The Watcher’s Council has announced its winners for last week. First place in the Council category was The Political Commentator’s A Memorial Day story of unimaginable inspiration!. I voted for this post and commend it to your attention.

First place in the non-Council category was WarChick.Com with Twice In One Dayr. A remarkable footnote in history.

You can see the full results here.

Here are the results for the previous week. First place in the Council category was Bookworm Room’s Contemporary coverage of the Six Day War — clear-sighted and moral.

First place in the non-Council category was Maggie’s Notebook with Israel’s Pre-1967 War Borders: What They Mean – The Reality .

You can see the full results here.

There is a Yiddish proverb that pretty much describes my reaction to Paul Krugman’s post on the sustainability of Medicare:

Az di bobe volt gehat beytsim volt zi geven mayn zeyde.

Roughly, “If my grandmother had balls, she’d be my grandfather.”

Dr., Krugman:

What is true is that the U.S. Medicare is expensive compared with, say, Canadian Medicare (yes, that’s what they call their system) or the French health care system (which is complicated, but largely single-payer in its essentials); that’s because Medicare American-style is very open-ended, reluctant to say no to paying for medically dubious procedures, and also fails to make use of its pricing power over drugs and other items.

So Medicare will have to start saying no; it will have to provide incentives to move away from fee for service, and so on and so forth. But such changes would not mean a fundamental change in the way Medicare works.

To limit Medicare spending to the point where it’s sustainable by making it cover less is to change the system so it is no longer “Medicare as we know it”. That’s necessary. We’re just flailing around like a fish on a gaff trying not to admit it.

I’ve just published a foreign policy-related post at Outside the Beltway:

Two on Greece, the Eurozone, and the IMF

I take note of two article on Greece, the Eurozone, and the IMF. What we don’t know might hurt us.

In other news it’s being reported that demonstrators in Athens have taken over the Ministry of Finance building. What do you think will happen if the IMF imposes austerity measures on Greece?

I want to draw your attention to a slide presentation (pdf) from Nobel Prize-winning University of Chicago economist Robert Lucas (hat tip: Greg Mankiw).

I think the parallels he draws between the banking system of the 1930s and the shadow banking system of the Aughts and policy decisions in the two economic downturns are interesting. So are the contrasts he notes in Fed and federal government policy.

However, in a theme I’ve repeated a number of times here, I think he’s looking at the wrong trend for growth. To assert that the just under 3% real growth he notes for most of U. S. history extends past the 1990s and through 2007 ignores that the late 90s and Aughts were both characterized by bubbles. Consequently, I think that you’ve got to believe some combination of the following:

1. The bubbles were irrelevant to real GDP growth which seems incredible to me.
2. The long term trend can continue without bubbles.
3. Future bubbles will continue the long term trend.
4. The change in trend (sans bubbles) he points out began a long time before 2007.

I believe the last one of those. I can envision several competing or complementary explanations for that but I honestly don’t see another reasonable conclusion.

Rather than sitting on an ash heap, scraping my sores with a potsherd at all of the bad economic news, let’s devote a little attention to brainstorming how we can actually improve the state of the economy.

1. Reduce healthcare spending.

Not study ways to reduce spending. Not pretend to reduce spending. Not change the trajectory. Reduce it. Healthcare spending is sucking the life out of the federal government, state and local governments, and individual pocketbooks. Too much of the increase in compensation over the period of the last 30 years has been in the form of ever more expensive healthcare insurance. That may nominally make its receipients better off but nobody feels better off. We’re borrowing billions to finance it. We’re laying off police officers and teachers (here in Chicago janitors are on the hot seat, a remarkable development) to pay for the healthcare of the rest.

We each have our preferred strategies for doing it. It’s got to be done.

2. Reduce defense spending.

We’re currently embroiled in three wars and have troops deployed in scores of countries. Prioritize defense spending towards measures that actually make us more secure. Cut the rest substantially. We are not going to fight a high tech war with China. Why prepare for one?

3. Stop propping up sectors that are in decline (or should be in decline).

Whether you phrase it as returning to the status quo ante or providing a soft landing it amounts to the same thing: throwing good money after bad. The financial sector is absurdly large. Rather than being subsidized the largest banks should be chopped up into smaller, less systemically vital pieces and we should take steps to keep them from getting that big again. Stop propping up construction.

Stop propping up auto manufacturing. Its decline is permanent. Total world production capacity exceeds any realistic level of consumption and is, absurdly, rising. The Volt will not save GM. They are selling 500 of them a month. If you’re a glass half full kind of guy, they’re ramping up production. If you’re a glass half empty sort, it’s too low to save the company. Whichever sort you are it’s too slow to save a company so incompetently run.

If we are absolutely bound and determined to prop up something, make it a sector where the activity will actually do some good. Here in Illinois (where the electricity costs are already among the highest in the nation) we’re facing a price increase so ComEd can deploy smart grid technology. That’s the kind of infrastructure we should be subsidizing rather than roads and bridges which will be obsolete long before they’ve reached the ends of their productive lives. Subsidize the future rather than the past.

4. End quantitative easing.

If another round is implemented by the Fed, fire the Fed governors. If somebody proposes it, burn him or her in effigy. Its effect has been to goose the stock market and other assets, including commodities. That in turn has goosed the price of food and gasoline or, in other words, the rich get richer and the poor get poorer. No mas.

5. Conclude some of the free trade deals we’ve already negotiated.

While we’re at it maybe nudge them in the direction of real, honest free trade rather than the pretend free trade agreements we usually end up with. You can write a free trade agreement on the back of a business card. When the agreement runs to hundreds or thousands of pages you can be pretty sure it isn’t about free trade.

6. Rationalize intellectual property law.

I don’t care if Disney loses Mickey Mouse.

7. A uniform code of regulations for the environment, banking, insurance. (Update)

The federal government should act as a facilitator to get the states to agree on a uniform code of regulations for the environment, banking, insurance, safety, and so on analogous to the Uniform Commercial Code. If companies didn’t need to conform to different standards in different states it would reduce the cost of formation and expansion.

This is a brainstorming session not just a bitch session. Put your own suggestions in the comments. Please, please make them positive. Bitching about how lame the Republicans/Democrats/Right/Left/Obama/Illuminati are is tedious.

The Bureau of Labor Statistics reports that private sector net employment grew by just 54,000 jobs in May (100,000 lower than the number required to keep up with the “natural increase”, the number of people coming into the jobs market in the normal course of events) and the unemployment rate was “substantially unchanged” at 9.1%. The private sector added just 89,000 jobs while the public sector shed jobs.

Roughly a third of that (17,000 jobs) was in healthcare. Since two-thirds of healthcare spending comes from tax dollars, that cannot be an engine of growth. The balance of the increase came primarily from professional and business services which I interpret as temps and mining. My guess on the increase in mining is that more workers have been hired as commodity prices have risen. Since commodity prices have risen, along with other assets, largely due to the Fed’s policy of quantitative easing the latest round of which is drawing to a close, it will be interesting to see if the trend persists.

Here’s an analysis of the last three years of government policy that finds that we spent $7 for every $1 of additional GDP. Since the recession ended in July of 2009 I find it terribly difficult to accept the case that the ARRA (which had spent little if anything by that point) either ended the recession or prevented it from being deeper.

Can we stop pretending that we’re not following Japan down the “lost decade” path? Largely by doing the same things the Japanese did.

I’m a second generation Consumer Reports subscriber. My dad subscribed to and relied on Consumer Reports more than fifty years ago and I’ve been subscribing to it for decades, using its product and service evaluations to inform my own shopping. It’s not the only source I use: nowadays it’s a heckuva lot easier to research prospective purchases than it used to. Today the problem is more one of understanding how to read reviews than it is one of finding reviews.

In the current July issue of Consumer Reports there’s a special focus section on kitchens: counters, floors, appliances. One of the things they’ve done in the section is to single out the worst of class products. In reading that section it occurred to me that somewhere in America there’s a kitchen with a Viking Professional refrigerator, a Miele Optima dishwasher, a Kitchenaid Architect Series range, a Daltile Cliks tile floor, and a bamboo counter whose owner is probably feeling a little peculiar right about now or doesn’t realize what he or she is in for.

I was a bit puzzled by this post of Matt Yglesias’s. He compares the situation in healthcare in 1911 with the situation today, suggesting that technology has resulted in the number of physicians rising sharply:

Clearly, though, this isn’t what’s happened in the health care sector. Instead, better health care technology has led us to want more health care professionals. A lot more!

Maybe I don’t understand what he’s saying but I’d sure like to see some facts to back up his assertions.

Note that he begins his post talking about doctors so let’s restrict ourselves to physicians. The number of physicians per 100,000 population in the United States in 1910 was 164. The number of physicians per 100,000 population in the U. S. today is roughly 277. Not a drastic increase by any means. But is it an increase at all?

In 1910 nearly all physicians were GPs. Today fewer than 100,000, roughly 12% of active physicians are GPs. That’s closer to 30 per 100,000 population. What has actually happened is that the number of specialists has skyrocketed and the number of GPs has plummeted. I don’t think that the actual facts support the story that Matt is telling.

There is an obsession with the manifest failings of prospective Republican presidential candidates. Mitt Romney is a Mormon. And passed healthcare reform when he was governor of Massachusetts that bears a strong resemblance to the reforms passed under President Obama. Who the heck is John Huntsman? Ron Paul is too old. And too libertarian. Tim Pawlenty can’t raise enough money. New Gingrich is a loose cannon and hardly the guy you’d pick to represent family values. Sarah Palin is Sarah Palin.

What is being missed is that it won’t matter. That’s at the root of two articles today. From Binyamin Applebaum at the New York Times:

Ten presidents have stood for re-election since Mr. Roosevelt. In four instances the unemployment rate stood above 6 percent on Election Day. Three presidents lost: Gerald Ford, Jimmy Carter and George H. W. Bush. But Ronald Reagan won, despite 7.2 percent unemployment in November 1984, because the rate was falling and voters decided he was fixing the problem.

The Obama administration hopes to tell a similar story.

To accomplish that the economy will need to turn around dramatically over the next fifteen months. We’d need to see a rate of job creation we haven’t seen in fifteen years or more.

Niall Gardiner, writing in The Telegraph:

There is no feel good factor in America at the moment. But there is a great deal of uncertainty, nervousness, even fear over the future of the world’s only superpower. This is hardly a solid foundation for a presidential victory for the incumbent. Even though we don’t know yet who he will be up against, Barack Obama could well go into 2012 as the underdog rather than the favourite he is frequently portrayed as. On balance we’re likely to see a very close race 17 months from now. But there is also the distinct possibility of an electoral rout of the president if the economy goes further south. “Hope and change” might have played well in 2008, but it is a message that will likely ring hollow in November 2012, with an American public that is deeply disillusioned with the direction Obama is taking the country.

If you interpret this post as looking forward to this, you’re misinterpreting it.

The 2012 election (just next year!) won’t be a referendum on George W. Bush or on Republicans, generally, or on the Republican challenger in particular. It will be a referendum on President Obama and the issue that will dominate all others, the economy, is likely beyond his control.