Over the weekend we had houseguests—he’s a prominent California healthcare attorney, she’s a medical ethicist. They’re both readers albeit silent ones of this blog and as you might expect over the course of the weekend the conversation turned from time to time to the state of the healthcare system, both from the vantage point of consumers—we’re all aging and our contact with the system as consumers is increasing—and of observers. He and I disagree over the degree to which over-utilization figures in increasing healthcare costs. Since I am familially culturally averse to over-use of healthcare, the idea is foreign to me. Our friend points out that if all patients were like me over-utilization wouldn’t be an issue.

However, we agree that if the manifest problems with our healthcare system are to be addressed the fee for services paradigm in healthcare services compensation has got to go. That’s why this observation by Phillip Longman in the Washington Monthly caught my attention:

The largest single reason for this extraordinary volume of wasteful and often dangerous overtreatment is Medicare’s use of the “fee-for-service” method of compensating health care providers that dominates U.S. medicine, under which doctors and hospitals are rewarded according to how many procedures and tests they perform. To fix this, the federal government should do the following: announce a day certain and near when Medicare will be out of the business of subsidizing profitdriven, fee-for-service medicine.

Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration. All these are nonprofit, mission-driven, managed care organizations widely heralded by health care experts for their combination of cost-effectiveness and high quality, including cutting-edge use of electronic medical records, adherence to protocols of care based on science, and avoidance of medical errors. Because doctors working at these institutions are not compensated on a fee-for-service basis, they are neither rewarded for performing unnecessary tests and surgeries nor penalized financially for keeping their patients well. And unlike for-profit HMOs, these institutions are not pressured by shareholders to maximize earnings through withholding appropriate care.

I think that we made a strategic error 45 years ago when the Medicare plan was first implemented. Rather than using private insurance as a model we should have used the VA. However, since I recall the debates at the time, I’m well aware of why no such plan was adopted: the medical profession mounted an active, vehement campaign against it. I believe we’re seeing the consequences of that decision now.

As I see it the most serious problems with our healthcare system are:

• Medicare costs are rising at an unaffordable rate.
• Medicaid is bankrupting the states.
• Too many communities are under-served.
• Individual healthcare insurance is simply unattainable for too many people and its costs can be ruinous.

I don’t think that any of those issues can be addressed without a radical change to our present system, far more radical than the ACA (called “ObamaCare”) and those who benefit by the present system will fight radical changes to their last breaths.

As for Mr. Longman’s proposal, I wonder how many Americans don’t have institutions like those he’s named available to them? My guess is many and such institutions are not started overnight and, importantly, don’t develop the cultures and repute these institutions have overnight. The simplest strategy for those who’d oppose a transition to something over than fee for service is do nothing. Will elected officials stick to their guns and allow so many voters to go without healthcare? He must be thinking of some other elected officials.

Economist Steve Hanke, writing at Globe Asia, uses a lesson in reading banks’ balance sheets to predict a coming recession:

For a bank, its assets (cash, loans and securities) must equal its liabilities (capital, bonds and liabilities which the bank owes to its shareholders and customers).

In most countries, the bulk of a bank’s liabilities (roughly 90 percent) are deposits. Since deposits can be used to make payments, they are “money.” Accordingly, most bank liabilities are money. To increase their capital-asset ratios, banks can either boost capital or shrink “risk” assets. If banks shrink their “risk” assets, their deposit liabilities will decline. In consequence, money balances will be destroyed.

The other way to increase a bank’s capital-asset ratio is by raising new capital. This, too, destroys money. When an investor purchases newly-issued bank equity, the investor exchanges funds from a bank deposit for new shares. This reduces deposit liabilities in the banking system and wipes out money.

So, paradoxically, the drive to deleverage banks and to shrink their balance sheets, in the name of making banks safer, destroys money balances. This, in turn, dents company liquidity and asset prices. It also reduces spending relative to where it would have been without higher capital-asset ratios.

By pushing banks to increase their capital-asset ratios to allegedly make banks stronger, the establishment has made their economies (and perhaps their banks) weaker. This is certainly the wrong medicine to prescribe when the economy is weak.

One of the things I’ve noticed in reading analyses of the economic downturn is the sharp dichotomy in views between economics professors and finance professors. Hanke is, essentially, a finance prof (”Applied Economics”).

Gallup reports that small business owners’ primary concern is government regulation:

PRINCETON, NJ — Small-business owners in the United States are most likely to say complying with government regulations (22%) is the most important problem facing them today, followed by consumer confidence in the economy (15%) and lack of consumer demand (12%).

This conflicts pretty starkly with the NASB surveys which have persistently found low demand to be the most significant single concern. It’s possible that can be explained by NASB’s disproportionate membership of real estate and hospitality concerns.

Clearly, small business owners have been brainwashed into believing that government regulation is their main problem. What do they know?

All snark aside a little farther down in the survey the small business owners’ prescription for improving things casts the matter into even more confusion:

When asked what they would need to see in order for their business to thrive in 2012, the nation’s small-business owners are most likely to say growth in sales (15%), job creation (14%), and fewer government regulations (12%).

which would seem to me to reverse the first set of responses. In all likelihood small business owners are like the rest of us: they don’t know what to do about it but they do know that something is wrong.

Yesterday I received a solicitation phone call that took a somewhat different tack: the phone solicitor offered to connect me to my state representative’s office to voice my support for a new, refurbished power grid in Illinois. I suspect this is what it was all about:

ComEd has been lobbying hard for SB 1652, commonly referred to as the ComEd bill, which would launch a sophisticated smart-grid program that would give consumers a chance to cut their electric costs over the long haul but require them to open their wallets now to pay for the power company’s upgrade.

The measure could mean significant changes for folks who have come to expect their daily interaction with the power company to involve little more than flipping a light switch. Mostly gone would be meter readers, eventually replaced by electronic devices that upload information directly to ComEd and let customers see how much power they’re using.

ComEd says a customer who’s now paying $82 a month for electricity would have to cough up $3 per month more for 10 years to pay for the smart-grid conversion. But the technology — when it’s up and running in a few years — in theory could save customers $3 a month by helping them control their energy consumption and making ComEd more efficient, said Anne Pramaggiore, the utility’s chief operating officer and president.

As I read it ComEd is asking for more money and laxer oversight to do what they should be doing anyway using the same inducements they’ve been using for a half century. For fifty years Commonwealth Edison and now ComEd have been promising Chicago consumers lower utility rates and somehow the lower rates never materialize.

As readers of this blog should recall I’m entirely in favor of an improved power grid that provides greater efficiency, resiliency, and adaptivization. And I’ve complained enough here about power outages. However, I’m also disinclined to take the word of a company that’s been baiting and switching its customers for decades. I also wonder what restrictions there are on the company in raising capital through private means. People keep telling me how low interest rates are. Wouldn’t this be a good time for ComEd to issue bonds for the upgrade?

There is certainly a lot of apocalyptic rhetoric in the media these days. Just today I’ve been inundated with examples. This op-ed in The Weekly Standard, for example, is sub-captioned “The global debt apocalypse approaches”. The op-ed itself points to the Asian debt crisis of the 90s as a harbinger, takes not of the slow motion collapse of the eurozone today, and predicts our own debt crisis within the next few years. I note in passing that the author neglects to mention the enormous amount of borrowing that’s been done in China over the last several years, some of it legitimate (as much as anything in oligarchic China is legitiimate) but a lot of it in the black market.

At MarketWatch Paul B. Farrell warns of an imminent global apocalypse due to overpopulation:

Today, First World citizens consume 32 times more resources and put out 32 times more waste than Third World citizens. And now they all want our lifestyle.

Yes, by 2050 the American dream will be the Global dream, exhausting the world’s natural resources. In fact, if all nations consumed resources at the same rate as America today, we’d need six Earths just to survive today.

Fast forward to 2050 and a population of 10 billion. Warning: In our silence today, we are committing suicide tomorrow.

At RealClearMarkets Joe Calhoun takes note of Europe’s continuing competitive can-kicking contest, China’s modern pyramid-building strategy, and tips his hat to our own economic problems:

The economy will probably have to fend for itself until 2013 and luckily there are some reasons to believe growth will continue, assuming the Fed can resist the urge to tinker. Housing appears to finally be on the verge of healing itself – construction will probably add to GDP this year – and corporate investment continues to be strong. Corporate lending continues to pick up with C&I loans rising steadily since late last year. Corporate earnings are once again coming in better than expected and inventories are conservative. The caveat is that a European debt implosion or a Chinese hard landing would probably overwhelm this natural momentum and there is no room for stimulus – monetary or fiscal – if we fall back into recession. Let’s hope neither comes to pass before we decide to get serious about solving our budget and growth deficits.

The title of his post is “Cloudy With A Chance of Armageddon”.

Have a nice day.

In remarking on the president’s new proposal for targeted mortgage subsidies Keith Hennessey observes:

Many elected officials have a bias toward government action: they see a problem and ask “What can we do to fix it?” The solutions they embrace often arise from an iterative process in which advisors compare the problems that exist with the policy tools available to address them and make the best possible match.

Sure. Nobody ever got re-elected for forbearance.

For more detailed commentary on the proposal see Bruce Krasting or Felix Salmon. The consensus on the proposal, for which only mortgages owned or insured by Fannie Mae or Freddie Mac and which are presently worth 80% of their face value or less appear to be eligible, seems to be that it’s a pathetic attempt to appear to be doing something. If our problem is a Keynesian one of inadequate aggregate demand, it will help very little: the amount involved is less than .1% of the president’s jobs plan.

If our problem is a problem of household balance sheets, it will do accomplish less than that.

If this weren’t, what, the fourth try at addressing this particular problem you might say at least it’s a first step. I wonder how effective even the political aspect of the plan will be when they figure out how much of the benefit will go to the 1%.

I guess this is what our political system produces these days. A journey of 10,000 miles, one pratfall at a time.

Update

Yves Smith is even more critical:

This plan will at best provide only modest help to homeowners. And in some cases, it will worsen their position. In some states, a purchase money mortgage is non-recourse. In all state, my understanding is a refi is recourse with only narrow exceptions.

It will have virtually no impact on the housing market because it will keep loan balances at the same inflated levels. Similarly, it will not contribute in any way to new construction.

Her sense is the same as mine: the Administration desperately wants to be seen to be doing something, effective or not. Howwever, she also adds that this proposal is bank-friendly, which echoes my point above on the 1%.

At Econbrowser David Papell and Ruxandra Prodan present an interesting analysis comparing the lengthy economic downturns of various countries over the last 80 years including financial crises, other economic downturns, developed countries, and developing countries. Their conclusion:

History does not always repeat itself, and we do not know the ultimate shape and duration of the Second Great Contraction. The overarching message of Reinhart and Rogoff (2009), however, is that the “this time is different” syndrome leads people to mistakenly believe that the current financial crisis will be different from past financial crises. Taking comparable historical experience as a guide, the Great Recession will not ultimately affect potential GDP, but the Great Slump is not yet half over.

Have no fear. There is bound to be a superabundant supply of explanations of how the rooster’s crowing caused the sun to rise.

The Watcher’s Council has announced its winners for last week. First place in the Council category was Joshuapundit’s Egypt Moves Towards The Abyss.

First place in the non-Council category was Big Government with Journolist 2.0: Occupy Wall Street Emails Show MSM, Dylan Ratigan, Working With Protesters To Craft Message.

You can see the full results here.

Here are the results for the previous week. First place in the Council category was The Razor’s Chosen Paths: Why I Don’t Resent People Making More Money Than I Do.

First place in the non-Council category was The Investigative Project On Terrorism with Abbas Could Be Next Domino To Fall.

You can see the full results here.

Dave Altig, research director of the Atlanta Federal Reserve, takes note of a speech given last Tuesday by the Atlanta Fed’s president, Dennis Lockhart, describing the finding of the Atlanta Fed that it expected growth in the 3rd quarter of 2011 to be pretty robust and growth in 2012 to be around the “steady-state growth rate of the economy’s potential”. Unfortunately, that isn’t good enough. From Dr. Lockhart’s speech:

[M]ost private sector forecasters envision growth in 2012 approaching 2.5 percent. In the opinion of many economists, that 2.5 percent approximates the steady-state growth rate of the economy’s potential. This rate would certainly be an improvement over 2011 as a whole. The problem is without growth measurably better than 2.5 percent, little progress will be made in absorbing slack in the economy—above all, labor market slack.

I think there are a number of takeaways from Dr. Lockhart’s speech including

• The Atlanta Fed believes we are still in the expansion phase of the present business cycle
• There will not be a second recession hard on the heels of the last
• In the absence of structural changes the economy is unlikely to grow fast enough to bring those who lost their jobs during the recession back to work

In my view among the changes that would be most helpful would be significantly increased productivity in the healthcare and education sectors of the economy, which now appear to hold the “commanding heights” of the economy.