Relevant and even prescient commentary on news, politics and the economy.

A look at costs of doing nothing

Several economists have prepared a report through American Progress about costs of poverty (not cost of programs to address the issue).

Most arguments for reducing poverty in the U.S., especially among children, rest on a moral casefor doing so—one that emphasizes the unfairness of child poverty, and how it runs counter to ournational creed of equal opportunity for all.But there is also an economic case for reducing child poverty. When children grow up in poverty,they are somewhat more likely than non-poor children to have low earnings as adults, which in turnreflects lower workforce productivity. They are also somewhat more likely to engage in crime (thoughthat’s not the case for the vast majority) and to have poor health later in life. Their reduced productiveactivity generates a direct loss of goods and services to the U.S. economy.What’s more, any crime in which they engage imposes large monetary and other personal costs ontheir victims, as well as the costs to the taxpayer of administering our huge criminal justice system.And their poor health generates illness and early mortality which not only require large healthcareexpenditures, but also impede productivity and ultimately reduce their quality and quantity of life.In this paper, we review a range of rigorous research studies that estimate the average statistical relationshipsbetween children growing up in poverty and their earnings, propensity to commit crime,and quality of health later in life. We also review estimates of the costs that crime and poor healthper person impose on the economy. Then we aggregate all of these average costs per poor child acrossthe total number of children growing up in poverty in the U.S. to estimate the aggregate costs ofchild poverty to the U.S. economy.We had to make a number of critical assumptions about how to define and measure poverty, whatlevel of income to use as a non-poverty benchmark, and which effects are really caused by growingup in poverty and not simply correlated with it. Wherever possible, we made conservative assumptions,in order to generate lower-bound estimates.The upshot: Our results suggest that the costs to the U.S. associated with childhood poverty total about$500B per year, or the equivalent of nearly 4 percent of GDP.

The NYT adds further comments:

A Republican scholar and former official who testified at the hearing, Ron Haskins, now a senior fellow at the Brookings Institution, called the study superb and said that while economists might quibble over details, the $500 billion cost estimate costs “might be in the ballpark.”
Mr. Haskins noted that the authors had not specified the high cost of eliminating child poverty, which census figures show affected 12.3 million children in 2005, or 17.1 percent of those younger than 18.
“Do not think that if we suddenly gave a bunch of money to poor people, everything would change,” he told lawmakers, adding that behaviors, neighborhoods and parents’ actions need to change if children’s life paths are to change.

This is another way to look at costs to us of doing nothing to address the issue.

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Weekend reading

Mother Jones has a set of questions about the ‘how’ of Iraq and interviews over fifty people. While not in depth on any one issue, the write up has a breadth that offers a wide range of topics and viewpoints. The publication has a point of view but lays out several issues well for the layman.

It begins with the ‘We broke it, we have to deal’ point of view.

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Social Security again and again

Adding to the pile on with PGL, that the so called demographic bulge is a myth for social security, and perhaps Medicare and Medicaid.

CBO reports clearly

Rising health care costs and their consequences for federal health insurance programs constitute the nation’s central fiscal challenge.
Sources of Growth in Projected Federal Spendingon Medicare and Medicaid (Percentage of GDP)

Health is a growing area of analysis for CBO, with work done across the agency. CBO’s health work is divided into two categories: (1) estimating the budgetary impact of federal health programs and (2) preparing studies on health policy issues. The Health unit in the Budget Analysis Division estimates budgetary impacts; it estimates the cost of proposed health legislation and prepares spending projections for federal health programs. The Health and Human Resources Division conducts studies of health issues, including Medicare, Medicaid, pharmaceuticals, public health, and private health markets; it also develops models that underlie cost estimates. The National Security Division conducts studies of the health care provided by the Departments of Defense and Veterans Affairs. The Microeconomic Studies Division also analyzes health issues, especially those related to competition or market structure, including most recently prescription drug pricing and research and development in the pharmaceutical industry.

Although the aging of the population is frequently cited as the major factor contributing to the large projected increase in federal spending on Medicare and Medicaid, it accounts for only a modest fraction of the growth that CBO projects. The main factor is excess cost growth-or the extent to which the increase in health care spending exceeds the growth of the economy. The gains from higher spending are not clear, however.(bolding mine)

OMBWatch also has other wide ranging sources of data and opinion, including the President’s numbers.

The third rail of politics will continue to be so if this nonsense being sold as crisis of Social Security continues. It is a tired meme, but I am sure will rise again. Let us look elsewhere, such as the President’s drug program, artificially high costs generated from various cost centers, and such things as costs not equating to value within the continental US, much less internationally with outliar concerns.

The debt will be paid, so let us get creative with other issues that need addressing far more than this strawman.

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Nuclear Bomb justifies.

Combating Nuclear Terrorism
in this GAO report on the mushroom cloud high priority reveals we are barely to first base. Are we paralyzed with fear or just used to chatter that is scarey, like a monster movie that makes us shiver but we know is not real. Do you know your disaster escape route? Not me, although I do know roads I would avoid if the Thanksgiving traffic is any guide.

I remember having to hide under my desk in elementary school for an atomic bomb drill. Given my only experience was watching some black and white films of little houses being blown away and vaporized, and the view from under the desk of the huge expanse of glass only a few feet away, I remember thinking the adults demented or oblivious and stupid. I chose the latter. Now I am not so sure.

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Consistency, expertise, idealogy, and ?

Salon reports:

President Bush late last month nominated retired Lt. Gen. James Peake to be the next secretary of the Department of Veterans Affairs. It is not an inconsequential wartime post: The department is the second-largest government agency after the Defense Department. And the VA faces the awesome responsibility of caring for several generations of veterans, including the crush of American service members back from Iraq and Afghanistan.
On paper, Peake seems qualified. Wounded twice in Vietnam, he retired in 2004 from his post as Army surgeon general, the Army’s top medical officer, with 40 years of experience in the field of military medicine.

But Bush plucked Peake directly from a private company that has raked in hundreds of millions of dollars from contracts with the VA — and Peake himself helped develop proposals for the company to contract with the VA. That has raised questions about conflict of interest, potentially pitting veterans’ care against corporate profits. Moreover, if he is confirmed, Peake will be the second head of the VA under the Bush administration to come from that same private contractor, QTC Management Inc.

When a veteran first applies for that compensation, a doctor conducts a physical to help determine how much money he or she deserves. Historically, VA doctors do most of those examinations. But increasingly they are being performed by QTC Management, the for-profit contractor that employed Peake as its chief operating officer from 2006 until now.

The company has a virtual lock on the expanding business of performing the physicals on veterans, which help determine how much they should get in disability checks from the VA. The company first started conducting the examinations in the late 1990s, part of a smaller effort to help the department alleviate a backlog of veterans awaiting benefits. This year the VA will farm out 100,000 to 150,000 of these examinations to QTC Management, according to the company’s chairman. A 2005 report from the VA’s inspector general says the company charges around $590 for each exam, making the contracts worth at least $88 million this year alone.

The first VA chief selected by Bush to come directly from QTC Management was Anthony Principi, then president of the company, who served as VA secretary from 2001 until 2005. During those years, the company reportedly hauled in hundreds of millions of dollars conducting examinations for the VA.

Even if this man is a fine candidate on his own record, the revolving door appears to be more of a simple corridor between positions, and not worth even being discrete. Please tell me in non-idealogical terms how this situation is better to have than not.

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De-salinization side effects

Rethinking desalination

(Hat tip to
The Issue.)

Last month saw the release of a UN report that paints a very bleak picture of how humans are shepherding natural resources on the planet. One of the greatest causes for concern is our use of fresh water, without which life is impossible.
Demands for fresh water come from both agriculture and drinking, with agriculture currently using almost 70 percent of global fresh water. The world’s population is estimated to grow to nine billion within 50 years, meaning we’re going to need to double the amount of fresh water for agriculture in order to feed everyone, according to the UN. Although desalination is often pointed to as the answer to this problem, a new paper published in Science suggests we are going to need to think again.
Israel is a world leader in desalination; this desert nation recently opened the world’s largest desalination plant at Ashkelon, which produces 100,000,000 m3 of desalinized water each year by reverse osmosis. The massive scale of the plant also makes its product the cheapest so far, with production costs below $0.55/m3.
Unfortunately, it seems that what passes for fresh water for drinking isn’t good enough to be used for agriculture. Israeli farmers have discovered that although Na+ and Cl- have been removed, so too has Mg2+, essential for plant growth. As if that weren’t bad enough, boron concentrations have increased. Although boron poses no threat to human health, most crops aren’t so lucky.
Last but not least, the altered ion balance in the desalinized water results in water that is less buffered, meaning that the pipes that carry it corrode faster. Although none of these problems are insurmountable, they will all result in greater costs, and in regions where millions already live below the poverty line, that’s not a good thing.

I realize these technical problems in all probability can be compensated for through engineering. I also remember the promises of the ‘Green Revolution’ of bounty without unintended or ignored consequences. Projects small scale often obscure major flaws because we did not know what to look for or consider important. If farmers missed this aspect, what chance us cityboys and girls? After all, some still want to drain the Great Lakes to subsidize other locations, without even considering the huge expense of moving water from one river to another in the same watershed.

With water at about $120 a foot acre or $1.50 cents per 1000 gal.(sewerage is $4.50 per 1000 gal.), de-salination is about 4-5 times the cost of current kinds of prices in the US. If unsubsidized by governments, prices go up considerably.

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Radical idea

Foriegn Affairs has published an article concerning how we might proceed a little differently with globalization.

Advocates of engagement with the world economy are now warning of a protectionist drift in public policy. This drift is commonly blamed on narrow industry concerns or a failure to explain globalization’s benefits or the war on terrorism. These explanations miss a more basic point: U.S. policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes. Public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.
Given that globalization delivers tremendous benefits to the U.S. economy as a whole, the rise in protectionism brings many economic dangers. To avert them, U.S. policymakers must recognize and then address the fundamental cause of opposition to freer trade and investment. They must also recognize that the two most commonly proposed responses — more investment in education and more trade adjustment assistance for dislocated workers — are nowhere near adequate. Significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect.
The best way to avert the rise in protectionism is by instituting a New Deal for globalization — one that links engagement with the world economy to a substantial redistribution of income. In the United States, that would mean adopting a fundamentally more progressive federal tax system. The notion of more aggressively redistributing income may sound radical, but ensuring that most American workers are benefiting is the best way of saving globalization from a protectionist backlash.

Earning more in wages for more people in the world might be an even more radical idea.

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Medicaid and cost containment

This GAO report makes for a perplexing stumbling block to cost savings.

Many of these individuals accumulated substantial assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some case studies involved businesses that were sanctioned for substandard care of their patients. Despite their abusive and related criminal activity, these 25 providers received Medicaid payments ranging from about $100,000 to about $39 million in fiscal year 2006….CMS and our selected states do not prevent health care providers who have federal tax debts from enrolling in Medicaid. CMS officials stated that such a requirement for screening potential providers for unpaid taxes could adversely impact states’ ability to provide health care to low income people. Further, federal law generally prohibits the disclosure of taxpayer data to CMS and states.No tax debt owed by Medicaid providers has ever been collected from Medicaid payments through the continuous levy program. IRS has determined that Medicaid payments are not considered ‘‘federal payments’’ and thus not eligible for this program. GAO estimates that for the seven selected states the federal government could have collected between $70 million to $160 million during fiscal year 2006 if an effective levy program was in place.

(bolding is mine)

So the system loses millions in order to keep services inplace? Over time, doesn’t that sound odd?

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WTO GATS and protectionism or nationalism

Heritage notes that anti-dumping lawsuits have increased in the US and the administration is not attending to global free trade as we have dropped below the top ten.

Such measures are supposed to be used to prevent other countries from selling their goods here at below-market prices, and that makes sense. But as Index co-editor Mary Anastasia O’Grady points out, America now overuses this tool. In fact, since 1995, the United States has trailed only India in the number of antidumping cases it has filed.Many of those came as a result of the Byrd Amendment, named for Sen. Robert Byrd of West Virginia. This amendment encourages producers to file complaints with the government, because if any “dumping” is found, they get to share in the penalties collected.The World Trade Organization ruled two years ago that the Byrd Amendment violates international trade policies, and the U.S. has promised to comply with the WTO. But we haven’t done so yet, which means that eight American trading partners soon could retaliate against our unfair trade practices — a move that could start a trade war.There’s no need for that. After all, trade wars are expensive and end up hurting everybody, while, as the Index proves year in and year out, free trade builds economies and ends up helping everybody.If more of our politicians will recognize the benefits of economic freedom and go back to promoting it, next year we can return to the top 10 worldwide. And that would be good news — for everybody.

The NYT reports China is making moves as well.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions.

“There is clearly a growing economic nationalism in China that is leading to discrimination against foreign investors in pillar sectors of the economy,” said Myron Brilliant, vice president for Asia at the United States Chamber of Commerce. “It’s not only a threat to foreign investors but it also undermines China’s transition to a market-based economy.”

Life gets complicated.

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