IMO the biggest story in the world today is the slow motion financial catastrophe in the countries that use the euro. The European elite has proven themselves the world’s heavyweight champions at kicking the can down the road. Now tiny Slovakia has blocked the creation of the euro’s bailout fund on the grounds that the people with the lowest wages in the EU shouldn’t be subsidizing the pensions of people who make a lot more than they do. What does it all mean?

But as outgoing European Central Bank President Jean-Claude Trichet said Tuesday, events are moving too fast for Europe’s decision-makers. “The crisis is systemic and must be tackled decisively,” he told a European Parliament committee. “The high interconnectedness in the E.U. financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the E.U. as a whole and adversely impacts the real economy in Europe and beyond.”

I’ll resume my decorous silence on the subject. It’s really outside my comfort zone for commentary. However, since reviving his blog a few months ago my blogfriend Marc Schulman has devoted his blog, American Future, to aggregating news about the eurozone’s financial problems. One-stop shopping for news of the euro’s problems.

My last word is that I don’t believe that there’s much we can do about the inherent, structural problems in the euro. Those have been there all along and it’s up to the Europeans either to resolve those problems largely by creating a common banking and fiscal structure for the participants or ending the euro. The most we can do is to try to mitigate the risk for us in a collapse in the euro and, of course, we aren’t doing that.

Ryan Chittum at The Columbia Journalism Review has documented the effect that Rupert Murdoch’s acquisition of The Wall Street Journal’s Page 1 story length. Since 2007 the number of stories over 1,500 word in length has declined, the number of stories under 1,500 words in length has increased (substantially), and stories of 2,500 words or more have, essentially vanished:

This isn’t because total stories have been decreasing. Story counts in the paper have been steadily going up, even before Murdoch took over, as Audit Head Veterinarian Dean Starkman wrote last year in “Hamster Wheel“—and that’s not including things like blog posts, video hits, and early news stories for WSJ.com or “speedys” for Dow Jones Newswires.

Certainly, the Journal still does lots of top-flight work, and most stories don’t need 2,500 words. But many do, and how does going short as a policy help readers understand the really important stuff like systemic problems, corporate misbehavior, business innovation, or sweeping economic change?

Hat tip: Felix Salmon. Mr. Salmon lauds the change:

WSJ readers are busy: they don’t have time to wade through lots of overstuffed stories in the morning. They want to know what’s going on, and why, and they want their news-delivery mechanism to be as efficient as possible.

My view is that the length of a newspaper story is like the wattage of a light bulb: whatever it takes. Some stories can be reported adequately in 600 or even 400 words. Some take 2,500 words or longer. When you must put every story into a 600 word Procrustean bed, you’ll either report some stories inadequately or incoherently or you won’t report them at all.

That, I think, is the greatest problem in professional journalism today: stories that don’t fit the corporate mold aren’t being told at all.

In comments over the weekend frequent commenter steve, IIRC an emergency medicine specialist, drew my attention to this post at The Incidental Economist. Take special notice of the graph.

The graph is captioned “Log(NHE/cap) as a Function of Log(GDP/cap)”. The transliteration of that would be “the log of per capita national health expenditure as a function of the log of per capita gross domestic product” but that doesn’t really cast much light on it. It took me a while to formulate what I think is a reasonable translation of the chart into English: it’s an illustration of the rate at which healthcare expenditures per person are increasing relative to production of total goods and services per person over time (which is also rising). We know that’s the case because the slope of the curve is positive greater than 1.

The author of the post is right: it shows how tremendously persistent (and constant!) that rate has been over time and, consequently, how difficult changing that trend is likely to be.

I take some exception to this statement:

If, by action of politicians or the market, the health care spending curve is not bent, one might argue that this reflects our collective desire, our revealed preference. The history of health care spending in the US is consistent with the hypothesis that we view health care as a luxury good, one on which we spend more of our wealth as that wealth grows.

The argument for this interpretation would be a lot stronger if there were something that more closely resembles a market in healthcare and if those who paid for healthcare were the same individuals as those consuming healthcare. But there isn’t and they aren’t. Under the circumstances an equally reasonable interpretation of the chart that it illustrates the willingness of politicians to tax Peter to pay for Paul’s healthcare. Or the propensity of the healthcare industry to demand an ever-higher share of the national pie without producing commensurately more in actual results.

I can’t take a great deal of solace in the chart. It will be very difficult indeed to slow the growth in healthcare expenditures. The chart also sadly illustrates many of the problems we’re experiencing in our current economic doldrums: income inequality and slow growth in employment since the healthcare sector produces fewer jobs per marginal dollar spent than other sectors. Not that I’m blaming that solely on healthcare. The same is true in finance, education, and government, the other sectors that have seen substantial net job growth over the last decade or so.

But change it we will. Since roughly 60% of healthcare spending is derived, ultimately, from tax dollars and those tax dollars must come from somewhere, the healthcare sector requires not merely growing GDP but growing non-healthcare sector GDP.

What I think we should be most concerned about is a sector that has become too accustomed to a continually growing share of a shrinking, stable, or slowly growing pie. But that’s a subject for another post.

One last remark. I would genuinely like to see the historical series expanded at least to 1890. The creation of a healthcare oligopoly was a 20th century phenomenon, begun by the Pure Food and Drug Act of 1901 and reaching its fruition with the reforms advocated in the Flexner report of 1910. By 1935 when the historical series in the chart begins the medical profession had come to be dominated by post-Flexner physicians. I also think that the chart deals a deathblow to the rationale that healthcare expenses increase due to greater use of technology.

Today is my dad’s birthday and as is my custom I’ve posted a picture of him. My dad is on the left, next to him is his cousin, Virginia Schuler, and the gentleman on the right is his grandfather, my great-grandfather, Joe Schuler. The picture is now nearly a hundred years old.

I sometimes wonder what my dad would make of things these days. I’m sure he would be delighted with the technology. He was what’s called an “early adopter”. He would have been the first kid on his block to have a word processor, then a personal computer for his office, a video camera, a digital camera, a cellphone, a smart phone. He would have gone around giving seminars to other lawyers on how to use technology in the practice of law (he’d been doing such things for years before he died).

I don’t think he would have been as happy about the political situation. I’m not sure where he would have stood. Back in the 30s when he was in college and law school he’d attended Communist Party meetings (mostly to meet girls) but by the 1950s he was a Republican. I’m not sure he’d have thought much of today’s Republican Party. He was always a remarkable combination of the 19th century and the 21st century.

Take a look at this series of thirteen charts on household income since 2007. I think the first chart is particularly telling.

What gripes me about this is that even if you believe wholeheartedly in fiscal stimulus as the way out of our economic problems nothing that’s on the table will remotely compensate for the drop in household income. What’s been proposed is too small, too poorly timed, and too poorly directed.

At best fiscal stimulus is like jump-starting a car. You might make the engine turn over but if the battery is shot, the alternator is busted, and the tires are flat, you haven’t solved your problems by a long shot.

Update

Felix Salmon remarks on the same chart:

More striking still is the huge erosion in incomes over the course of the supposed “recovery” — the most recent two years, since the Great Recession ended. From January 2000 through the end of the recession, household incomes fluctuated, but basically stayed in a band within 2 percentage points either side of the 98 level. Once it had fallen to 96 when the recession ended, it would have been reasonable to assume some mean reversion at that point — that with the recovery it would fight its way back up towards 98 or even 100.

Instead, it fell off a cliff, and is now below 90.

In dollar terms, median household income is now $49,909, down $3,609 — or 6.7% — in the two years since the recession ended. It was as high as $55,309 in December 2007, when the recession began.

It would be interesting to see what had happened to compensation rather than just income.

Most of the decline is due to unemployment: people who were getting paychecks not getting them any more. However, the second punch is the rise in prices on things that people buy—food, gas, and so on. The third punch is that more total compensation is going to healthcare insurance.

I’d meant to comment on this story when I first heard about it last spring but this is as good a time as any. I think this is a notion that has some merit. There is, apparently, a rising body of evidence that suggests that beneficial microorganisms may be as influential in promoting good health in human beings as pathogens are in producing disease:

The human cells that form our skin, eyes, ears, brain and every other part of our bodies are far outnumbered by those from microbes, primarily bacteria but also viruses, fungi and a panoply of other microorganisms.

That thought might make a lot of people lunge for the hand sanitizer, at the least. But that predictable impulse may be exactly the wrong one. A growing body of evidence indicates that the microbial ecosystems that have long populated our guts, mouths, noses and every other nook and cranny play crucial roles in keeping us healthy.

Moreover, researchers are becoming more convinced that modern trends — diet, antibiotics, obsession with cleanliness, Caesarean delivery of babies — are disrupting this delicate balance, contributing to some of the most perplexing ailments, including asthma, allergies, obesity, diabetes, autoimmune diseases, cancer and perhaps even autism.

Let’s consider this idea briefly in the context of obesity. The most common view of obesity at least at the folk level is that obesity is a character flaw: if fat people wouldn’t eat so darned much and exercise more they wouldn’t be fat. Depending on the individual case that may, indeed, have merit. However, there are enough counter-examples around to suggest that the simple thermodynamic model of weight gain in which Weight gain = Calories taken in by eating and drinking – Calories consumed by exercise is overly simplistic. Attributing the variations to differences in basal metabolism is hand-waving: what causes the differences in basal metabolism?

Do we need a sort of reverse Koch’s postulates? Is it possible that all sorts of conditions, particularly chronic diseases, are caused by the absence of beneficial microorganisms, maybe call them “hygeigens” (I haven’t been able to identify an opposite of pathogens)?

This possibility does raise an interesting speculation. It’s a commonplace to attribute the rise in obesity, diabetes, and heart disease to less exercise to people getting less exercise than they did in the past. Could it also be related to the widespread use of antibiotics which kill hygeigens as well as pathogens? Could obesity be an iatrogenic disease?

Sometime in the future good health might be seen as promoting the proper balance of microorganisms. It seems to me that would require a major shift in thinking away from envisioning healthcare as warfare towards a more cooperative model like farming or education.

Every so often some commenter, frequently Steve V., observes that for the housing market to recover prices will need to fall to the market clearing price to which someone else invariably responds “How far will they need to fall?” That’s a tough question to answer but here’s a guess, a first approximation: prices need to revert to their historic levels. Courtesy of Barry Ritholtz the chart above shows the long term trend in housing prices along with a red line at the far right that illustrates the change that would need to occur in housing prices for them to return to their historic levels. Said another way, housing prices would need to fall roughly another 30% to return to the historic trend sans bubble or boom.

Another wrinkle in the housing prices story is that just as housing prices didn’t rise uniformly around the country I don’t think that we should expect prices to fall uniformly around the country. My off-hand guess is that the areas that are most over-built, typically but not exclusively those that saw the largest increases, are likely to fall the most, possibly even below the historic support point. There are major demographic patterns at work here, too, not to mention issues of wealth distribution. The groups in the population that are growing most rapidly and, consequently, could be expected to enter the housing market don’t necessarily have the dough to buy a house, particularly in the post EZ Credit world.

Since so many other people are writing about Steve Jobs on the occasion of his death, I may as well, too. For a good round-up of media reaction see Barry Ritholtz.

My father and my father-in-law both died of cancer of the pancreas so I’m pretty well aware of its deadliness. I have been astonished that Steve Jobs lived with it for as long as he did. One more extraordinary thing about an extraordinary man.

Since being diagnosed in 2003, Steve Jobs brought the iPhone and the iPad, both best in class products, to market. That would be astonishing enough on its own but to do it while being deathly ill is unique.

Pursuant to a discussion of regulatory capture in the comments of this post, let’s talk about regulatory capture a bit. “Regulatory capture” means the tendency for regulating bodies to become dominated, captured, by the very institutions they are chartered with regulating. Insurance regulating boards, present in every state, tend to be dominated by the insurance companies that operate in those states. Bank regulation bodies have been dominated by banks or at least bankers. Energy regulation agencies are often dominated by energy producers. And so on.

I think that the tendency towards regulatory capture is inevitable while the fact of it is not. You can see how it would arise. Who knows more about insurance than people in the insurance business? And companies certainly have incentives to capture regulatory agencies. Once they’ve done so they can ensure or, at least, try to ensure that regulation doesn’t hurt their business.

That regulatory capture is a serious problem can hardly be denied. I’ve previously posted that there’s good reason to believe that regulatory capture was proximally responsible for the financial crisis of 2007 to date and the character and structure of policy responses have certainly reflected the viewpoint of the banks and bankers.

Addressing regulatory capture presents a thorny problem. The anarcho-capitalists’ strategy is less or no regulation. I think it’s a flawed strategy: we’ve seen that movie before. I see no good reason that, without regulation, we can be confident in the food that we eat, the pharmaceuticals that are prescribed for us, the devices we use, or that our banks will be run in honest, businesslike ways and the money in our accounts will be available to us when we need it and we know from experience that without some degree of regulation abuses will be widespread. That there are flaws in how all of these things are regulated in the real world does not negate that we’re better off today than we were a century ago.

The technocrats’ solution is better, wiser, more highly compensated experts. This flies in the face of the entirety of human experience which, time after time, has seen smart people do stupid, short-sighted, self-serving things. Selfless all-knowing philosopher-kings are in terribly short supply and are likely to remain so.

The bureaucrats’ solution is another layer of bureaucracy to guard the guards. This is largely how we got to the point at which we have arrived. Without changing the bureaucrats’ incentives, which lie at the heart of the problem, I see no reason that more bureaucrats will solve a problem created by corrupted bureaucrats.

At least here in Illinois, possibly the least populist of the states, I think more populism might help. So, for example, I think that the voters should be able to remove any elected or appointed official from office by a simple majority vote without extraordinary roadblocks being thrown in the way of starting such a campaign. At the very least it should be no more difficult to be removed from office than it is to be put in office. “Sunshine” provisions, openness in government, might help, too.

I honestly don’t think that our core problem is one of too much regulation or not enough regulation. Rather than “do more” or “do less” I think we need to “do differently”.

This is not to say that there is no regulatory excess. I heard recently of a court case in which, as I understand it, a farmer was denied the right to consume unpasteurized milk from his own cows as a public health measure. Brucellosis, the primary reason we pasteurize milk in the U. S., is practically unknown here, there are only about 100 cases a year (most of the cases among slaughterhouse workers), and the mortality in untreated cases is around 2%. I have known enough dairy farmers and kids who grew up on dairy farms over the years to know that the consumption of unpasteurized milk by these farmers and their families is very commonplace (many won’t drink anything else). If there were a substantial risk from farmers drinking unpasteurized milk from their own cows, we’d know about it.