economy

[dmp]

I doubt insurance executives make $15million either in countries with better functioning health care systems.
From what I've read tort reform isn't the significant issue.
It's out of control costs with an inelastic consumer.

Inelastic means consumers are insensitive to price because they need health care. They can't chose to not buy it if it is too expensive, like a smartphone.

House Republican Jason Chaffetz: “And so maybe rather than getting that new iPhone that they just love and they want to go spend hundreds of dollars on that, maybe they should invest that in their own healthcare,”

 

[JohnRoberts]

I doubt insurance executives make $15million either in countries with better functioning health care systems.

not the problem IMO

From what I've read tort reform isn't the significant issue.

there are a number of cost drivers that can be reduced/fixed. Tort reform is on that list for later. Malpractice insurance is a real cost for many doctors.

It's out of control costs with an inelastic consumer.

Yes there needs to be more price discovery, and choices made by the consumer... but not completely that simple.  High deductibles are forcing consumers to be more aware of their health care spending, but without more competition and information to help make those spending decisions it is not very productive (yet).

Inelastic means consumers are insensitive to price because they need health care. They can't chose to not buy it if it is too expensive, like a smartphone.

The problem is getting them to spend for healthcare when they are well. We manage to get them to buy car insurance (before the accident) and home insurance (before the house fire) , we just need to educate them about health care spending in a similar light.

House Republican Jason Chaffetz: “And so maybe rather than getting that new iPhone that they just love and they want to go spend hundreds of dollars on that, maybe they should invest that in their own healthcare,”

President Obama  made a very similar statement years ago...  this is just dueling talking points to stir up the opposition.

The truth is that after scraping out all the cost inefficiencies we can, people will still need to pay for the healthcare they consume. Health Savings accounts, where they can pay in advance while healthy and accumulate money to use later makes a lot of sense. IMO

I've told this story before but it bears repeating. I spoke with my brother (RIP) shortly before he died and he estimated that his insurance (CT state employee) had spent $500,000 or more on his chemo and treatments. Given that $500k he would have put a new roof on his house and given the reminder to his family and died more content about their future.  Some can argue that keeping him alive for a few more years***, riddled with cancer was a worthwhile expense, I am pretty sure he didn't completely agree, but he didn't get to make that call, for him it was free or almost free treatments paid for with OPM.

JR

*** my brother survived for roughly 5 more years after his diagnosis with gut cancer. This a significantly longer than one of my cousins who died within 6 months of his similar diagnosis (a decade earlier).  We would all like to believe this is leading to a cure  sometime soon, but from watching numerous close relatives die from cancer over several decades this looks like a massive and very expensive experiment making a number of cancer drug companies wealthy. With promises of a cure coming any day now for a very long time.

 

[benb]

Consumers need food too, but the amount people spend on food is the lowest percentage of income than it's ever been historically.

On the other hand, food technology hasn't changed to the point where it can treat most types and even cure many types of cancer. But that still doesn't explain the high cost of all health care.

I think the problem of high health care cost is not just that it's inelastic, but also because (I've said this before, maybe in this thread) it's a blind item, no one knows how much a procedure costs or should cost. Doctors and hospitals charge different amounts depending on whether insurance covers things (and depending on other things) because they can, and they can get away with it. It's not just the life-saving cancer drugs and procedures that's expensive, it's the aspinin-in-the-hospital, it's EVERYTHING involved with health care. Supermarkets advertise their prices. Health providers advertise their services, and hide their prices as much as they can.

 

[JohnRoberts]

Consumers need food too, but the amount people spend on food is the lowest percentage of income than it's ever been historically.

because the food industry is very competitive... Profit margin for food markets is low single digits... these days some are loss leaders to draw in shopper traffic to sell them more profitable SKUs

On the other hand, food technology hasn't changed to the point where it can treat most types and even cure many types of cancer. But that still doesn't explain the high cost of all health care.

The drug industry profits from selling people drugs or procedures not curing their diseases.  The doctor who cured ulcers was almost drummed out of the profession for killing the golden goose that allowed them to sell medicine for chronic ulcer sufferers. The holy grail for the cancer medicine researchers is not a cure, but a maintenance medicine they can give cancer patients for the duration.

I think the problem of high health care cost is not just that it's inelastic, but also because (I've said this before, maybe in this thread) it's a blind item, no one knows how much a procedure costs or should cost. Doctors and hospitals charge different amounts depending on whether insurance covers things (and depending on other things) because they can, and they can get away with it. It's not just the life-saving cancer drugs and procedures that's expensive, it's the aspinin-in-the-hospital, it's EVERYTHING involved with health care. Supermarkets advertise their prices. Health providers advertise their services, and hide their prices as much as they can.

As I already mentioned pet care is unregulated and uninsured so more competitive.

An interesting example for human health treatments is the Lasik eye surgery, being unregulated and uninsured, a competitive market has driven prices down.

yes... we need more price discovery and more competition.

JR

 

[mattiasNYC]

I'm sure one of you already said this somewhere but countries that have a working healthcare system have arbitration rather than lawyer ambulance chasers.  I saw a documentary awhile back on France and Scandinavia and doctors made like 65k and didn't have the risk of lawsuits or insurance cost and student debt but it also means higher taxes to cover cost.

And Scandinavians as a result are happier and healthier, better educated, get paid parental leave for both parents etc etc....

 

[Script]

And Scandinavians as a result are happier and healthier, better educated, get paid parental leave for both parents etc etc....

1+
Scandinavia is probably not as */insert comparative here/* as it used to be, but is still looked upon by other EU countries as leading in all that and much more. Reasons often given are the political systems(!) and that population numbers are lower on average.

 

[tands]

Cockeyed. A damn fine word.

Kanth’s latest book, Farewell to Modernism: On Human Devolution in the Twenty-First Century, tells the history of a set of bad ideas. He first caught the scent that something was off as an economics student in India, wondering why, despite his mastery of the mathematics and technology of the discipline, the logic always escaped him. Then one day he had an epiphany: the whole thing was “cockeyed from start to finish.” To his amazement, his best teachers agreed. “Then why are we studying economics?” demanded the pupil. “To protect ourselves from the lies of economists,” replied the great economist Joan Robinson.

Kanth realized that people are not at all like Adam Smith’s homo economicus, a narrowly self-interested agent trucking and bartering through life. Smith had turned the human race — a species capable of wondrous caring, creativity, and conviviality — into a nasty horde of instinctive materialists: a society of hustlers.

http://www.nakedcapitalism.com/2017/03/kanth-400-year-program-modernist-thinking-exploding.html

 

[JohnRoberts]

I have long been advocating for applying expert systems to healthcare to help doctors with diagnosis.

In some disappointing news  MD Anderson cancer center (TX) is winding down a several year experiment with IBM's Watson world known expert computer system. After $62M the auditors are pulling the plug.

The computer reportedly agreed with the experts some 90% of the time, while I did not see analysis of the 10% when they didn't.

From reading about this it appears the failure may have been poor management and faint support of the trial. That this should be pursued seems like a no brainer to me, but even the best plan can fail from bad execution.  For the expert system  to have value it needs to be constantly updated with current raw data, and be integrated into routine use, even if not used as the final word for diagnosis (it has to learn).

This is disappointing and even with the weight of an IBM behind it, smart programs can stumble.

On the upside this makes me less worried about the computers overlords taking over the world.

JR

 

[JohnRoberts]

I have mentioned before suspicions about a bubble in the car loan market.  I read an article today about how the credit ratings organizations are talking about dropping some items from individual credit history reports (like tax liens) that will lead to higher credit numbers...  This will open up more borrowing opportunities in already hot markets (IMO).

JR

PS: I'm waiting for the  bad car loans to cause more used car buying opportunities. My daily driver is 20 YO. 

 

[JohnRoberts]

Another data point about student loan debt... as of the end of last year (according to dept of education) roughly 8 million people owing $137B were in default ( at least 9 months behind) on those loans. 

Another example of unintended (negative ) consequences from misguided government help.

JR

 

[dmp]

The big picture of debt is pretty scary. Total US public and private debt is something like $50 trillion, or $175k/American.
As interest rates rise, the cost of this debt will become overwhelming - the current debt levels are addicted to low interest rates.
I expect at some point, there will be domino effect of collapsing debt.  Asset values might come back down to earth. Housing and equities are particularly high right now.
Whether we get this slowly (auto / housing debt shakes out, etc...) or all together very rapidly is unknown -I can't predict the future - but I expect it could start to happen in a year or so if rates continue to rise (the Fed is expected to bump up short term rates this afternoon).
I anticipate the housing market will be shaken up substantially as demographics affect it (boomers downsizing, millennial unable to afford to buy) and low equity against high (dropping) valuations catch up to people.  A lot of people have done very well with housing as prices rose - but it has essentially been an investment on margin since it is generally highly borrowed - and people have gotten very complacent about making money on house value without understanding the downside risk.
2008 was a good lesson that seems to have been ignored to a significant extent.  A band aid was put on, but a lot of the systematic problems were not changed at all.

 

[JohnRoberts]

The big picture of debt is pretty scary. Total US public and private debt is something like $50 trillion, or $175k/American.
As interest rates rise, the cost of this debt will become overwhelming - the current debt levels are addicted to low interest rates.

It seems like it would be wise to lock in longer term debt at the current historically low interest rates. I suspect the fed favors dealing in short term debt to have more influence in distorting bond yields (by buying our own debt).  Along with raising interest rates (3x) projected, they are also reducing the amount of debt they hold, very slowly.

I expect at some point, there will be domino effect of collapsing debt.  Asset values might come back down to earth. Housing and equities are particularly high right now.
Whether we get this slowly (auto / housing debt shakes out, etc...) or all together very rapidly is unknown -I can't predict the future - but I expect it could start to happen in a year or so if rates continue to rise (the Fed is expected to bump up short term rates this afternoon).
I anticipate the housing market will be shaken up substantially as demographics affect it (boomers downsizing, millennial unable to afford to buy) and low equity against high (dropping) valuations catch up to people.  A lot of people have done very well with housing as prices rose - but it has essentially been an investment on margin since it is generally highly borrowed - and people have gotten very complacent about making money on house value without understanding the downside risk.
2008 was a good lesson that seems to have been ignored to a significant extent.  A band aid was put on, but a lot of the systematic problems were not changed at all.

The (new) housing market has a new updraft. Something like 25% of the cost of a new home is related to meeting regulatory requirements.  Relaxing those could make a HUGE price difference.

I am still disappointed that Fannie and Freddie have not been wound down.

I prefer to be optimistic about the fed successfully unwinding this economic experiment, because failure would be too nasty.

JR

 

[iampoor1]

I am still trying to understand how our economy really works....
Since the fundamental issues of 2008 were not solved? Do you think the housing market will crash again?

I live in Central California (right outside of Modesto), so the 2008 market crash REALLY hammered us. My parents bought a house right after the market crashed, thinking it was a good deal, and the value continued to drop till it was severely underwater. Thankfully the value has risen significantly in the past 2 years. As someone who is looking into buying a house in the next 5-10 years (will most likely buy a fixer upper and slowly remodel it)....I would like to well...not repeat the same mistake.  ;D

 

[dmp]

I am still trying to understand how our economy really works....
Since the fundamental issues of 2008 were not solved? Do you think the housing market will crash again?

I live in Central California (right outside of Modesto), so the 2008 market crash REALLY hammered us. My parents bought a house right after the market crashed, thinking it was a good deal, and the value continued to drop till it was severely underwater. Thankfully the value has risen significantly in the past 2 years. As someone who is looking into buying a house in the next 5-10 years (will most likely buy a fixer upper and slowly remodel it)....I would like to well...not repeat the same mistake.  ;D

You're not the only one  ;D
I certainly cannot predict the future.
But I find the levels of debt worrisome and wonder what will happen as interest rates rise over the next few years.
A 30 yr mortgage is currently about 4.25%, up a percent from the lows and rates are forecast to rise another 1-2% over the next few years. You can look at any mortgage calculator to see how this increases monthly payments.  With most Americans spending as much as they make, there isn't much room for it.  It will be a headwind on buyers. And anyone with an adjustable rate mortgage may go under.
I think everyone needs to realize that a house can be a leveraged investment when borrowing 80% of the value and while many people have made a lot of money on steady appreciation, there is no guarantee it will continue. Demographics could be a real challenge in the next 10-20 years as boomers decide they want to downsize into retirement and try to pull equity out of large homes by selling them, but then realize there aren't that many buyers who can afford the large expensive homes they own.

 

[JohnRoberts]

I am still trying to understand how our economy really works....

welcome to the party

Since the fundamental issues of 2008 were not solved? Do you think the housing market will crash again?

Some of the problems were fixed, but not all. In general the calculus for housing is simple supply and demand (plus cost or access to credit). Household formation, a driver of demand has been slow with so many grown children living at home. This is aggravated by the  millions in student loan debt, that makes it challenging to save money to purchase a home (or get a mortgage).

But these kids will eventually get real jobs and leave home, get married and buy a house. While there are historic trends about home ownership vs renting. Since 2008 huge business investments have been made in buying rental properties so that is more of a factor. While not immediately clear whether a cause or effect from difficulty in securing home ownership.

Mortgage rates are rising, BUT, modern and expected mortgage interest rates are still way lower than I paid on my house (long paid off now).  But back then inflation and GDP growth was higher.

I live in Central California (right outside of Modesto), so the 2008 market crash REALLY hammered us. My parents bought a house right after the market crashed, thinking it was a good deal, and the value continued to drop till it was severely underwater.

One old saw is that all real estate is local. Apparently that market hadn't finished crashing yet. I had a young friend who was flipping houses in AZ, and I begged him to be more careful. He gave me the old "trust me I know what I am doing". He ended up losing that house and his fleeting profits from flipping.

Thankfully the value has risen significantly in the past 2 years. As someone who is looking into buying a house in the next 5-10 years (will most likely buy a fixer upper and slowly remodel it)....I would like to well...not repeat the same mistake.  ;D

The central bank is now in the process of unwinding the stimulus that caused all the asset inflation that helped millions of homeowners emerge from being underwater.  So this updraft on home prices should be receding. Home builders are still building as many as they think they can sell.

Buying a fixer upper makes sense if you are handy, but a bad house can be a black hole for repair costs, so make sure you get a reliable home inspection first. Neighborhood matters, access to good schools and value of other homes in the area. You don't want to be the most expensive house on the block, or cheapest (maybe).

Good luck, contrary to what politicians were spitting out before 2008, home ownership is not for everybody, but for most it will be the largest investment they make, and a good store of value,  if you buy right and the economy recovers. Not as much of a sure thing as it was decades ago, but still a good opportunity if you do your homework.

JR

 

[cpsmusic]

Interesting discussion - and here am I asking questions about which cable to use for my patchbay

Way back when I was a university student I studied music and politics - it was a while ago so forgive me if I'm a bit rusty on some of this stuff. Although I'm now working in areas related to music and IT I still read the odd book and article about politics and economics but I don't really discuss it much. Anyway, here are a few things that might be relevant to this discussion:

A TV series I watched a while ago was Niall Ferguson's The Ascent of Money. One episode was called "Safe as Houses" (or something like that) and it presented an interesting history of property market booms and busts (mostly in the U.S.).

An interesting article looking at economic stagnation is: https://monthlyreview.org/2014/05/01/stagnation-and-financialization/

And if all this is a bit depressing then http://www.steadystate.org/discover/enough-is-enough/ presents some alternative ideas.

Something that ties in with this in a funny way are sites like The Recording Revolution. Regardless of what you think of Graham's music or recording, his idea that you "don't need to keep buying more and more stuff" in order to create better quality music (you need to develop skills instead) is clearly "anti-consumption", and being able to build and repair things is close to "anarchical"*. I fear for the future of GS if this idea really catches on  ;D

Cheers!

*I'm currently reading a book called "The Anarchist's Toolchest" - despite the title it's actually about woodwork and the idea that although woodwork might seem like an old-fashioned skill, it's actually "quite radical in this consumerist age where buying stuff is good and not buying stuff is considered fringe behaviour".

 

[JohnRoberts]

I saw a small item in today's newspaper that warmed my heart... 8)  Apparently "high speed traders"  are having a harder time making a profit lately.  ;D ;D ;D Good. They are a drain on the markets siphoning off profits pennies a trade by using high speed to front run or arbitrage other people's trades.

First one and now several trading organizations have added speed bumps in the trading path to thwart HST. Good riddance, they will not be missed, they were just stealing profit from actual investors.

JR

 

[Script]

http://worldhappiness.report/ed/2017/

Norway top
US still not bad at all, but downward a notch. Enough reason to feel depressed?

 

[micaddict]

http://worldhappiness.report/ed/2017/

Norway top
US still not bad at all, but downward a notch. Enough reason to feel depressed?

Only western countries in the top ten.
No wonder the poor and unhappy want to live there (here).

All Scandinavian countries are in the top ten.
Four of which are in the top  five. (!)

My country comes in sixth.
Should be ranked higher, but we like to complain.

US is fourteenth.
Should likely be lower in the ranks, but they are proud to be optimistic.
Corruption is a growing problem there.
Not to worry; Trump will take care of that one.

:

 

[JohnRoberts]

http://worldhappiness.report/ed/2017/

Norway top
US still not bad at all, but downward a notch. Enough reason to feel depressed?

I used to coach basketball and there is an old saying. "If all your players are happy, you aren't pushing them hard enough".

Happiness is a squishy subjective measure. It is the nature of our open society to be very self-critical, this is a good thing but can cast a pallor over self perception. IIRC there was actually one far eastern country who has a minister of happiness and actively promotes happiness.  In the US happiness is one of the very few things not on the government to-do list... we only secure the right to pursue happiness, not guarantee results.

To veer back to economics, I read a disturbing statistic about the lack of financial understanding for the american public. This is especially unsettling for the number of millennials saddled with significant student loan debt and little understanding of compound interest that as a borrower is working against them.  Like much of life they are given the test first and then the lesson later, but this difficult lesson means a huge pile of debt that has to be managed from a too early age. 

JR