Risks and Rewards

Nouriel Roubini, dubbed “Dr. Doom” during the Aughts for his prophetic warnings of a global financial crisis, takes to the The Guardian to warn of an incipient global trade “Cold War”:

The US blames China for the current tensions. Since joining the World Trade Organization in 2001, China has reaped the benefits of the global trading and investment system, while failing to meet its obligations and free riding on its rules. According to the US, China has gained an unfair advantage through intellectual property theft, forced technology transfers, subsidies for domestic firms and other instruments of state capitalism. At the same time, its government is becoming increasingly authoritarian, transforming China into an Orwellian surveillance state.

For their part, the Chinese suspect that the US’s real goal is to prevent them from rising any further or projecting legitimate power and influence abroad. In their view, it is only reasonable that the world’s second-largest economy (by GDP) would seek to expand its presence on the world stage. And leaders would argue that their regime has improved the material welfare of 1.4 billion Chinese far more than the west’s gridlocked political systems ever could.

Regardless of which side has the stronger argument, the escalation of economic, trade, technological, and geopolitical tensions may have been inevitable. What started as a trade war now threatens to escalate into a permanent state of mutual animosity. This is reflected in the Trump administration’s national security strategy, which deems China a strategic “competitor” that should be contained on all fronts.


The global consequences of a Sino-American cold war would be even more severe than those of the Cold War between the US and the Soviet Union. Whereas the Soviet Union was a declining power with a failing economic model, China will soon become the world’s largest economy, and will continue to grow from there. Moreover, the US and the Soviet Union traded very little with each other, whereas China is fully integrated in the global trading and investment system, and deeply intertwined with the US, in particular.

We have been in a trade war for nearly 40 years; until recently it has been in essence a rout with the U. S. yielding the field to competitors. A response from the United States is long overdue. The decline in jobs from 1980 to 1990 reflects competition with Japan. The decline in jobs since 1990 and, in particular, since 2000 when China was admitted to the WTO reflects competition with China.

However, let’s change the story that Dr. Roubini is telling. In the United States trade has been portrayed as having practically nothing but benefits for the people of the United States. The truth is more complicated. There are winners and losers. Who has benefited from the status quo ante? In my assessment

  1. The Chinese leadership
  2. The Chinese people
  3. American top management and other stockholders
  4. Ordinary Americans

in descending order of gain.

Consider the chart at the top of this post. It illustrates the change in vehicle prices over the years. If you cruise over to the Bureau of Labor Statistics, its CPI tells essentially the same story. Whether in nominal or real terms the price of vehicles has not collapsed. The most you can say is that they’ve been pretty flat. Said another way consumers are not capturing most of the economic benefit of trade. I could go through a litany of other goods and it would tell a similar story. Consumer prices are not collapsing, they are rarely even declining. The economies of cost that are being realized through trade are not being realized by consumers.

Adding fuel to the fire the great ignored factor is that trade has risks as well as rewards as this graph illustrates:

Most of those who have lost their jobs as a result of trade or, alternatively, been rehired in jobs that paid less, have been ordinary Americans.

My proposal is that rather than considering developments through the metaphor of trade war we should be thinking in terms of risk and reward and those who are dismayed at the prospect of the United States trying to change the trend of prices that aren’t falling but wages that are by rebalancing trade need to propose alternatives to restricting trade that would have that effect. I think that Chinese mercantilism tells us that there are no such policies that won’t meet counter-moves from the Chinese but I have an open mind.

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The Decline of Local Government

You might want to take a look at this piece by Simon Haeder at The Converation. In it he explores the history of public hospitals in the United States and the effect that Medicare and Medicaid have had on them:

The U.S. could potentially even have ended up with a British-style, government-run health care system. Yet, the country went a different route. Instead of expanding, public hospitals have been closing since the 1960s in large numbers. How come?

In my recent academic paper on the subject, I analyzed the creation and closure of public hospitals in California, the state with one of the most extensive public hospitals system in the nation. My findings indicate that when state and federal governments extended health coverage through programs like Medicaid and Medicare, all but the most well-resourced local governments in turn began closing their hospitals.

My findings bear implications for policy debates today. Advocates for any large-scale health reform effort such as Medicare-For-All should be mindful of the eventual unintended side-effects they may trigger.

That may be surprising to some but it isn’t to me. It’s completely consistent with what I’ve been saying. Federalization neuters local governments. It doesn’t expand the services available at the local level but decreases them for most people.


We Can’t Afford the Future

As I read this piece at City Journal on the explosion of crimes against property in San Francisco it occurred to me that we are evolving not only into a country of haves and have nots but one that is so expensive to maintain that we can’t afford it. Our system assumes a common understanding of the basic of right and wrong, e.g. the Ten Commandments, that the behavior of most people is restrained by conscience, and that the authorities need only deal with a low level of crime.

I’m concerned that we are evolving towards a society that requires a level of police presence that would make East Germany’s Stasi or Ceaușescu’s Securitate seem laissez-faire by comparison. Who benefits from the world to which we are evolving? Only criminals as far as I can see. The poor bear the brunt of crime. The rich pay the costs of keeping the crime away from themselves.


The Triumph of Robert E. Howard

I did not become a fan of Game of Thrones. The series killed off the only character in which I had even the slightest interest at the end of its first season. It was too grim and too perverse for me.

But who would have thought that series finale of a sword and sorcery fantasy television series would have made national headline news? Somewhere Robert E. Howard is smiling.


The Stopped Clock

At the New York Times Omer Aziz urges support for President Trump’s immigration plan. Here is the kernel of the piece:

When an immigration system becomes overburdened, even immigrants and their children can become pessimistic. I have heard Canadians of Hungarian, West Indian and Pakistani origin all express frustration that more recent arrivals have jumped the line. Part of this is the very human tendency of immigrants to pull up the drawbridge after they have crossed over. Part of it is a sincere belief that the integrity of the system that brought them here should not be corrupted.

In the United States, the vicious cycle of unlawful migration and heightened xenophobia has been going on for decades. It’s what led to Mr. Trump’s election in 2016, and if Democrats cannot propose reasonable alternatives on immigration, they will lose again. No amount of multicultural sloganeering will assuage Americans’ concerns that the system is broken.

It is not unreasonable for the United States to adopt a system similar to those of countries we resemble like Canada or Australia. We are all geographically large, primarily English-speaking former British colonies. Letting the perfect be the enemy of the good, as Democrats seem predisposed to do on this issue, does provide a trap. While exercising their hatred of all things Trump, they also portray themselves as radicals out of touch with the concerns of many Americans.


Alternative Medicine

The media love a horse race—a competition between stark alternatives. Although the present discourse presents the future of medicine as between maintaining the status quo and “Medicare For All” there are other alternatives. In an op-ed in the Wall Street Journal John Carlson explains one of them:

If Todd Gibbons from Poulsbo, Wash., has an aching shoulder or needs a physical, he can call and schedule an appointment on a day’s notice, maybe the same day. His physician is also available for phone consultations and even makes house calls. It all costs Mr. Gibbons $150 a month to cover his family of five.

Costs are so low and coverage so good because the Gibbons family goes to Vintage Direct Primary Care—a medical practice that treats patients for routine care and procedures for a monthly membership fee. Virtually every routine service—from electrocardiograms and pap smears to stitches and physicals—is included. There are no office-visit fees or copayments. All physician services and procedures offered at Vintage are covered, and all without the use of health insurance.

Without third parties taking money and adding overhead, Vintage can offer medications and lab tests not covered by the monthly fee at wholesale prices. A cholesterol blood test is $3.20 for a Vintage member, but $22 at other in-network providers, according to Fair Health Consumer. Drugs are cheaper. Vintage buys directly from three national wholesalers, which compete to provide medications at the best possible price for any given patient, and Vintage resells them at cost. A 30-day supply of the generic equivalent of 40 mg Lipitor for cholesterol is $3.30 at Vintage. At Walmart it’s $9. Sildenafil, the generic for Viagra, is 37 cents a pill. The next cheapest option in Poulsbo is Safeway at $2.13. Over-the-counter drugs are also cheaper and available in-house at Vintage. Cetirizine allergy pills (the generic version of Zyrtec) are 6 cents a tablet at Vintage, about half the Walmart price.

Costs are low and transparent. The monthly fee, whether paid by employer or individual, is predictable and easy to budget. Patients still need high-deductible insurance or cost-sharing pools to cover nonroutine procedures and care. But complementing a direct primary care plan with one of those two options is still the cheapest coverage.

For example, Atlas MD in Wichita, Kan., works with more than 100 small companies that have formed partnerships with Allied National insurance to create plans based on clinics coupled with catastrophic-care policies. Josh Umbehr, owner and medical director at Atlas, says these companies save 30% to 60% by switching from traditional health insurance plans.

Tax incentives currently discourage employers from switching to direct primary care plans. One possible fix would allow patients to use health-savings accounts to pay for membership. The IRS could make this change by redefining a direct primary care membership as an eligible HSA expense.

Cutting the middlemen out of daily health care won’t solve all of the medical system’s problems. But altering the tax code to encourage employers to use direct primary care could help control or even shrink costs. Most important, it would improve the quality of care by letting doctors spend less time filling out paperwork for reimbursement and more time helping patients.

Think of direct primary care as extending the recurring revenue model adopted by Microsoft or Netflix to health care. It sounds a bit like what HMOs were supposed to be but instead became something completely different. As noted in the op-ed direct primary care doesn’t cover every conceivable health care expense but it does cover a lot of people’s everyday experience with health care. And it would allow insurance to be limited to covering insurable risks.



One of my nieces just completed a full ironman triathlon. Her finishing time was 5:24:16.

I don’t know whether to congratulate her or be worried for her. I settle on congratulations. Congratulations!

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The Price of Pritzker

Dan Petrella and Jamie Munks of the Chicago Tribune report that Illinois Gov. J. B. Pritzker is preparing an infrastructure spending bill to submit to the legislature:

Gov. J.B. Pritzker is set to unveil a six-year, $41.5 billion plan to repair Illinois’ crumbling roads, bridges, public schools and university buildings in a massive proposal that calls for nearly $1.8 billion in new taxes and tax increases, according to documents provided to lawmakers at a Friday briefing.

Dubbed Rebuild Illinois, it would be the state’s first large-scale infrastructure improvement program in a decade and would result in higher costs for everything from ride-sharing to cable and streaming services, as well as a significant hike at the gas pump.

The long-awaited proposal, which comes as lawmakers are working to finalize the state budget before their schedule May 31 adjournment, received a lukewarm response from some of the governor’s fellow Democrats and pushback from some Republicans. The preliminary drafts distributed Friday follow behind-the-scenes negotiations with a bipartisan group of lawmakers. Changes are expected even before Pritzker makes a formal announcement next week.

Anyone who has driven from Illinois into Indiana, Wisconsin, or Iowa cannot help but notice the marked difference between our neighboring states’ roads and ours and a lot of Gov. Pritzker’s plan is, apparently, devoted to roads and bridges. One might want to mull over why Illinois’s roads and bridges are in such obviously worse shape than, say, Iowa’s. I think it’s because every available dollar is being used here to pay present and past public employees.

The governor intends to pay for part of his plan by raising taxes:

Pritzker’s outline includes doubling the state gas tax to 38 cents per gallon from 19 cents; tiered increases in vehicle registration fees based on the vehicle’s age; a $250 annual registration fee for electric vehicles; a $1-per-ride tax on ride sharing; and a 7% state tax on cable, satellite and streaming service.

Other taxes being discussed include a new 6% tax on daily and hourly garage parking, a 9% tax on monthly and annual garage parking, and an increase in taxes on manufacturers and importing distributors of beer, wine and spirits.

but he intends to let future generations pay for most of the cost:

The largest share of the program, $17.8 billion, would be funded through state bonds, while more than $7 billion would come from regular revenue. The plan counts on more than $10 billion in federal funding and $6.6 billion from local governments and private sources.

Let the feeding frenzy begin! Every county and particularly Cook County, Will County, DuPage County, and Lake County will be vying for as much of the spending as they can corral.

How many people will still live in Illinois 30 years from now when the bonds mature?


Addressing the Border Crisis

At the Rand Blog Blas Nunez-Neto proposes four measures to address the crisis at our southern border. I agree with two of them and 50% ain’t bad. Here they are:

  1. Expanding the use of non-restrictive detention options for families. This could include large increases in the use of minimally invasive tools that can allow families to be released while ensuring that they can be located and notified about their court cases. It could also include creating statutory guidelines and expanding the capacity to detain families in non-restrictive facilities. These guidelines could ensure that facilities that handle families have humane conditions and feature age-appropriate protections and learning opportunities for all detainees.
  2. Ensuring that families have access to counsel. Individuals who have counsel are far more likely to show up for their immigration court cases than those who do not. As part of any reform of the asylum system, Congress could consider whether this benefit outweighs the costs of requiring that all asylum seekers have access to qualified counsel.
  3. Creating new processes to allow some of these families to apply for visas to come to the United States while they are still in their home countries. If policymakers believe that these migratory flows are likely to continue, they may consider providing legal mechanisms for families from these countries to come the United States.
  4. Adding capacity to the immigration court system. The current backlogs in these courts are the byproduct of a broken and under-resourced system. Congress could closely review the entire system to identify the bottlenecks that have led to these record backlogs and increase the number of immigration judges who are qualified to hear asylum cases.

I agree with #3 and #4. I think that the adverse consequences of the other two are likely to outweigh the intended effects.

They say that acknowledging you have a problem is the first step on the road to recovery. I guess that referring to the situation on our southern border as a crisis is a step in the right direction.


Perverse Outcomes

Decisions to make the children of people coming into the United States illegally safer have had the perverse consequence of endangering them. At CNN Priscilla Alvarez reports that DNA testing of “families” suspect of being nothing of the kind has found an alarming percentage of frauds:

The Department of Homeland Security is considering next steps in DNA testing on the southern border, following a pilot program that concluded last week.

DHS ran the DNA pilot program to help identify and prosecute individuals posing as families in an effort to target human smuggling. The Rapid DNA testing, as it’s known, involves a cheek swab and can, on average, provide results in about 90 minutes.

“We’re continuing to analyze the results of the DNA, analyze where we think it’d be appropriate in the processing line,” said Alysa Erichs, acting executive associate director of Immigration and Customs Enforcement’s Homeland Security Investigations.

ICE has briefed acting DHS Secretary Kevin McAleenan on the DNA testing, Erichs said.

Before the DNA pilot program, ICE Homeland Security Investigations personnel had been deployed to the border in April to investigate human smuggling and the use of fraudulent documents to “create fake families.” There are now 130 Homeland Security Investigations personnel at the border.

As of Friday, Homeland Security Investigations teams, which consist of agents and specialists, had interviewed 562 families who presented some indication of fraud. Homeland Security Investigations identified 95 fraudulent families through interviews and 176 fraudulent families through fake documents.

The administration has argued that the limit on how long migrant children can be held in detention is a pull factor because it guarantees release, prompting some individuals to pose as families.

The prospect of an interview or, more recently, a DNA test has led some migrants posing as families to concede that they are not related, Erichs said. In cases where migrants have conceded that they have no familial connection, ICE has referred the adults for criminal prosecution and turned over the minors to the care of the Health and Human Services Department.

In other words when it becomes known that travelling with a child eases your way into the United States, inevitably more people seeking to enter the United States travel with children. DNA testing has now demonstrated that some of the children with whom these people are travelling are not their own.

What will become of these children once these “families” are admitted? Will they be abandoned? Sold? Given to relatives already in the United States? How could we ever know? This entire situation has left us in the position in which there’s a moral imperative to keep families together and a moral imperative to separate them.