusing mainly on soft drinks, school lunches, and fast food. Question for my MBA 505 students: how could economic incentives be used to discourage obesity?
At last, a health platform I can get behind! But wait, this is an economists' white paper, not a bill in Congress.
The immediate advantage would be that people could choose a plan that fit their own preferences, rather than having to accept a plan chosen by human resources. You would be able to carry your plan from one job to the next — or hold onto it if you found yourself unemployed. You would never have to switch doctors because your employer switched insurance plans. The longer-term advantage would be that health insurance would become fully subject to the brutal and wonderful forces of the market. Insurers that offered better plans — plans that drew on places like the Mayo Clinic to offer good, lower-cost care — would win more customers. “That’s the way the rest of the economy works,” says William Lewis, former director of the McKinsey Global Institute.
Unfortunately many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices. Recent scientific and medical evidence shows that a diet consisting of foods that are plant-based, nutrient dense and low-fat will help prevent and often reverse most degenerative diseases that kill us and are expensive to treat. We should be able to live largely disease-free lives until we are well into our 90s and even past 100 years of age.Some of Mackey's customers have taken offense at his remarks, announcing a boycott of Whole Foods.
First, he thinks Obama has made a mistake in moving toward the narrower goal of "health insurance reform" when what the country truly needs is health system reform. Imposing a mandate for universal insurance will only make things worse if we don't change the process so that it becomes more efficient and less costly. The system we have now is gradually bankrupting the country; expanding that system without changing the internal dynamics is folly.Finally Martin Feldstein at Harvard (former chief economist for Reagan and president of NBER, not to mention my macro theory professor) has weighed in on Obamacare in a WSJ op-ed. Marty is concerned about the long term effects of on research and innovation. Money quote:
Second, Cortese argues that reformers should stop obsessing over whether there's a public option" in the plan. Yes, we need a yardstick for measuring costs and effectiveness. But we should start by fixing the public options we already have. Cortese counts six existing public options that should be laboratories for reform: Medicare, with its 45 million patients and a fee-for-service structure that all but guarantees bad medicine; Medicaid, with an additional 34 million beneficiaries; military medicine, through which government doctors deliver state-of-the-art care; the Department of Veterans Affairs, which has improved performance at its hospitals by embracing new technology; the "Tricare" insurance plan for military retirees; and the Federal Employees Health Benefits Program.
In the British national health service, a government agency approves only those expensive treatments that add at least one Quality Adjusted Life Year (QALY) per £30,000 (about $49,685) of additional health-care spending. If a treatment costs more per QALY, the health service will not pay for it. The existence of such a program in the United States would not only deny lifesaving care but would also cast a pall over medical researchers who would fear that government experts might reject their discoveries as "too expensive."
The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.
Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.
Sen. Dan Clodfelter, co-chairman of the Senate committee that deals with taxes, said white-collar professional services were excluded because most of their costs are tied up in health care and real estate, and the higher taxes would raise those industries' costs substantially.
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