The title is not original. I've taken it from political pundit Michael Barone. His theme is one that I have thought about often through the years. It's basic thrust is that most people are stupid, or at least unable to manage their own affairs, and thus are like sheep. Wolves prey on sheep, wolves being greedy landowners, rapacious robber barons, sharp bankers, unethical industrialists and others who profit from the weakness of sheep. For them protection from the predation of wolves come from those bright and good souls who appoint themselves "shepherds" and who take the measures necessary to keep the wolves in check.
At the turn of the 20th century Theodore Roosevelt and his progressive allies assumed this role and were instrumental in the passage of legislation that reined in unethical financiers, industrialists and their ilk and provided protection to the general population. During Franklin Roosevelt's presidency he could still speak of the mass of Americans who were ill-fed, ill-clothed and ill-housed (and who could thus be classified as sheep to be protected by New Deal shepherds.
Barone's point made recently is that things have changed. The great strides in education and material wealth have made it increasingly difficult in today's America to separate sheep from wolves, the latter being people with the means and talent to manage their own affairs. Thus the whole question of a need for "shepherds" arises.
Nevertheless there is stil a school of thought, most often held by the "progressive" wing of the Democratic Party, that bright and well educated people - usually them - have an obligation through government to manage the affairs of the many who may be assumed not to have the talent to handle their own affairs competently. In a word, they must be protected from themselves by people of good intentions and high intellect who understand their needs. A manifestation of this attitude was the Democrats reaction to George W. Bush's proposal to privatize Social Security. It was shock! Tey all knew that if you allowed ordinary citizens access to their retirement savings they would gamble them away on slot machines or be gulled into bad investments, winding up at retirement age with few funds. Only government in the form of the Social Security Administration stands between them and ruin.
There is some truth to this concept as, unfortunately, there is a significant number of citizens who do lack competence in managing their affairs, but the concept also embodies arrogance and condescension on the part of the self-appointed guardians. It's a very old attitude. We shouldn't forget either that the United States was created not as a democracy but as a republic, with the vote restricted to white male property owners over the age of 25.
I'm not an expert on Plato but I recall something he postulated abouth the best form of government being that of rule by a "Philosopher-King" aided by a group of advisors representative of the middle class. Perhaps in technologically simpler times one could conceive of a single individual knowing most of what was known at the time, but even so it was a dubious proposition. This model, which I call the "Platonic Myth", lived on in the structure of the Roman Empire: an all powerful emperor, advised by a Senate of the worthy and wealthywith an occasional call on the "plebes". A few centuries later this became the Pope, a College of Cardinals and senior clergy, the bishops. Always top down authority imbuing the attitude that the mass below can't be trusted to think for itself, for example by reading the bible. This is the model not only for the Catholic Church but of most Latin American elites. Governments tend to be top down and possessed of the illusion that they can regulate everything. Democracy has had a hard time gaining a foothold and at best can be said to exist truly in only a few of the Latin American nations.
Woud-be shepherds are alive and well in the US today. Rules and regulations governing how we live grow apace. We have the "Nanny State". And now there are dozen of well intentioned if deluded members of Congress who are convinced they have the wisdom and capacity to oversee our complex health system and to reform our environment. Always with legislation hundred of pages in length, incomprehensible complexity and entailing a host of unintended consequences. But never fear, your friendly governmet bureaucrat will save the day!
I do fear and I do not trust the ability of the US Congress to run anything very well, least of all my life.
thisd
Sunday, December 20, 2009
Tuesday, November 3, 2009
Rest Stops
One of the nice innovations in modern highway travel has been the rest stop. Years ago when cars generally had poor mileage and highways passed through towns and cities frequently, one could stop at a convenient gas station. With the development of the Interstate Highway System and cars that can run over 300 miles on a tank of gasoline, a need for pit stops between gasoline fill-ups became a necessity, hence the freeway rest stop.
Our first extended road travel took place in Europe in 1955. We drove from Pirmasens, Germany through the Loire Valley of France to the Atlantic Coast and then south to San Sebastian, Spain. Passing through Madrid, Valencia and Barcelona we again entered France along its Riviera Coast and into Italy. In Italy we drove through Genoa, Leghorn, Pisa, Florence and Venice before driving through the Alps into Switzerland and then back to our apartment in Germany. Highways were two lanes and passed through every town in sight. Rest stops were a bit of a problem but coffee shops, restaurants and gasoline stations offered relief. What we did notice in many places, especially Germany, that people stopped their cars and relieved themselves along the side of the road. Road travel was slow: in Italy the highway would climb into the mountains and wind and twist until the next important water front when we would descend to sea level and fight urban traffic until the next ascent. We damaged our car hitting a chuck hole in Spain and had to crawl to a nearby small town where a blacksmith reattached the rocker arm for a fee of $2.00 US. In a small town in northern Italy the spectators to a bicycle race politely parted to let us cross the course for a block or two to continue on our way. Climbing through the Swiss Alps the clutch on our 1953 Morris Minor got so hot we had to stop and let it cool off. With a 28 HP motor we had been traveling in 2nd gear. But we were young and adventurous.
Our first cross country trip in the US was in July 1958 when we drove from Brooklyn, NY to San Diego, CA, along with our 13 month-old twins. While President Eisenhower had launched the Interstate Highway program in 1957, there was nothing in place on our route. So stops were motels, restaurants and gas stations and travel was slowed by the need to pass through every town and city on route.
Express highways and rest stops had come into being in the 1930's, however, in limited areas of the East. New York built a series of expressways connecting the city to the suburbs. Examples include the Hutchinson River and Bronx River parkways and the Inter-Boro Parkway. One or two of these parkways had gasoline stations built into the system. Pennsylvania began its Turnpike (a toll road) in the 1930's. We used it for part of our 1958 trip and the traffic had grown enough so that there were backups trying to get through the two lane mountain tunnels that had not been expanded since the 1930's-40's. But the most traveled and perhaps best known was the New Jersey Turnpike which I believe was started just after World War II. Since the turnpikes and expressways bypassed towns and cities, bathroom and fuel facilities had to be provided as adjuncts.
The most successful model of a turnpike rest stop to my mind are those of New Jersey. Large facilities with two different brands of gasoline and an array of fast food outlets, often packed with travelers. Maryland and Delaware followed this model along their Interstate Highways and their rest stops are quite similar. My assumption is that the respective states have granted concessions to the private companies that provide the services and the rest stops are in effect profit centers for the affected Turnpike Authority or state.
In Virginia, Arizona and a number of other states a different model was followed. The rest stops are public facilities, funded with state money that offer rest rooms, picnic areas and a few vending machines. These often are pleasant places to stop. But if you're looking for food or gasoline you leave the Interstate at one of the truly built up exits where one can find up to a mile's length on both sides of gasoline stations, restaurants and motels.
The flaw in this model is public funding. In the current deep recession almost all of the states confront serious fiscal deficits and seek means of cutting expenses. Both Virginia and Arizona have closed at least half of their Interstate rest stops. I don't know the rationale for the public funding option - opposition to fast food concessionaires from merchants in towns near the Interstate, or an aesthetic distaste for the commercialization of rest stops, but the result has been facilities that cost taxpayers instead of those that contribute to state income. In today's economy New Jersey and Maryland are looking good! Cheers to private enterprise!
Our first extended road travel took place in Europe in 1955. We drove from Pirmasens, Germany through the Loire Valley of France to the Atlantic Coast and then south to San Sebastian, Spain. Passing through Madrid, Valencia and Barcelona we again entered France along its Riviera Coast and into Italy. In Italy we drove through Genoa, Leghorn, Pisa, Florence and Venice before driving through the Alps into Switzerland and then back to our apartment in Germany. Highways were two lanes and passed through every town in sight. Rest stops were a bit of a problem but coffee shops, restaurants and gasoline stations offered relief. What we did notice in many places, especially Germany, that people stopped their cars and relieved themselves along the side of the road. Road travel was slow: in Italy the highway would climb into the mountains and wind and twist until the next important water front when we would descend to sea level and fight urban traffic until the next ascent. We damaged our car hitting a chuck hole in Spain and had to crawl to a nearby small town where a blacksmith reattached the rocker arm for a fee of $2.00 US. In a small town in northern Italy the spectators to a bicycle race politely parted to let us cross the course for a block or two to continue on our way. Climbing through the Swiss Alps the clutch on our 1953 Morris Minor got so hot we had to stop and let it cool off. With a 28 HP motor we had been traveling in 2nd gear. But we were young and adventurous.
Our first cross country trip in the US was in July 1958 when we drove from Brooklyn, NY to San Diego, CA, along with our 13 month-old twins. While President Eisenhower had launched the Interstate Highway program in 1957, there was nothing in place on our route. So stops were motels, restaurants and gas stations and travel was slowed by the need to pass through every town and city on route.
Express highways and rest stops had come into being in the 1930's, however, in limited areas of the East. New York built a series of expressways connecting the city to the suburbs. Examples include the Hutchinson River and Bronx River parkways and the Inter-Boro Parkway. One or two of these parkways had gasoline stations built into the system. Pennsylvania began its Turnpike (a toll road) in the 1930's. We used it for part of our 1958 trip and the traffic had grown enough so that there were backups trying to get through the two lane mountain tunnels that had not been expanded since the 1930's-40's. But the most traveled and perhaps best known was the New Jersey Turnpike which I believe was started just after World War II. Since the turnpikes and expressways bypassed towns and cities, bathroom and fuel facilities had to be provided as adjuncts.
The most successful model of a turnpike rest stop to my mind are those of New Jersey. Large facilities with two different brands of gasoline and an array of fast food outlets, often packed with travelers. Maryland and Delaware followed this model along their Interstate Highways and their rest stops are quite similar. My assumption is that the respective states have granted concessions to the private companies that provide the services and the rest stops are in effect profit centers for the affected Turnpike Authority or state.
In Virginia, Arizona and a number of other states a different model was followed. The rest stops are public facilities, funded with state money that offer rest rooms, picnic areas and a few vending machines. These often are pleasant places to stop. But if you're looking for food or gasoline you leave the Interstate at one of the truly built up exits where one can find up to a mile's length on both sides of gasoline stations, restaurants and motels.
The flaw in this model is public funding. In the current deep recession almost all of the states confront serious fiscal deficits and seek means of cutting expenses. Both Virginia and Arizona have closed at least half of their Interstate rest stops. I don't know the rationale for the public funding option - opposition to fast food concessionaires from merchants in towns near the Interstate, or an aesthetic distaste for the commercialization of rest stops, but the result has been facilities that cost taxpayers instead of those that contribute to state income. In today's economy New Jersey and Maryland are looking good! Cheers to private enterprise!
Monday, October 19, 2009
Institutionalized Hysteria - Take 2
Back on February 22 - it seems a long time ago - I published a blog criticizing US attitudes in general towards "illicit" drugs. Today the news releases indicate further softening in these attitudes at least towards marijuana. The Department of Justice announced that it would not prosecute marijuana dispensaries in the 14 states where they are legal. Not to give away the store, the announcement went on to say that fraudulent dispensaries and criminal distributors would still be prosecuted. In states where medicinal use of marijuana has been legalized, the growth of dispensaries has been amazing. Obviously there are suppliers who are now legal, assuming their output is strictly for medicinal use. The article, at least in the Washington Post, stated that over half of the profits of the Mexican drug cartels comes from the trade in marijuana so legal dispensaries are not good news.
Interestingly enough a couple of weeks ago there was another article in the Post about the increase in US domestic supply of marijuana driving down the international price for the weed, substantially cutting into foreign dealers' profits. One counter effort by them has been to contract production in the US. They set up a growing facility, supply all the inputs, and contract with an individual, often a Mexican, to deliver a usable crop in something like four months.
The workings of the market place are a wonder to behold. What would happen if marijuana were decriminalized and taxed instead? There would be, I suspect, a bit of chaos on the production side as growers came out of the shadows and open competition began to affect quality, price and distribution. Getting all the producers to be nice and pay taxes might prove a bit tricky, but like Al Capone they could be prosecuted for tax evasion and, importantly, the money would stay in country given an underlying assumption that domestic production can be cost effective and that a tariff on imports would offer protection. Think of the positive effects decriminalization would offer: a) it would sharply reduce income of foreign producers, especially the Mexican cartels which can only be of great social benefit to Mexico; b) it would generate revenue for both federal and local uses if the tax structure were developed properly, substituting for a declining "sin tax", taxes on tobacco; and, c) it would free up a lot of effort on the part of law enforcement, especially the DEA, in trying to inderdict the flow of marijuana, a task in which they have mostly failed. It could even lead in a decline in the budget and employment in the DEA, freeing up money for drug treatment programs and research.
Another hint of the softening of attitudes is yet another legislative attempt in Congress to eliminate the discrepancy in sentencing between those convicted on cocaine possession in powder form (mostly white) and those using crack (mostly black). Given the financial crisis facing the states, anything that will reduce the prison population without necessarily affecting public safety can only be helpful.
As to the argument that legalizing marijuana will expand its use, my understanding is that use has been stable or declining in recent years. I would think that its presumably greater availability if legalized would in terms of demand be countered by its loss of cachet as a blow against the establishment. How can you be a rebel using something that's legal?
In any event, the economic gains alone from decriminalization make it a no brainer in my book. I trust that this time common sense and relaxed attitudes will overcome hysteria.
Interestingly enough a couple of weeks ago there was another article in the Post about the increase in US domestic supply of marijuana driving down the international price for the weed, substantially cutting into foreign dealers' profits. One counter effort by them has been to contract production in the US. They set up a growing facility, supply all the inputs, and contract with an individual, often a Mexican, to deliver a usable crop in something like four months.
The workings of the market place are a wonder to behold. What would happen if marijuana were decriminalized and taxed instead? There would be, I suspect, a bit of chaos on the production side as growers came out of the shadows and open competition began to affect quality, price and distribution. Getting all the producers to be nice and pay taxes might prove a bit tricky, but like Al Capone they could be prosecuted for tax evasion and, importantly, the money would stay in country given an underlying assumption that domestic production can be cost effective and that a tariff on imports would offer protection. Think of the positive effects decriminalization would offer: a) it would sharply reduce income of foreign producers, especially the Mexican cartels which can only be of great social benefit to Mexico; b) it would generate revenue for both federal and local uses if the tax structure were developed properly, substituting for a declining "sin tax", taxes on tobacco; and, c) it would free up a lot of effort on the part of law enforcement, especially the DEA, in trying to inderdict the flow of marijuana, a task in which they have mostly failed. It could even lead in a decline in the budget and employment in the DEA, freeing up money for drug treatment programs and research.
Another hint of the softening of attitudes is yet another legislative attempt in Congress to eliminate the discrepancy in sentencing between those convicted on cocaine possession in powder form (mostly white) and those using crack (mostly black). Given the financial crisis facing the states, anything that will reduce the prison population without necessarily affecting public safety can only be helpful.
As to the argument that legalizing marijuana will expand its use, my understanding is that use has been stable or declining in recent years. I would think that its presumably greater availability if legalized would in terms of demand be countered by its loss of cachet as a blow against the establishment. How can you be a rebel using something that's legal?
In any event, the economic gains alone from decriminalization make it a no brainer in my book. I trust that this time common sense and relaxed attitudes will overcome hysteria.
Tuesday, October 13, 2009
Health Care Reform?
I’ve been mulling over writing a piece on the great health reform effort for many weeks now, but it is a moving target. I’m becoming increasingly convinced that the final effort will not be nearly as inclusive as once thought and that whatever comes from the effort may cause more problems rather than reduce their number.
OVERVIEW
When we speak of health we’re talking about a condition affecting everyone of the 300 million plus residents of the U.S. We all exhibit some form of health, good, bad or indifferent. Those of us in less than robust good health often seek remedies. This search has led to a $2.4 trillion economic sector, or about one-sixth of the US Gross Domestic Product. This sector engages literally hundreds of thousands of medically related jobs, thousands of hospitals, clinics, research institutions and manufacturers. There are pharmaceutical and biologic manufacturers in significant numbers along with the distribution mechanisms and retail outlets that distribute the goods and services produced. Numerous government agencies, some at the national Cabinet level, are involved, not to speak of the health insurance industry.
In sum the U.S. health care industry, if you want to call it that, is huge, complex and rife with conflicting interests. There are millions of “stakeholders”, many of whose economic interests and even livelihoods are at stake and many of whom vote. It is not a structure that can be defined clearly nor changed easily. Many if not a majority of Americans are dissatisfied with some or much of the system but at the same time are very concerned over the prospects of change, fearing that their particular situation may be worsened.
From time to time the movers and shakers of our government endeavor to reform the system, applying a “policy” approach. An early example was that of the “Progressives” of the late 19th and early 20th centuries, e.g LaFollette and TR Roosevelt, who worked on finance, industry, transportation and public health. Later Presidents favoring the “policy” approach have been Carter, Clinton and now Obama. The idea is that after proper analysis an overarching, rational approach to the problem can be crafted that will ignore short term vested interests and look to a longer term, sounder program that better fulfills the public interest. Unfortunately the resulting all inclusive legislative proposals, logical and beneficial though they may be, must go to the US Congress, perhaps best described as a “sausage factory” and the embedded home of short term vested interests.
Taking into account the genuine complexities of the overall health system and the lack of a truly sound analytical base on which to build - and adding in the political quagmire that is Congress - probably the only likely movement to change the system will take place at the margin, incremental approaches to selected elements or pieces of the problem.
Some of the elements of the “complexity” of the health system include:
Demographics - Overall the world’s population is aging, but the effect is particularly acute in the developed world. Economist Robert Samuelson in the Washington Post on October 12 quotes the Kaiser Family Foundation to the effect that people 55 years old or over account for half of all US health care expenditures. Those 65 and over account for one-third of such expenditures. As the number of people over 65 increases rapidly the impact in the US is two-fold: the elderly need more and more complex health care and the number of young, healthy people paying in either to retirement or health plans declines.
Environment - climate and our geographic surroundings obviously affect overall health in terms of what we need to survive as well as the nature of existing disease vectors. But our changing the environment through clearing of forests, overuse of water and general industrialization/urbanization has resulted in serious pollution of air, water and soil with resultant negative impacts on human health. Despite significant progress in cleaning up the environment in the US, we still face threats to health from poor quality air, water or food borne illnesses, embedded chemical pollution and the effects of crowded living conditions.
Economics - my grandparents had a saying: “them that has gets!”. And surely a hallmark of the problems of the US health system is income differential. From top notch care at expensive specialty hospitals to use of public hospital emergency rooms as health care recourse reflects a wide difference in what people have to spend. Current health care reform in its effort to expand health insurance coverage focuses on this issue. It has been said that Americans get the best health care they can afford, whether they need it or not, while they should be getting the best health care needed, whether they can afford it or not. But it’s not just a matter of money in the hands of prospective patients but how the industry is structured and how much of the money spent provides valid health care. A New England Health Care Institute report in 2008 stated that as much as $850 billion a year in health spending could be eliminated without reducing the quality of care. More than $58 billion is spent on inappropriate drugs and about $21 billion is spent of non-urgent cases in emergency rooms. The largest potential area for savings - up to $600 billion a year - is the great “unexplained” variance in hospital procedures such as Caesarean sections and coronary bypass operations. Further compounding the economic disparities involved in health care is another Kaiser Foundation calculation: the healthiest 50 % of the population is responsible for only 3% of all health care spending while the sickest 15% account for 50% of such spending.
Culture/Life style - this is probably the crux of the health care issue. It can be said that one’s health is the result of personal behavior and luck. Luck which includes one’s genetic endowment as well as the circumstances into which you are born has its impact but personal behavior is also key, and an element affected by culture. Our culture contributes to the attitudes we hold towards our health and how we respond to health problems. Cultural differences do affect how and what we eat, whether we go to doctors or not, how much care we demand and our attitude towards medicines, vitamins, supplements, etc. but culture also segues into lifestyle and here is a key element affecting health. Do we eat too much, do we eat the “wrong” things, avoid exercise, consume alcohol, smoke, use drugs or stimulants, drive wildly: the list can go on. We know lifestyle affects our health, leading to negative results like obesity, aggravating diabetes and leading to vascular and bone problems and we haven’t even touched on emotional or mental problems. But changing lifestyle is essentially a question of behavior modification, something as a society we don’t do well. We try legislation mandating seat belts and bicycle helmets. We’re working on forcing food suppliers, whether retail or restaurant, to list calorie and fat contents. We’re trying to eliminate saturated fats and demanding that schools provide healthier menus. But it’s a slow and difficult process and confronts a basic conflict: where should we as a society come out in the continuum between total personal freedom and the “nanny state”. The “Golden Rule” - nothing to excess and everything in moderation - wuld seem to apply but who defines moderation and excess? But absent some changes in lifestyle choices overall improvement of national health will be impeded. And of even greater significance is that the effects of poor lifestyle will be with us for decades as the consequences of poor living habits continue to appear through the natural course of aging.
Research/Development - meanwhile the industries that generate new and better equipment, devices and pharmaceutical products keep churning away, developing new and better product usually at higher prices. We now have biogenetic drugs that do wonders for certain diseases but the annual treatment for which can run into tens of thousands of dollars. The arrival of always better diagnostic devices seems to create its own demand. An example is the man who has a headache and goes to a hospital emergency room where he demands a CT scan. Numerous prescription drugs are now peddled mercilessly on prime time TV: their makers obviously expect that significant numbers of viewers will demand the appropriate prescriptions from their doctors. (Viewing the list of possible side effects as demanded by law certainly reduces my willingness to take any of these wonder drugs, but someone must be doing so.) The net result is that techniques to improve health or battle disease are improving rather rapidly owing to millions of dollars spent on research, both public and private. But the cost also goes up and in many instances the added benefit doesn’t match that cost. And the process also strengthens a general American sense of entitlement: if it helps I should have it, regardless of cost. One should note also the tendency of directing research resources towards issues that are either popular with strong lobbies, e.g. cancer, or that offer potentially large markets, e.g. diabetes. Things that are neither “glamorous” nor offer rich revenue streams are not often the subject of big research efforts. And so we have one more obstacle to getting a real handle on necessary health system costs.
Nebulous best practices - the Obama administration has taken a position that health services could be both better and lest costly if the health care providers just followed “best practices”. I defy anyone to come up with a compendium of “best practices” that covered most if not all of the diagnostics and treatments now being given that: a) would be acceptable to most everyone in the health care field and not subject to strongly held differences of opinion; and, b) wasn’t in constant change as new information and new devices, drugs, etc. come on stream. I and some of my descendants have an inherited blood condition that results in round red blood cells that have difficulty passing through the spleen, leading to anemia on occasion. In 1968 my twin daughters suffered aplastic crises - severe anemia - and were treated according to then “ best practices”, that is their spleens were removed. In January 1969 I had mine out as a precaution even though I was asymptomatic. The function of the spleen was not well understood then and it was thought to be of little use. In the 1980’s my then doctor told me that since I didn’t have a spleen I should take a “lifetime” innoculation against pneumonia. In the 90’s I learned that “lifetime” meant 10 years and now I’m told I need a new pneumovax shot every five years. In 2009 my current doctor tells me that the spleen plays a key element in the body’s immune system and that I, without one, have an impaired immune system and must exercise caution with respect to infectious diseases. And so much for “best practices”.
Flawed data - proponents and opponents of the current health reform efforts quote voluminous studies supporting their respective positions. (As have I.) Despite the tremendous volume of information in print I don’t think we have a good understanding of the situation. We’re all familiar with the pronouncement that “A” was bad for us only to learn two or three years later that “A” wasn’t so bad after all. It is also true that many of these studies suffer from poor methodology and inadequate data sources. Conclusions have been drawn that can’t really be supported by the data collected. And this doesn’t include the numerous studies written with financial underwriting from interested parties nor those written by practitioners pushing their own agendas and not beyond tweaking the data. So one should question the validity of much of this data and try to discount the conflicting and often contradictory points of view, while taking into account the interests represented and possible motivations behind the reports or studies. Not a firm foundation on which to build a sound policy.
POTENTIAL OUTCOMES
My conclusion from the overview illustrated above and what I see of the workings in Congress is that we are likely to see some sort of health reform legislation pass. The new law will quite likely expand health insurance coverage by requiring most everyone to subscribe and companies to offer policies. For those for whom the health care premiums will be beyond what they can afford, there will be subsidies. Rules governing health insurance underwriters will be tightened, allowing the companies fewer opportunities to deny coverage. Nothing in the legislation under discussion really attacks the key problems affecting the nation’s health in terms of changing health care provider practices, reducing wasteful procedures, encouraging more healthful lifestyles or encouraging greater personal responsibility. It will ensure more people and probably increase overall health costs. The assertion that the changes will not add to the federal deficit are based on tenuous assumptions of taxes on certain health insurance policies,reduction in Medicare expenditures and some additional taxation of the wealthy. Compounding the cost issue is that current legislation is predicated on the current situation. An aging population will, however, result in proportionately greater health costs in the future owing both to the aging process itself as well as the embedded consequences of poor lifestyle choices.
My guess is that the number of people who will be annoyed by the legislation will outnumber the beneficiaries and that the Obama Administration will not get great political mileage from this effort. In fact there very likely will be substantial disappointment in the actual results and strong calls for more “reform”.
APPROPRIATE GUIDELINES
As mentioned above the US health system is so large and complex that change most likely will only come about incrementally. I suggest the following as appropriate guidelines within which change should be sought.
1. Individual coverage. We need to get employers in general out of the health care business. The virtually mandatory tie-in between employment and health insurance benefits is unfortunate in many respects. If health insurance were an individual or family responsibility there would be portability. You get laid off or your employer goes out of business, your health insurance is not affected as long as you pay the premiums. If you can’t stand your job, you would no longer be forced to stay just for the health benefits. In times of economic distress some form of health insurance subsidy akin to unemployment benefits could be put into force. Making health insurance and other direct costs tax deductible within limits to the individual would certainly soften the net cost to the beneficiary. And I have to think that companies would really rather not to be involved in health care administration if it could be avoided without adversely affecting employees. I suspect that making health care insurance a matter between beneficiary and insurer would enhance transparency and bring home to the insured just how much their health care costs. The Obama Administration has opposed this approach because organized labor, a major party constituency, having gone to considerable effort to negotiate amply funded health plans in place probably of added wages, is totally against changing the system. Nevertheless I believe that if offered the option most people would opt for portability and a separation between health insurance and employment.
2. Regulation. For a health insurance system to be truly competitive there has to be a single set of rules which means Federally mandated standards that apply nationally. Widely disparate state-based rules lead to a far from level playing field for the participants. Especially with the high degree of mobility of the US workforce and general population, national standards make sense. In addition there need to be Federal rules governing malpractice litigation. Hospitals and doctors make mistakes and those damaged deserve compensation. But today’s system works like a lottery with trial attorneys shopping for clients and for favorable venues. Some recent class action suits,
for example the one involving asbestos, have been clearly shown to have involved fraud. So a system that provides reasonable compensation would go far to eliminating “ambulance chasing” and other frauds, reduce the burden on the judiciary and permit medical practitioners to reduce if not eliminate “defensive” medicine, thus reducing overall costs. The Obama administration is not averse to national rules for insurers but has been very skittish about malpractice reform. Trial attorneys are another major party constituency.
3. Economic incentives. At present in most instances medical practitioners and service providers get paid for services rendered: no action, no fee and no income. Far preferable would be a system that pays service providers a “capitation” fee: a monthly or perhaps annual fee to oversee the health of an individual. Some HMO’s and certainly the Medicare-Advantage plans follow this route. The government pays a fixed monthly fee to the service provider who assumes responsibility for maintaining the health of the individual member. Doctors receive salaries as do other clinicians. Preventive medicine can be applied in these circumstances and with a system of overview in place serious problems can often be avoided or treated in timely fashion. How much to pay for this approach is a difficult question, too little and patient care suffers, too much generates waste. At present some members of Congress contend that the US Government pays too much for Medicare-Advantage coverage and look to fund reform by reducing the payment rate. Make it unprofitable and the insurers drop out of the program. And there is the overall challenge of how and over what period of time can you change the current fee-for-service system. Should you put everyone into a plan. For those who believe in Government single payer systems, this is the answer, you belong to the plan and there is no choice to go elsewhere unless you can afford the cost of private services. Even where single-payer government sponsored health plans are in effect, services may be rendered by private practitioners. These latter, however, as in the cases of Germany and Japan, are tightly regulated by government agencies.
4. Personal responsibility. Assuming a shift to health insurance for individuals and families not tied to employment and a shift in financial incentives perhaps we can begun to instill a greater sense of personal responsibility for health care and lessen the sense of “entitlement”. Possibly we need to ban non-urgent care at hospital emergency rooms: we do have a growing network of “urgent care” providers and “minute clinics” that can surely absorb much of the non-urgent care demand. We do have personal health accounts and employer-designed health option accounts that present choices to the holders: do I do this procedure or save the money for something else? We do need to promote the concept that there is “no free lunch” and that nearly everything we do costs somebody. Of course with a society that appears more and more into instant gratification and the thought that everything that happens is someone else’s fault, besides which the government should take care of me, developing a stronger sense of personal responsibility for our actions may well prove overly quixotic
OVERVIEW
When we speak of health we’re talking about a condition affecting everyone of the 300 million plus residents of the U.S. We all exhibit some form of health, good, bad or indifferent. Those of us in less than robust good health often seek remedies. This search has led to a $2.4 trillion economic sector, or about one-sixth of the US Gross Domestic Product. This sector engages literally hundreds of thousands of medically related jobs, thousands of hospitals, clinics, research institutions and manufacturers. There are pharmaceutical and biologic manufacturers in significant numbers along with the distribution mechanisms and retail outlets that distribute the goods and services produced. Numerous government agencies, some at the national Cabinet level, are involved, not to speak of the health insurance industry.
In sum the U.S. health care industry, if you want to call it that, is huge, complex and rife with conflicting interests. There are millions of “stakeholders”, many of whose economic interests and even livelihoods are at stake and many of whom vote. It is not a structure that can be defined clearly nor changed easily. Many if not a majority of Americans are dissatisfied with some or much of the system but at the same time are very concerned over the prospects of change, fearing that their particular situation may be worsened.
From time to time the movers and shakers of our government endeavor to reform the system, applying a “policy” approach. An early example was that of the “Progressives” of the late 19th and early 20th centuries, e.g LaFollette and TR Roosevelt, who worked on finance, industry, transportation and public health. Later Presidents favoring the “policy” approach have been Carter, Clinton and now Obama. The idea is that after proper analysis an overarching, rational approach to the problem can be crafted that will ignore short term vested interests and look to a longer term, sounder program that better fulfills the public interest. Unfortunately the resulting all inclusive legislative proposals, logical and beneficial though they may be, must go to the US Congress, perhaps best described as a “sausage factory” and the embedded home of short term vested interests.
Taking into account the genuine complexities of the overall health system and the lack of a truly sound analytical base on which to build - and adding in the political quagmire that is Congress - probably the only likely movement to change the system will take place at the margin, incremental approaches to selected elements or pieces of the problem.
Some of the elements of the “complexity” of the health system include:
Demographics - Overall the world’s population is aging, but the effect is particularly acute in the developed world. Economist Robert Samuelson in the Washington Post on October 12 quotes the Kaiser Family Foundation to the effect that people 55 years old or over account for half of all US health care expenditures. Those 65 and over account for one-third of such expenditures. As the number of people over 65 increases rapidly the impact in the US is two-fold: the elderly need more and more complex health care and the number of young, healthy people paying in either to retirement or health plans declines.
Environment - climate and our geographic surroundings obviously affect overall health in terms of what we need to survive as well as the nature of existing disease vectors. But our changing the environment through clearing of forests, overuse of water and general industrialization/urbanization has resulted in serious pollution of air, water and soil with resultant negative impacts on human health. Despite significant progress in cleaning up the environment in the US, we still face threats to health from poor quality air, water or food borne illnesses, embedded chemical pollution and the effects of crowded living conditions.
Economics - my grandparents had a saying: “them that has gets!”. And surely a hallmark of the problems of the US health system is income differential. From top notch care at expensive specialty hospitals to use of public hospital emergency rooms as health care recourse reflects a wide difference in what people have to spend. Current health care reform in its effort to expand health insurance coverage focuses on this issue. It has been said that Americans get the best health care they can afford, whether they need it or not, while they should be getting the best health care needed, whether they can afford it or not. But it’s not just a matter of money in the hands of prospective patients but how the industry is structured and how much of the money spent provides valid health care. A New England Health Care Institute report in 2008 stated that as much as $850 billion a year in health spending could be eliminated without reducing the quality of care. More than $58 billion is spent on inappropriate drugs and about $21 billion is spent of non-urgent cases in emergency rooms. The largest potential area for savings - up to $600 billion a year - is the great “unexplained” variance in hospital procedures such as Caesarean sections and coronary bypass operations. Further compounding the economic disparities involved in health care is another Kaiser Foundation calculation: the healthiest 50 % of the population is responsible for only 3% of all health care spending while the sickest 15% account for 50% of such spending.
Culture/Life style - this is probably the crux of the health care issue. It can be said that one’s health is the result of personal behavior and luck. Luck which includes one’s genetic endowment as well as the circumstances into which you are born has its impact but personal behavior is also key, and an element affected by culture. Our culture contributes to the attitudes we hold towards our health and how we respond to health problems. Cultural differences do affect how and what we eat, whether we go to doctors or not, how much care we demand and our attitude towards medicines, vitamins, supplements, etc. but culture also segues into lifestyle and here is a key element affecting health. Do we eat too much, do we eat the “wrong” things, avoid exercise, consume alcohol, smoke, use drugs or stimulants, drive wildly: the list can go on. We know lifestyle affects our health, leading to negative results like obesity, aggravating diabetes and leading to vascular and bone problems and we haven’t even touched on emotional or mental problems. But changing lifestyle is essentially a question of behavior modification, something as a society we don’t do well. We try legislation mandating seat belts and bicycle helmets. We’re working on forcing food suppliers, whether retail or restaurant, to list calorie and fat contents. We’re trying to eliminate saturated fats and demanding that schools provide healthier menus. But it’s a slow and difficult process and confronts a basic conflict: where should we as a society come out in the continuum between total personal freedom and the “nanny state”. The “Golden Rule” - nothing to excess and everything in moderation - wuld seem to apply but who defines moderation and excess? But absent some changes in lifestyle choices overall improvement of national health will be impeded. And of even greater significance is that the effects of poor lifestyle will be with us for decades as the consequences of poor living habits continue to appear through the natural course of aging.
Research/Development - meanwhile the industries that generate new and better equipment, devices and pharmaceutical products keep churning away, developing new and better product usually at higher prices. We now have biogenetic drugs that do wonders for certain diseases but the annual treatment for which can run into tens of thousands of dollars. The arrival of always better diagnostic devices seems to create its own demand. An example is the man who has a headache and goes to a hospital emergency room where he demands a CT scan. Numerous prescription drugs are now peddled mercilessly on prime time TV: their makers obviously expect that significant numbers of viewers will demand the appropriate prescriptions from their doctors. (Viewing the list of possible side effects as demanded by law certainly reduces my willingness to take any of these wonder drugs, but someone must be doing so.) The net result is that techniques to improve health or battle disease are improving rather rapidly owing to millions of dollars spent on research, both public and private. But the cost also goes up and in many instances the added benefit doesn’t match that cost. And the process also strengthens a general American sense of entitlement: if it helps I should have it, regardless of cost. One should note also the tendency of directing research resources towards issues that are either popular with strong lobbies, e.g. cancer, or that offer potentially large markets, e.g. diabetes. Things that are neither “glamorous” nor offer rich revenue streams are not often the subject of big research efforts. And so we have one more obstacle to getting a real handle on necessary health system costs.
Nebulous best practices - the Obama administration has taken a position that health services could be both better and lest costly if the health care providers just followed “best practices”. I defy anyone to come up with a compendium of “best practices” that covered most if not all of the diagnostics and treatments now being given that: a) would be acceptable to most everyone in the health care field and not subject to strongly held differences of opinion; and, b) wasn’t in constant change as new information and new devices, drugs, etc. come on stream. I and some of my descendants have an inherited blood condition that results in round red blood cells that have difficulty passing through the spleen, leading to anemia on occasion. In 1968 my twin daughters suffered aplastic crises - severe anemia - and were treated according to then “ best practices”, that is their spleens were removed. In January 1969 I had mine out as a precaution even though I was asymptomatic. The function of the spleen was not well understood then and it was thought to be of little use. In the 1980’s my then doctor told me that since I didn’t have a spleen I should take a “lifetime” innoculation against pneumonia. In the 90’s I learned that “lifetime” meant 10 years and now I’m told I need a new pneumovax shot every five years. In 2009 my current doctor tells me that the spleen plays a key element in the body’s immune system and that I, without one, have an impaired immune system and must exercise caution with respect to infectious diseases. And so much for “best practices”.
Flawed data - proponents and opponents of the current health reform efforts quote voluminous studies supporting their respective positions. (As have I.) Despite the tremendous volume of information in print I don’t think we have a good understanding of the situation. We’re all familiar with the pronouncement that “A” was bad for us only to learn two or three years later that “A” wasn’t so bad after all. It is also true that many of these studies suffer from poor methodology and inadequate data sources. Conclusions have been drawn that can’t really be supported by the data collected. And this doesn’t include the numerous studies written with financial underwriting from interested parties nor those written by practitioners pushing their own agendas and not beyond tweaking the data. So one should question the validity of much of this data and try to discount the conflicting and often contradictory points of view, while taking into account the interests represented and possible motivations behind the reports or studies. Not a firm foundation on which to build a sound policy.
POTENTIAL OUTCOMES
My conclusion from the overview illustrated above and what I see of the workings in Congress is that we are likely to see some sort of health reform legislation pass. The new law will quite likely expand health insurance coverage by requiring most everyone to subscribe and companies to offer policies. For those for whom the health care premiums will be beyond what they can afford, there will be subsidies. Rules governing health insurance underwriters will be tightened, allowing the companies fewer opportunities to deny coverage. Nothing in the legislation under discussion really attacks the key problems affecting the nation’s health in terms of changing health care provider practices, reducing wasteful procedures, encouraging more healthful lifestyles or encouraging greater personal responsibility. It will ensure more people and probably increase overall health costs. The assertion that the changes will not add to the federal deficit are based on tenuous assumptions of taxes on certain health insurance policies,reduction in Medicare expenditures and some additional taxation of the wealthy. Compounding the cost issue is that current legislation is predicated on the current situation. An aging population will, however, result in proportionately greater health costs in the future owing both to the aging process itself as well as the embedded consequences of poor lifestyle choices.
My guess is that the number of people who will be annoyed by the legislation will outnumber the beneficiaries and that the Obama Administration will not get great political mileage from this effort. In fact there very likely will be substantial disappointment in the actual results and strong calls for more “reform”.
APPROPRIATE GUIDELINES
As mentioned above the US health system is so large and complex that change most likely will only come about incrementally. I suggest the following as appropriate guidelines within which change should be sought.
1. Individual coverage. We need to get employers in general out of the health care business. The virtually mandatory tie-in between employment and health insurance benefits is unfortunate in many respects. If health insurance were an individual or family responsibility there would be portability. You get laid off or your employer goes out of business, your health insurance is not affected as long as you pay the premiums. If you can’t stand your job, you would no longer be forced to stay just for the health benefits. In times of economic distress some form of health insurance subsidy akin to unemployment benefits could be put into force. Making health insurance and other direct costs tax deductible within limits to the individual would certainly soften the net cost to the beneficiary. And I have to think that companies would really rather not to be involved in health care administration if it could be avoided without adversely affecting employees. I suspect that making health care insurance a matter between beneficiary and insurer would enhance transparency and bring home to the insured just how much their health care costs. The Obama Administration has opposed this approach because organized labor, a major party constituency, having gone to considerable effort to negotiate amply funded health plans in place probably of added wages, is totally against changing the system. Nevertheless I believe that if offered the option most people would opt for portability and a separation between health insurance and employment.
2. Regulation. For a health insurance system to be truly competitive there has to be a single set of rules which means Federally mandated standards that apply nationally. Widely disparate state-based rules lead to a far from level playing field for the participants. Especially with the high degree of mobility of the US workforce and general population, national standards make sense. In addition there need to be Federal rules governing malpractice litigation. Hospitals and doctors make mistakes and those damaged deserve compensation. But today’s system works like a lottery with trial attorneys shopping for clients and for favorable venues. Some recent class action suits,
for example the one involving asbestos, have been clearly shown to have involved fraud. So a system that provides reasonable compensation would go far to eliminating “ambulance chasing” and other frauds, reduce the burden on the judiciary and permit medical practitioners to reduce if not eliminate “defensive” medicine, thus reducing overall costs. The Obama administration is not averse to national rules for insurers but has been very skittish about malpractice reform. Trial attorneys are another major party constituency.
3. Economic incentives. At present in most instances medical practitioners and service providers get paid for services rendered: no action, no fee and no income. Far preferable would be a system that pays service providers a “capitation” fee: a monthly or perhaps annual fee to oversee the health of an individual. Some HMO’s and certainly the Medicare-Advantage plans follow this route. The government pays a fixed monthly fee to the service provider who assumes responsibility for maintaining the health of the individual member. Doctors receive salaries as do other clinicians. Preventive medicine can be applied in these circumstances and with a system of overview in place serious problems can often be avoided or treated in timely fashion. How much to pay for this approach is a difficult question, too little and patient care suffers, too much generates waste. At present some members of Congress contend that the US Government pays too much for Medicare-Advantage coverage and look to fund reform by reducing the payment rate. Make it unprofitable and the insurers drop out of the program. And there is the overall challenge of how and over what period of time can you change the current fee-for-service system. Should you put everyone into a plan. For those who believe in Government single payer systems, this is the answer, you belong to the plan and there is no choice to go elsewhere unless you can afford the cost of private services. Even where single-payer government sponsored health plans are in effect, services may be rendered by private practitioners. These latter, however, as in the cases of Germany and Japan, are tightly regulated by government agencies.
4. Personal responsibility. Assuming a shift to health insurance for individuals and families not tied to employment and a shift in financial incentives perhaps we can begun to instill a greater sense of personal responsibility for health care and lessen the sense of “entitlement”. Possibly we need to ban non-urgent care at hospital emergency rooms: we do have a growing network of “urgent care” providers and “minute clinics” that can surely absorb much of the non-urgent care demand. We do have personal health accounts and employer-designed health option accounts that present choices to the holders: do I do this procedure or save the money for something else? We do need to promote the concept that there is “no free lunch” and that nearly everything we do costs somebody. Of course with a society that appears more and more into instant gratification and the thought that everything that happens is someone else’s fault, besides which the government should take care of me, developing a stronger sense of personal responsibility for our actions may well prove overly quixotic
Thursday, August 27, 2009
HONDURAS
I was surprised to see Honduras, the small and not important country I once lived in, appear on the front pages of both the Washington Post and the Wall Street Journal. It seems there was a bit of a political ruckus.
My first trip to Honduras was in 1984. A consulting associate of mine had helped the Chamber New Orleans and the River Region get a grant from the U.S Agency for International Development (USAID) to promote investment between Honduras and Belize and the Mississippi Valley of the US. He got a sub-contract from the Chamber and I was chosen to do the leg work. I traveled to cities in Tennessee, Indiana and Texas, as well as New Orleans, to promote the idea. In addition to my first, exploratory trip,I escorted a small trade mission to Honduras later in the year. I don’t think there were any results.
Later, in late 1986 when business was really slow,I went to Tegucigalpa to meet with the USAID Mission and negotiate a contract, which I completed in December. In January 1987 I began my assignment there as Project Director of the Investment and Export Development Project, an effort to promote investment into the country and exports out.
My personal services contract carried a decent salary, a housing allowance and some benefits like sick leave and vacation time. Nydia remained in Potomac working for Garfinckel’s but traveled to Honduras about every three months for a month’s stay. I had bought a 1987 Jeep Cherokee which the Government shipped for me so Nydia and I were able to travel around a bit. During her March 1987 trip I took her with me to a meeting held in Guatemala and she found Sambol, the famous Guatemalan handicrafts store. By April I had found a nice apartment and the Government shipped some furniture for me. (Keeping expats overseas is expensive.) During Nydia’s July visit, her dad and step-mother came for a visit as well and thoroughly enjoyed their couple of weeks in Honduras. In the fall we drove to the northeast coast of Honduras to Puerto Trujillo over roads mostly unpaved and some that resembled goat tracks. In the spring of 1988 we drove through along the Honduran side of the border with El Salvador through the Mayan ruins of Copan and on to Guatemala where we traveled around a bit. Honduras is quite pretty, the people pleasant but it is poor.
My contract expired in January 1988 and having had enough of USAID internal paper shuffling I chose not to renew. I caught on with a consultancy tasked with trying to salvage a series of bad loans issued by the Central American Bank for Economic Integration which had its offices in Tegucigalpa. That came to an end and I returned to Potomac in July 1988. Incidentally all of the failed loans shared in varying degrees three characteristics: the negative impact of the 1981-2 recession, incompetent management and outright fraud. Examples of the latter include a Bank inspector discovering that the loan made to build an 80 room motel south of Tegucigalpa was only going to result in 40 rooms. A loan made to an Argentine group to develop a cacao processing plant in Costa Rica resulted in new equipment being bought, but shipped to Argentina, and old, used equipment sent to Costa Rica.
Progress was made. Honduras diversified agricultural exports through development of cultivated shrimp and the production of melons on the Pacific coast. These goods were trucked in refrigerated containers to the north coast – Puerto Cortes – for export to the US. There was substantial development of industrial parks set up as export processing zones, that is areas into which goods could be shipped duty free, advanced in value, and exported to the US paying duty only on the value added in Honduras. These parks were primarily along the north coast, near San Pedro Sula – Honduras’ commercial center , and at their peak in the early 90’s employed as many as 100,000 workers. The principal activity was apparel assembly, an activity that was hurt when the international apparel import quota system ended and the Chinese took over world markets. Honduras is still a major exporter of bananas, sugar and wood products.
The Honduran military ended their rule of the country at the end of 1981. Honduras has had seven consecutive reasonably well conducted democratic elections of presidents, none of whom has been permitted to run for reelection. During my continued consulting assignments there starting in 1989 and ending in 2004 I saw new luxury hotels and nice urban shopping malls built and the small middle and upper classes do well. Honduras’ seven million people today are individually probably better off than the five million or so in the 1980’s, but most Hondurans remain relatively poor and the country’s human resource base and capital stock are inadequate to generate strong economic growth.
Much of this problem is cultural. The country has natural resources but the population is ill equipped to exploit them properly. There exists a psychology of dependency. Rather than work hard, get an education and get ahead, most seem to believe that their fate is fixed and that because they are poor they are entitled to help from outside sources. They are always ready to join up with the man on the white horse who promises them a better life. The current gang of four demagogues that bedevil the US now, Hugo Chavez of Venezuela, Evo Morales of Bolivia, Rafael Correa of Ecuador and Daniel Ortega of Nicaragua, were all elected to office on just this type of approach. Their election proves the failure of their respective societies to meet the perceived needs of a majority of the inhabitants, but demagoguery and state socialism will only in time make matters much worse.
And so we come to Honduras’ seventh president of the series, Manuel Zelaya. A rancher from Honduras’ version of Texas, the Department of Olancho, sparsely populated and mostly dedicated to cattle ranching and logging, he started as a populist without much of an ideology, but appears to have come under the influence of a cabinet minister who is a dedicated Marxist. “Mel” as he is known decided that he didn’t want to go away at the end of his term this December but, emulating the gang of four mentioned above, he would rig things so as to stay in office. He would hold a referendum that would allow the voters to change the Constitution permitting reelection. His referendum was held to be unconstitutional and the ballots impounded. Zelaya and a band of followers physically invaded an Air Force installation and retrieved the ballots. By this time both the Church and the establishment had had enough and he was removed from his home and shipped to Costa Rica. Had the Hondurans kept him in country and put him on trial there would have been far less concern. But their understandable fear was that his followers would form a mob and attempt to free him by force.
The economic situation in Honduras has been weakened by the global recession. The country is wholly dependent on imported refined petroleum products and the spike of prices last year was quite damaging. The recession has reduced export earnings and lowered remittances from the couple of hundred thousand Hondurans in the US so there is popular unrest that played into the hands of Zelaya’s demagoguery.
So now for the crime of removing a man who clearly violated constitutional process in Honduras and who wanted to clone himself as a Hugo Chavez, Honduras has come under assault by the Organization of American States with the support of President Obama and Secretary of State Clinton. The crime is undertaking a “Golpe de Estado”, unlawfully removing a President. To their credit the Hondurans remain firm in their rejection of any return by Zelaya and I think in time the issue will die down in their favor.
It boggles the mind why the US would side so quickly with a group of feckless Latin American diplomats on a formalistic approach when the defined objective is clearly neither in the interest of Honduras nor the US. My guess is that there is sufficient US domestic opposition to people like Hugo Chavez and a Marxist approach to economic management that the Obama administration will be constrained in supporting the OAS position too strongly.
My first trip to Honduras was in 1984. A consulting associate of mine had helped the Chamber New Orleans and the River Region get a grant from the U.S Agency for International Development (USAID) to promote investment between Honduras and Belize and the Mississippi Valley of the US. He got a sub-contract from the Chamber and I was chosen to do the leg work. I traveled to cities in Tennessee, Indiana and Texas, as well as New Orleans, to promote the idea. In addition to my first, exploratory trip,I escorted a small trade mission to Honduras later in the year. I don’t think there were any results.
Later, in late 1986 when business was really slow,I went to Tegucigalpa to meet with the USAID Mission and negotiate a contract, which I completed in December. In January 1987 I began my assignment there as Project Director of the Investment and Export Development Project, an effort to promote investment into the country and exports out.
My personal services contract carried a decent salary, a housing allowance and some benefits like sick leave and vacation time. Nydia remained in Potomac working for Garfinckel’s but traveled to Honduras about every three months for a month’s stay. I had bought a 1987 Jeep Cherokee which the Government shipped for me so Nydia and I were able to travel around a bit. During her March 1987 trip I took her with me to a meeting held in Guatemala and she found Sambol, the famous Guatemalan handicrafts store. By April I had found a nice apartment and the Government shipped some furniture for me. (Keeping expats overseas is expensive.) During Nydia’s July visit, her dad and step-mother came for a visit as well and thoroughly enjoyed their couple of weeks in Honduras. In the fall we drove to the northeast coast of Honduras to Puerto Trujillo over roads mostly unpaved and some that resembled goat tracks. In the spring of 1988 we drove through along the Honduran side of the border with El Salvador through the Mayan ruins of Copan and on to Guatemala where we traveled around a bit. Honduras is quite pretty, the people pleasant but it is poor.
My contract expired in January 1988 and having had enough of USAID internal paper shuffling I chose not to renew. I caught on with a consultancy tasked with trying to salvage a series of bad loans issued by the Central American Bank for Economic Integration which had its offices in Tegucigalpa. That came to an end and I returned to Potomac in July 1988. Incidentally all of the failed loans shared in varying degrees three characteristics: the negative impact of the 1981-2 recession, incompetent management and outright fraud. Examples of the latter include a Bank inspector discovering that the loan made to build an 80 room motel south of Tegucigalpa was only going to result in 40 rooms. A loan made to an Argentine group to develop a cacao processing plant in Costa Rica resulted in new equipment being bought, but shipped to Argentina, and old, used equipment sent to Costa Rica.
Progress was made. Honduras diversified agricultural exports through development of cultivated shrimp and the production of melons on the Pacific coast. These goods were trucked in refrigerated containers to the north coast – Puerto Cortes – for export to the US. There was substantial development of industrial parks set up as export processing zones, that is areas into which goods could be shipped duty free, advanced in value, and exported to the US paying duty only on the value added in Honduras. These parks were primarily along the north coast, near San Pedro Sula – Honduras’ commercial center , and at their peak in the early 90’s employed as many as 100,000 workers. The principal activity was apparel assembly, an activity that was hurt when the international apparel import quota system ended and the Chinese took over world markets. Honduras is still a major exporter of bananas, sugar and wood products.
The Honduran military ended their rule of the country at the end of 1981. Honduras has had seven consecutive reasonably well conducted democratic elections of presidents, none of whom has been permitted to run for reelection. During my continued consulting assignments there starting in 1989 and ending in 2004 I saw new luxury hotels and nice urban shopping malls built and the small middle and upper classes do well. Honduras’ seven million people today are individually probably better off than the five million or so in the 1980’s, but most Hondurans remain relatively poor and the country’s human resource base and capital stock are inadequate to generate strong economic growth.
Much of this problem is cultural. The country has natural resources but the population is ill equipped to exploit them properly. There exists a psychology of dependency. Rather than work hard, get an education and get ahead, most seem to believe that their fate is fixed and that because they are poor they are entitled to help from outside sources. They are always ready to join up with the man on the white horse who promises them a better life. The current gang of four demagogues that bedevil the US now, Hugo Chavez of Venezuela, Evo Morales of Bolivia, Rafael Correa of Ecuador and Daniel Ortega of Nicaragua, were all elected to office on just this type of approach. Their election proves the failure of their respective societies to meet the perceived needs of a majority of the inhabitants, but demagoguery and state socialism will only in time make matters much worse.
And so we come to Honduras’ seventh president of the series, Manuel Zelaya. A rancher from Honduras’ version of Texas, the Department of Olancho, sparsely populated and mostly dedicated to cattle ranching and logging, he started as a populist without much of an ideology, but appears to have come under the influence of a cabinet minister who is a dedicated Marxist. “Mel” as he is known decided that he didn’t want to go away at the end of his term this December but, emulating the gang of four mentioned above, he would rig things so as to stay in office. He would hold a referendum that would allow the voters to change the Constitution permitting reelection. His referendum was held to be unconstitutional and the ballots impounded. Zelaya and a band of followers physically invaded an Air Force installation and retrieved the ballots. By this time both the Church and the establishment had had enough and he was removed from his home and shipped to Costa Rica. Had the Hondurans kept him in country and put him on trial there would have been far less concern. But their understandable fear was that his followers would form a mob and attempt to free him by force.
The economic situation in Honduras has been weakened by the global recession. The country is wholly dependent on imported refined petroleum products and the spike of prices last year was quite damaging. The recession has reduced export earnings and lowered remittances from the couple of hundred thousand Hondurans in the US so there is popular unrest that played into the hands of Zelaya’s demagoguery.
So now for the crime of removing a man who clearly violated constitutional process in Honduras and who wanted to clone himself as a Hugo Chavez, Honduras has come under assault by the Organization of American States with the support of President Obama and Secretary of State Clinton. The crime is undertaking a “Golpe de Estado”, unlawfully removing a President. To their credit the Hondurans remain firm in their rejection of any return by Zelaya and I think in time the issue will die down in their favor.
It boggles the mind why the US would side so quickly with a group of feckless Latin American diplomats on a formalistic approach when the defined objective is clearly neither in the interest of Honduras nor the US. My guess is that there is sufficient US domestic opposition to people like Hugo Chavez and a Marxist approach to economic management that the Obama administration will be constrained in supporting the OAS position too strongly.
Tuesday, August 25, 2009
Mea Culpa
I must confess to being remiss in supplying new blog material. Starting May -2009 - I began having serious back problems, making sitting in front of a computer uncomfortable. Compounding matters it turned out in June that I suffered from serious osteoporosis and that two of my lumbar vertebrae had compression fractures. On July 23 I underwent a procedure in which a radiologist stuck needles into my spine and filled the affected vertebrae with fast hardening bone cement. While it appears that the procedure solidified the vertebrae I still have considerable discomfort. It's been a bit over a month now, but progress in healing is very slow.
On top of all this, the Pebble Creek construction people informed us that our new house was ready and that we should travel to Goodyear, Arizona before the end of July to take possession. So on July 28 - 5 days after the procedure that was supposed to make everything well quickly - we flew to Phoenix, closed on the house and took possession of our modern, 2 bedroom and den residence. It was of course barren of furniture but the air conditioning worked, always useful in 112 degree weather. During the rest of the week we arranged for the utilities, received the furniture shipped from Maryland and bought a new refrigerator. We were able to spend four nights in our rather sparsely furnished digs before flying back to Maryland to participate in the family gatherings attendant on cousin Richard Boles' August 6 wedding in Washington, DC.
Our son, Paul, and grandson, Justice, loaded up our Ford Fusion and left Potomac the morning of August 11. We flew to Phoenix August 14 and met up with the boys at the house late that afternoon. They helped unload and add to the house arrangements before flying to San Francisco on Sunday. Since then we've added a washer and dryer, ceiling fans, a few odds and ends and have window blinds and a new bedroom suite on order. Also a computer desk and chair to go along with the new HP desktop computer which has given us access again to the internet.
And so I intend to take up blogging again, assuming the back holds out. There are many topics of interest I want to address and so you may be treated to new blog pieces over the coming weeks,whether .
On top of all this, the Pebble Creek construction people informed us that our new house was ready and that we should travel to Goodyear, Arizona before the end of July to take possession. So on July 28 - 5 days after the procedure that was supposed to make everything well quickly - we flew to Phoenix, closed on the house and took possession of our modern, 2 bedroom and den residence. It was of course barren of furniture but the air conditioning worked, always useful in 112 degree weather. During the rest of the week we arranged for the utilities, received the furniture shipped from Maryland and bought a new refrigerator. We were able to spend four nights in our rather sparsely furnished digs before flying back to Maryland to participate in the family gatherings attendant on cousin Richard Boles' August 6 wedding in Washington, DC.
Our son, Paul, and grandson, Justice, loaded up our Ford Fusion and left Potomac the morning of August 11. We flew to Phoenix August 14 and met up with the boys at the house late that afternoon. They helped unload and add to the house arrangements before flying to San Francisco on Sunday. Since then we've added a washer and dryer, ceiling fans, a few odds and ends and have window blinds and a new bedroom suite on order. Also a computer desk and chair to go along with the new HP desktop computer which has given us access again to the internet.
And so I intend to take up blogging again, assuming the back holds out. There are many topics of interest I want to address and so you may be treated to new blog pieces over the coming weeks,whether .
Wednesday, June 17, 2009
The Obama Administration - Military Policy
The Obama Administration - Military Policy
Barack Obama was supposed to bring an outstandingly new approach to American politics and to address ably all the problems affecting the country. A major advantage was that he was not George W. Bush. After about five months in office, perhaps it’s time to ruminate a bit on what seems to be happening. I will be posting comments on the Obama military policy, its diplomatic policy and key aspects of it domestic policies, including industrial, health, environmental and financial.
In military policy, the topic that most outraged Democratic liberals, it is difficult to discern much difference between the Obama and Bush approaches. Troops are being withdrawn from Iraq, but slowly and as many as 50,000 may remain for some time. There is also a real chance that should things deteriorate more than feared, US policy may reverse and troop withdrawals cease.
In Afghanistan, the Obama administration has moved to deepen US involvement, adding more troops and acknowledging the tight connection between Pashtun radicals in Afghanistan and their cousins in Pakistan. Neither Afghanistan nor Pakistan has ever been a true nation state. Afghanistan has been the collection of disparate ethnic groups put offside by the British, who having been badly beaten there in the 1840’s, drew a line (the Durand Line) down the middle of the mountains and chose only to administer, albeit lightly, those on the east side of the line. Those west of the line were cobbled together by a series of strong men into a kingdom in which central authority and modernization were both quite limited. Pakistan was created artificially by the British in 1946 to provide a home for India’s muslims after independence. Bengal in the east, the Punjab and Sindh in the west formed the heartland with Baluchistan, the north-west territories and Kashmir as the appendages. India favored the Hindu ruler of Kashmir and the partition of that territory left most of its muslim inhabitants under Indian rule. The east Bengalis resented control from the Punjabis and in 1977, with a bit of help from India, achieved independence as Bangla Desh, noted for poverty and flooding. Pakistan itself has not been overly successful in alleviating poverty or in modernization.
So now we have a weak and corrupt central government in Afghanistan and up to now too few American and other foreign troops engaged to subdue the radical Islamic resistance. The major export appears to be opium, the trade in which we know is quite profitable and funds all sorts of mischief. President Obama has taken over the Afghan campaign as his own, moving many of the key people who served Bush in Iraq into this theatre. Afghanistan’s terrain is far more difficult than that of Iraq and much of the equipment developed for the Iraqi desert works poorly in the Afghan mountains. There is now a debate under way within the US Army as to the proper strategy. Do we concentrate on protecting civilian population centers, abandoning as it were the scattered guerrillas in the remote crags and valleys, or do we attack all the resisters in the hope that this will prevent attacks on towns and villages. I believe it is acknowledged that to win will require gaining the support of a large majority of the people.
Pakistan is beginning to confront the reality that it’s mortal enemy is not, as has been believed since 1946, India, but the intransigent Islamic radicals within its midst, concentrated at present in the north-west territories. Pakistan’s army appears to have the capacity to push the Taliban out of relatively accessible places like the Swat Valley, but the truly rugged terrain of Waziristan in which the radicals have been entrenched for decades, may prove far more difficult. There is a real question as to whether Pakistan has sufficient national will to endure a long and difficult campaign and whether it can survive its dysfunctional political system.
The Bush administration got rid of the Taliban in Afghanistan, at least initially, but devoted insufficient resources to keep everything under control. It also provided substantial aid to Musharraf's Pakistani government, but with modest results. There is now a "democratic" government in Pakistan but how secure is unclear. Into this situation the Obama administration appears willing to add resources but positive results are anything but assured. And if things don’t go well, how long will the American public put up with an apparently never ending war for a country far away?
Beyond Central Asia, US military power appears to be challenged only in East Asia. As China continues to grow economically and to assert its interests, the relationship between the US and its allies, such as Japan, and China becomes trickier. What are China’s objectives and do they conflict with ours? How do these two major powers develop a working relationship that doesn’t threaten to result in military conflict?
North Korea in its current very belligerent mode would appear to be a military threat. South Korea looks to the US to be its nuclear shield and to protect it against any aggression from the north. The US has 28,000 troops in country and they could be at risk. Japan’s national interest is also threatened and that country may well become more militant if it perceives a need to defend itself under circumstances where the US doesn’t seem sufficiently firm or committed. What does seem to be the driving force within North Korea is instability in the hold of the ruling family and close associates on what is clearly a failed state. Instability and fear can lead to unfortunate accidents, but on balance North Korea is not a major military force. But its aggression if not checked could bring on a very messy and destructive conflict.
On the home front, Defense Secretary Gates is developing what I think is an intelligent reshaping of the US military force. We need to look at real potential enemies, mostly lightly armed forces that engage in asymmetrical warfare and for which huge nuclear powered destroyers and very expensive jet fighters are of modest use.
Whether these changes can be brought about is a true challenge to the Obama Administration. The enemies are the 535 defense micro-managers on Capitol Hill who have clearly shown that their interest is not nearlys as much the national interest but rather how much money and how many jobs can be squeezed out of the DOD budget for each district. They are joined in this by the career military officers who are emotionally tied to big and better airplanes, bigger and better ships and more and more complex weaponry. Behind them come the large - and many small - corporations that live off defense procurement as it now is. Cutting production of F-22’s and building something else portends wrenching realignments of the players, a situation they would like to avoid if at all possible. I don’t see much of an Obama commitment to military reorganization, certainly not enough to alienate Congress people who hold Obama’s plans for health and environmental reform in their hands. And so I don’t see Mr. Gates’ programs going very far.
Friday, May 1, 2009
Energy Policy Revisited
In July 2008 I blogged about US energy policy and followed up with a shorter piece on compressed natural gas as an automotive fuel. Since then two major events took place. One, the global economy crashed and Barack Obama was elected President of the US.
The global economic collapse has led to a reduction in mileage driven in the US and a collapse of the US automotive market from a rate of 17 million light trucks and cars sold per year to about 9 million. Chrysler is in bankruptcy, GM is on the verge of same, and no one in the industry is happy. Gasoline prices are now around $2 a gallon, a development than in and of itself nearly solved the foreign exchange imbalance,reducing the outflow of dollars to import petroleum from a projected $750 billion to perhaps less than $250 billion.
The energy policy discussion continues but the Obama Administration and the Democratic Congress seem now focused on the negative environmental effect of burning fossil fuels. So now we're talking less about diversifying the source of petroleum and more about reducing consumption of petroleum and coal. None of the alternative energy sources has grown any more promising. Corn ethanol is still not close to being competitive in cost per BTU with petroleum derived fuels and survives only through tax payer subsidies and, as well, is suffering from criticism of how much land must be diverted from food production or other uses just to grow corn. Solar power is growing in use but is still expensive while wind power is expanding but not in the areas where the power is needed. Nuclear power is costly, time consuming to develop and carries a stigma. It should be remembered that solar power doesn't work at night nor does the wind always blow so use of these sources implies access to stored energy of some sort to fill in the production gaps.
For transportation the "flavor of the month" is electric power. Batteries are still very expensive and have limited output capacity which means rather small, expensive cars that travel less than 100 miles between charges. As a practical matter the internal combustion engine appears here to stay. The good news is that the US has in recent years uncovered vast reserves of natural gas, enough by some accounts to supply national needs for the next hundred years. So we have at hand a fuel source that burns cleaner than petroleum fuels and does not have to be imported. A sound reason to follow Boone Pickens' call for conversion even if it benefits him financially.
The real problem confronting the political class is how to impose its views of global warming and the need to reduce CO2 emissions to ameliorate or halt such warming. A tax on carbon usage seems one approach and we hear talk of "cap and trade" programs. Where the risk for these policy proposals lies is in the cost and impact on the public. Over 50% of US electricity is produced by coal powered plants. Literally hundreds of millions of Americans drive vehicles and the nation's goods are almost universally carried at some point by truck. There is no way in my view to diminish fossil fuel use and the generation of carbon dioxide without cost, a high cost in fact. This implies increased taxes on somebody, which means all of us in some form. Increasing taxes is not good for political incumbency unless it can be posed as a necessary sacrifice to save the nation.
There are problems in gaining widespread public acceptance of this need. First, can we be certain that global warming is, in fact, largely the result of human activity. The earth's climate has fluctuated substantially through the centuries and so one can question whether the current situation is truly unique. Second, the US is not an island and I doubt public acceptance of policies that take into account the burning of coal in China, India and elsewhere in the developing world only by sending them money to improve technology while we undergo harsh measures to reduce CO2 emissions domestically. That nasty air blows from China across North America as well. And, finally, measures to reduce carbon emissions centered on coal and industry will impact the industrial midwestern US far more severely than either coastline. To ask hard working midwesterners to sacrifice for the benefit of the "glitterati" of California, New York or Washington, DC will be at best difficult, if not political divisive.
And so in the 10 months since my earlier blogs we have seen sharp economic changes but no real changes in terms of the country's energy policy. The realities on the ground make unlikely either rapid or fundamental changes.
The global economic collapse has led to a reduction in mileage driven in the US and a collapse of the US automotive market from a rate of 17 million light trucks and cars sold per year to about 9 million. Chrysler is in bankruptcy, GM is on the verge of same, and no one in the industry is happy. Gasoline prices are now around $2 a gallon, a development than in and of itself nearly solved the foreign exchange imbalance,reducing the outflow of dollars to import petroleum from a projected $750 billion to perhaps less than $250 billion.
The energy policy discussion continues but the Obama Administration and the Democratic Congress seem now focused on the negative environmental effect of burning fossil fuels. So now we're talking less about diversifying the source of petroleum and more about reducing consumption of petroleum and coal. None of the alternative energy sources has grown any more promising. Corn ethanol is still not close to being competitive in cost per BTU with petroleum derived fuels and survives only through tax payer subsidies and, as well, is suffering from criticism of how much land must be diverted from food production or other uses just to grow corn. Solar power is growing in use but is still expensive while wind power is expanding but not in the areas where the power is needed. Nuclear power is costly, time consuming to develop and carries a stigma. It should be remembered that solar power doesn't work at night nor does the wind always blow so use of these sources implies access to stored energy of some sort to fill in the production gaps.
For transportation the "flavor of the month" is electric power. Batteries are still very expensive and have limited output capacity which means rather small, expensive cars that travel less than 100 miles between charges. As a practical matter the internal combustion engine appears here to stay. The good news is that the US has in recent years uncovered vast reserves of natural gas, enough by some accounts to supply national needs for the next hundred years. So we have at hand a fuel source that burns cleaner than petroleum fuels and does not have to be imported. A sound reason to follow Boone Pickens' call for conversion even if it benefits him financially.
The real problem confronting the political class is how to impose its views of global warming and the need to reduce CO2 emissions to ameliorate or halt such warming. A tax on carbon usage seems one approach and we hear talk of "cap and trade" programs. Where the risk for these policy proposals lies is in the cost and impact on the public. Over 50% of US electricity is produced by coal powered plants. Literally hundreds of millions of Americans drive vehicles and the nation's goods are almost universally carried at some point by truck. There is no way in my view to diminish fossil fuel use and the generation of carbon dioxide without cost, a high cost in fact. This implies increased taxes on somebody, which means all of us in some form. Increasing taxes is not good for political incumbency unless it can be posed as a necessary sacrifice to save the nation.
There are problems in gaining widespread public acceptance of this need. First, can we be certain that global warming is, in fact, largely the result of human activity. The earth's climate has fluctuated substantially through the centuries and so one can question whether the current situation is truly unique. Second, the US is not an island and I doubt public acceptance of policies that take into account the burning of coal in China, India and elsewhere in the developing world only by sending them money to improve technology while we undergo harsh measures to reduce CO2 emissions domestically. That nasty air blows from China across North America as well. And, finally, measures to reduce carbon emissions centered on coal and industry will impact the industrial midwestern US far more severely than either coastline. To ask hard working midwesterners to sacrifice for the benefit of the "glitterati" of California, New York or Washington, DC will be at best difficult, if not political divisive.
And so in the 10 months since my earlier blogs we have seen sharp economic changes but no real changes in terms of the country's energy policy. The realities on the ground make unlikely either rapid or fundamental changes.
Friday, February 27, 2009
Paradigm Shift?
I first heard the word "paradigm" about 15 years ago. It has certainly come into wide usage. One definition is "pattern", but the connotation is that of a complex pattern with many different elements closely linked. I suppose one would look at the global economic set-up and consider it a paradigm. It is also suggested, given the severity and breadth of the current economic downturn that perhaps the paradigm confronts a change.
For the past decades the world's economy seems to have been divided into rich, consuming countries of which the US is a leader, and countries that have grown their economies primarily through exporting goods to the first group. Japan was probably the first and most successful practicianer developing very large and sophisticated industries producing mostly consumer goods like automobiles and electronic entertainment products but also substantial intermediate goods like machine tools, construction equipment and mechanical components. Japan was so successful that various pundits spoke of the 21st Century as being Japan's century. The decade of the 90's did Japan in as its version of the "bubble" economy burst, a downturn that Japan has yet to recover from. Nevertheless Japan's economy remained dependant on exports and its balance of payments surpluses covered its domestic deficits and generated reserves of hundreds of billions of dollars. As export king, Japan in the last 20 years has given way to China where everything including the balance of payments surplus has been bigger. China now has about a trillion dollars of US debt instruments in reserve. China's emergence as the world's prime exporter had ramifications world wide inasmuch as the prime and intermediate components it needed to support finished goods manufacture were largely imported. So China's exports to the US and western Europe were fueled by exports from Japan, Korea, and Taiwan as well as raw materials shpped from Australia, Indonesia, Brazil, Russia, the US and others.
The very large American economy has been driven by consumption, representing some 70% of its gross national product. The country, probably unconsciously, moved into a regime where much of the consumables were imported and the large imbalance in trade in goods covered by investments of the exporters in US debt. A similar system developed in Europe in recent years as the once poor economies of the former Soviet bloc attracted investment into export industries owing to their comparative cost advantage compared to the developed European markets. While the Chinese and other Asians tended to save their trade surpluses, generating huge national reserves, the eastern Europeans went on a consumption binge aimed at producing parity in life style with the west. Western Europe has also served as a prime market for Asian exporters.
The housing and financial system bubbles in the US and western Europe have come crashing down. Housing markets are paralyzed, banks are insolvent, workers - white, blue and pink collared -are being layed off and nobody except governments are spending. There are other bubble spots affected also, places like Dubai, for example. To the extent that the US and other developed economies reduce imports, the exporters can only suffer sharp declines in their economies as well. Japan's exports have declined 18 to 20% throwing thousands of Japanese out of work, reducing domestic consumption and aggravating government finance. China's export declines have had similar effects, with thousands of newly urbanized workers being forced back into the countryside. Commodity markets that made producers giddily profitable have collapsed. The impact of the price of oil falling from $140 to $42 a barrel has shocked the economies of Russia, Iran and Venezuela not to speak of the budgets of other oil producers. A year ago there were complaints that rice was priced too high for the poor of the world: now Thaland and Vietnam are working together in an attempt to put a floor under the much diminished price. Soybeans, wheat, corn, iron and other minineral ores are all in the dumps. Depressed employment in developed economies badly affects economies in the developing world from the loss of billions of dollars in remittances and the return home of thousands of workers from employment abroad.
The question that remains to be answered is whether this economic downturn, that bodes to be the worst since the Great Depression, is temporary or will the recovery - assuming there will be one - reflect changed circumstances, a "paradigm shift" as it were. It appears likely that the emerging financial systems, world wide, will be subject to greater regulation and that the role of some of the wilder financial products will be much curtailed if not eliminated. One can foresee a move to break up megabanks into more manageable pieces as well as a basically more risk averse financial climate. What will the impact be on venture capital, mergers and acquisitions and private equity buyouts? Those that have, even in these times, are already "bottom fishing" by buying companies in distressed situations and low valuations. Does this imply a more rational system of asset valuation? Fewer retailers? Fewer restaurants? Perhaps even fewer lawyers?
Some have suggested that the US needs to reduce consumption and save more. Conversely China needs to save less and spend more. Whether this can happen and to what degree may be determined by trends that we can only glimpse at present.
A big factor has to be the value of currency and the interrelation between national currencies. Should the US generate the huge budget deficits now contemplated by President Obama there obviously will be a risk that the resultant US debt will overload the market, and diminished demand will drive up interest rates and drive down the relative value of the dollar. A significant devaluation of the dollar relative to Euros, Yen and other currencies can only serve to drive up the cost of imports, like oil, while driving down the cost of US manufactures and commodities. What happens to the world economy if the US no longer generates a balance of payments deficit? Can China, for example, really achieve the rapid economic growth it believes it needs through increased domestic consumption? And without the stimulus of foreign exchange earning exports?
A second trend that may well be in process is a general discrediting of the "free enterprise" market driven economy and its replacement by a far more intrusive public sector. This has been the model in Europe for some time and one can interpret Mr. Obama's budget proposals as moving the US in that direction. But what if the belief that government is the problem, not the solution, and that small government is to be preferred turns out to be right. If we should find ourselves in an economy heavily regulated by a government, motivated by social and political goals, and that plays a large economic role, what may we expect in terms of innovation, new investment and entrepreneurs willing to take risks. Will the new paradigm be one of a stodgy, but safe economy, in which nothing much happens. Ah to live in interesting times.
For the past decades the world's economy seems to have been divided into rich, consuming countries of which the US is a leader, and countries that have grown their economies primarily through exporting goods to the first group. Japan was probably the first and most successful practicianer developing very large and sophisticated industries producing mostly consumer goods like automobiles and electronic entertainment products but also substantial intermediate goods like machine tools, construction equipment and mechanical components. Japan was so successful that various pundits spoke of the 21st Century as being Japan's century. The decade of the 90's did Japan in as its version of the "bubble" economy burst, a downturn that Japan has yet to recover from. Nevertheless Japan's economy remained dependant on exports and its balance of payments surpluses covered its domestic deficits and generated reserves of hundreds of billions of dollars. As export king, Japan in the last 20 years has given way to China where everything including the balance of payments surplus has been bigger. China now has about a trillion dollars of US debt instruments in reserve. China's emergence as the world's prime exporter had ramifications world wide inasmuch as the prime and intermediate components it needed to support finished goods manufacture were largely imported. So China's exports to the US and western Europe were fueled by exports from Japan, Korea, and Taiwan as well as raw materials shpped from Australia, Indonesia, Brazil, Russia, the US and others.
The very large American economy has been driven by consumption, representing some 70% of its gross national product. The country, probably unconsciously, moved into a regime where much of the consumables were imported and the large imbalance in trade in goods covered by investments of the exporters in US debt. A similar system developed in Europe in recent years as the once poor economies of the former Soviet bloc attracted investment into export industries owing to their comparative cost advantage compared to the developed European markets. While the Chinese and other Asians tended to save their trade surpluses, generating huge national reserves, the eastern Europeans went on a consumption binge aimed at producing parity in life style with the west. Western Europe has also served as a prime market for Asian exporters.
The housing and financial system bubbles in the US and western Europe have come crashing down. Housing markets are paralyzed, banks are insolvent, workers - white, blue and pink collared -are being layed off and nobody except governments are spending. There are other bubble spots affected also, places like Dubai, for example. To the extent that the US and other developed economies reduce imports, the exporters can only suffer sharp declines in their economies as well. Japan's exports have declined 18 to 20% throwing thousands of Japanese out of work, reducing domestic consumption and aggravating government finance. China's export declines have had similar effects, with thousands of newly urbanized workers being forced back into the countryside. Commodity markets that made producers giddily profitable have collapsed. The impact of the price of oil falling from $140 to $42 a barrel has shocked the economies of Russia, Iran and Venezuela not to speak of the budgets of other oil producers. A year ago there were complaints that rice was priced too high for the poor of the world: now Thaland and Vietnam are working together in an attempt to put a floor under the much diminished price. Soybeans, wheat, corn, iron and other minineral ores are all in the dumps. Depressed employment in developed economies badly affects economies in the developing world from the loss of billions of dollars in remittances and the return home of thousands of workers from employment abroad.
The question that remains to be answered is whether this economic downturn, that bodes to be the worst since the Great Depression, is temporary or will the recovery - assuming there will be one - reflect changed circumstances, a "paradigm shift" as it were. It appears likely that the emerging financial systems, world wide, will be subject to greater regulation and that the role of some of the wilder financial products will be much curtailed if not eliminated. One can foresee a move to break up megabanks into more manageable pieces as well as a basically more risk averse financial climate. What will the impact be on venture capital, mergers and acquisitions and private equity buyouts? Those that have, even in these times, are already "bottom fishing" by buying companies in distressed situations and low valuations. Does this imply a more rational system of asset valuation? Fewer retailers? Fewer restaurants? Perhaps even fewer lawyers?
Some have suggested that the US needs to reduce consumption and save more. Conversely China needs to save less and spend more. Whether this can happen and to what degree may be determined by trends that we can only glimpse at present.
A big factor has to be the value of currency and the interrelation between national currencies. Should the US generate the huge budget deficits now contemplated by President Obama there obviously will be a risk that the resultant US debt will overload the market, and diminished demand will drive up interest rates and drive down the relative value of the dollar. A significant devaluation of the dollar relative to Euros, Yen and other currencies can only serve to drive up the cost of imports, like oil, while driving down the cost of US manufactures and commodities. What happens to the world economy if the US no longer generates a balance of payments deficit? Can China, for example, really achieve the rapid economic growth it believes it needs through increased domestic consumption? And without the stimulus of foreign exchange earning exports?
A second trend that may well be in process is a general discrediting of the "free enterprise" market driven economy and its replacement by a far more intrusive public sector. This has been the model in Europe for some time and one can interpret Mr. Obama's budget proposals as moving the US in that direction. But what if the belief that government is the problem, not the solution, and that small government is to be preferred turns out to be right. If we should find ourselves in an economy heavily regulated by a government, motivated by social and political goals, and that plays a large economic role, what may we expect in terms of innovation, new investment and entrepreneurs willing to take risks. Will the new paradigm be one of a stodgy, but safe economy, in which nothing much happens. Ah to live in interesting times.
Sunday, February 22, 2009
Institutionalized Hysteria
It’s nice to note when political luminaries reach the same conclusion that I had reached some years ago: that the US policy on illicit drugs has been a failure. The Wall Street Journal on February 12 reported that a commission headed by former President of Brazil (Hernando Henrique Cardoso), of Colombia (C�sar Gaviria) and of Mexico (Ernesto Zedillo) concluded that the US –led drug war was a failure, one that is pushing Latin American societies to the breaking point. The turmoil now affecting Mexico, a development that discourages Americans from visiting that country or even crossing the border, with its headlines detailing violent gun battles, assassinations and kidnappings as the narcotraficantes battle police and army, is possibly the clearest example for Americans of the impact of this war on neighboring societies. Details of the struggle also make clear the degree to which the narcotics traffic has corrupted government institutions. As Mary Anastasia O’Grady, the Journal’s correspondent for Latin America, points out frequently, the corruption and social ills resulting from the war on drugs has badly affected many Latin American societies, not just Mexico’s but those of Colombia, Peru, Bolivia, and the Central American and Caribbean republics.
The tragedy of this effort is that it has failed in its stated objective to eliminate or at least sharply reduce the consumption of illicit drugs within the United States. A recent Brookings Institution study found that despite interdiction and eradication efforts, governments around the world have failed to decrease appreciably the supply of such drugs nor have punitive measures succeeded in lowering drug use. Washington Post columnist Edward Schumacher-Matos in an article that appeared on February 21 alleges that the present US street price for cocaine is only one-fourth of what it was in 1981. Confronted with this evident failure, a failure that has been clearly visible for many years, one searches for reasons that governments, especially that of the US, remain in denial.
My choice for the prime reason is social, a form of institutionalized hysteria, an hysteria so firmly entrenched that few dare to challenge the political viewpoint that we need not only to continue the “war” but to expand the effort. The popular viewpoint from my experience seems to flow from a belief that a single puff of marijuana leads to experimentation with cocaine and then to heroin addiction. This viewpoint was deliberately promulgated in the late 1930’s by people actively campaigning to organize an official counter-narcotics program. That it is believed shouldn’t be surprising: a substantial number of Americans also reject the theory of evolution.
Drug addiction is a serious social problem in many societies but this official viewpoint of the inevitability of addiction is simplistic and its consequences very damaging. But with an entrenched bureaucracy, the Drug Enforcement Agency (DEA), spending several billions of dollars concentrated on punitive efforts, changing official policy is not easy. An example is the assertion of John Walters, former director of the White House Office of National Drug Control Policy that:” It is not true that we’ve lost or can’t do anything about the drug problem”. His example was improved security in Colombia, but without mentioning the more than five billion dollars provided that country in mostly military assistance in its war against drug-financed guerrilla groups. As to Mexico he asserts that it is success in the drug war that has driven desperate traffickers to violence, assuming that they’re fighting over dwindling areas of influence.
Demand, not supply, drives illicit drug use. The US has focused, unsuccessfully as has been evident for some time, mostly on the supply side of the equation. Demand for substances that alter human behavior has existed since the emergence of modern man, some 60,000 years ago. Early on the results of fermenting fruit and grain became noted and used. Some millennia back came the production of mead, beer and wine. A safe statement is that ethyl alcohol is the most costly “drug” now in use in America. Prohibition was logically correct, but failed utterly as society refused to give up a drug to which it had adapted over the centuries.
Probably the second most damaging drug, albeit in declining use, is nicotine. Nicotine is the addictive element of its carrier, tobacco, the mainstay of America’s colonial economy, a crop on which the nation was largely built. A third, caffeine, as found in coffee, has gone from European 18th century coffee shops to today’s billion dollar coffee shop chains. Millions of dollars are spent by consumers on coffeemakers and exotic coffee beans. And that doesn’t even cover another caffeine carrier in wide use, especially by youth, cola drinks.
So why the “war”. Cannabis, opium poppies and coca plants are not typically grown inAmerica. Their use, however, has only come under attack in this country about 80 to 90 years ago. One factor I believe is ethnocentrism. The effects of these chemicals can be devastating, and they are often addictive. But, importantly, their source has traditionally been among “brown-skinned” foreigners, and thus “un-American”. The answer then to the problem has been interdiction. Stop the trade!
Driven by American consumer demand these drugs have continued to flow into the country. Proscription has only served to support sales prices that in turn have resulted in shifting billions of dollars from users to producers and traffickers. This flow of great, if illicit, wealth has brought immense social damage to producing countries.
Relatively few people who experiment with illicit drugs fall into addiction. But some do and the reason would appear to be in the makeup of the individual. Perhaps nature, that is a tendency towards addiction, is worsened by nurture, dysfunctional families or traumatic childhoods, but this doesn’t explain many cases of addiction. We don’t really know. We speak of “addictive personalities” to describe those who seem unable to avoid alcoholism or other forms of drug addiction. We also know that a vast majority of people can enjoy alcoholic beverages with few perverse effects. Some have been know to smoke marijuana or use cocaine with out falling into addition. So society’s problem is more with the few than with the many.
We know that social interactive groups like Alcoholics Anonymous have been able to alter addictive behavior, but not easily and not always permanently. Other individuals have been able to kick addition on their own, going “cold turkey”. Research suggests that drugs alter the chemistry of the brain and that some individuals are more susceptible than others. Perhaps a better understanding of brain function would permit the development of “addiction blockers”. But this is speculation.
The Drug Enforcement Agency appears mostly to be involved in interdiction of supply. One could speculate that if the US Government hadn’t created this agency, the drug trade would have created something similar inasmuch as it performs a useful function. The DEA doesn’t really cut off supply but it knocks off those in the trade who are either dumb or unlucky, restricting the supply and helping to maintain prices, which has to aid the more skilled traffickers. Particularly in Afro-American communities, well meaning and concerned groups, churches for examples, have worked hard to combat the pernicious effects of excessive drinking, crack cocaine and other evils. Given their failure despite best efforts to bring these plagues under control, one wonders why they persist in the illusion that the “cowboys” from the DEA or “Washington” in general will succeed where they have failed.
Surely the American public and its elected political leaders should have learned from the failure of Prohibition that government edicts do little to change behavior and that attempts to enforce such edicts against the will of substantial numbers of people are doomed to be costly failures. As to the cost, the Office of National Drug Control Policy estimates the present annual cost at $21 billion. Of this sum, $14 billion is spent on incarceration of offenders. As of 2007 there were 500,000 individuals incarcerated for drug offenses. The social and financial cost of keeping this many people in prison boggles the mind. And that ignores the billons spent ineffectually chasing traffickers.
Surely it is time to abandon hysteria, move away from denial and recognize reality. We not only haven’t been able to halt the flow of illicit drugs from abroad into the country, but we have also to cope with chemists who synthesize drugs such as “ecstasy” and amphetamines and who do not need to be outside the good old US of A.
A first step, as recommended by the Commission of former Presidents, is to decriminalize marihuana. Cannabis may not be good for you, but the potential damage appears modest and not commensurate with the costs of trying to eliminate it. A number of benefits would flow from this measure. One, it would free up a significant amount of enforcement effort, allowing law enforcement agencies to concentrate their limited resources on more serious problems. It should also serve to reduce the prison population a positive benefit for those affected as well as for society at large. It would also free the public arena of countless legal battles over “medical” uses of marijuana and the production of product for such use.
Make it legal, sold only through registered dealers and taxed in the fields and retail. Turn it into an income source for public uses rather than a drain on public resources. Once growing becomes legal, allowing us to get illicit growers out of our National Parks and sundry basements, the laws of economics should result in modest prices removing current incentives for farmers in Mexico’s Sierra Madre Occidental to grow hemp instead of corn. I’m sure there will be those who will want to circumvent the law, but they will be in violation of tax laws, and can be prosecuted as we once did Al Capone.
Once marijuana is legalized, the thrust of new policies with respect to illicit drugs should be to move resources away from interdiction, especially overseas, and to concentrate on the demand side. This could include enhanced enforcement actions against users, but more importantly, much more funding for treatment programs and serious research into addiction and its treatments. The US needs to find means of combating the ills of addictive drug use but without generating the billions of dollars now accruing to the drug producers and traffickers. A rational approach of looking at drug addiction as a medical problem rather than merely criminal together with sharply focused and more limited enforcement would I submit contribute to this goal.
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