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

Wall Street executive compensation

Robert Schiller began a look at executive compensation:

Last Wednesday, we presented our findings, “The Squam Lake Report: Fixing the Financial System” (Princeton University Press). Ben S. Bernanke, the chairman of theFederal Reserve, helped introduce the book at a conference at Columbia University. He said he agreed with the principle that “the stakeholders in financial firms — including shareholders, managers, creditors, and counterparties — must bear the costs of excessive risk-taking or poor business decisions, not the public.”

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PERNICIOUS IGNORANCE ABOUT SOCIAL SECURITY

by Dale Coberly

PERNICIOUS IGNORANCE
ABOUT SOCIAL SECURITY
A REPLY TO KRASTING

Bruce Krasting in comments to Bruce’s post on Social Security made a number of claims that deserve a fuller answer than I was able to give in comments.  Below in quotes are Krasting’s claims followed by my replies.  I hope I am reasonably clear.

(Krasting said)

“I could list numbers showing how things have deteriorated at SS… every measure of solvency has gone downhill.”

No.  “Solvency” is not an issue with Social Security.  SS is not a business, much less a business that borrows money or has bills to pay.”   I stated this in my reply to your first comment.  You show no sign of having read it.  This doesn’t mean you disagree with it, but that you are physically incapable of seeing anything that disagrees with your preconception.  The “numbers” you are thinking of are “projections,”  that is, guesses.  And, again, they have nothing to do with SS “solvency.”

“Actuarial solvency” is merely a projection that if taxes remain as they are and the benefit schedule is unchanged the Trust Fund will fall to a reserve  below 100% of one year’s benefits.  This is a “warning” that taxes may need to be raised or benefits may need to be cut.  This is a largely meaningless statement unless someone knows “by how much.”

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The Not So Bad PPACA Numbers

After 10 days scurrying around the Shanghai, China area; I am now sitting in Bangkok, Thailand and reading more of the news. Such is the life of a Global Purchasing Manager dealing with automotive and industrial. I have been reading and watching the typical media reporting about the PPACA while drinking my green tea.

Greg Sargent as reported on Crooks and Liars – How the Obamacare numbers actually look pretty good picks up on what the numbers to date mean for the PPACA. So what is the big deal???

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Republicans are gleefully pointing to the numbers as proof Obamacare needs to be scrapped entirely.

That confirms two things we’ve long known to be true: the website is a disaster, and short term enrollment figures are a serious political problem for the White House and Democrats. But to Larry Levitt, a vice president at the nonpartisan Kaiser Family Foundation, another very telling number is this one: over 975,000 have been determined eligible for a marketplace but haven’t yet chosen a plan.

‘That’s one of the most telling numbers — a million people have been determined eligible,’ Levitt tells me. ‘That means if the website had been working well, and a million people had gotten to the end of the process, we’d be looking at a very different trajectory now. We heard about the surge in traffic when HealthCare.gov went live. This suggests there is in fact a lot of interest.’”

We can establish the PPACA website which was more or less designed as a backup to expected state run exchanges and did not function as expected. We can also safely say > half of the states who were supposed to have systems in place declined to implement state exchanges much less pass the PPACA. My experience as a part of multiple MRPII/ERP implementations where businesses decided to either change source code or make other extensive changes has always resulted in system issues. this leaves me to say, the crowing about commercial enterprises being far more successful in system implementations is just plain nonsense. Even so, the federal exchange was never meant to handle the traffic which showed up at its doorstep due to obstinate political and moneyed interests (such as in Michigan) who are more interested in seeing a President in failure than helping their constituents. 20 years since Hillarycare and little has happened to help the uninsured or stem the rising cost of healthcare (sans insurance).

Looking at the chart, Larry Levitt of the Kaiser Foundation points to the “975,000 being determined eligible in the marketplace but not having yet chosen a plan.

if the website had been working well, and a million people had gotten to the end of the process, we’d be looking at a very different trajectory now. We heard about the surge in traffic when HealthCare.gov went live. This suggests there is in fact a lot of interest.” A lot of interest in having some type of healthcare insurance

Because we have issues with the PPACA software; the proposal by Republicans, tea-baggers, and those who simply dislike the president is to scrap the PPACA this decade and wait for another decade or two to implement another version? Hmmmmmmmmmm, nope! There is no way another bill would get past the Republican held House in this decade. I have not participated with a commercial interest yet which has shut down when there have been software issues and we should not be so willing to back away from the PPACA. The companies worked through the issues and went onward for the most part. When the TSA was blowing $200 million a year (since 2007) trying to read your personality in conversations while you were getting x-rayed and patted down, no one was calling for an immediate halt to it. 6 years later, > $1.2 billion spent, and the TSA finally determined their Vulcan mind-meld methodology did not work. Even so, we do need to move forward much faster with a PPACA website fix.

”’Assuming the website gets fixed, I would assume a surge of enrollment in December, and another surge in March,’ KFF’s Levitt explains.”

But what about the lowly numbers (100,000) who did get insured through the state and federal exchanges? This is an extremely low number when compared to expectations for the individual market place; but, the critics and pols conveniently side step the 400,000 who were made eligible for Medicaid in states which embraced the expansion. Isn’t this about insuring more people whether through the individual exchanges or through Medicaid?

”‘In total that’s over 500,000 people who signed up for insurance in the midst of a tumultuous launch,’ Levitt says. ‘People make a distinction between the marketplace and Medicaid, but those are both elements of the Affordable Care Act — both are mechanisms to get people insured.’” 500,000 in one month?

The argument put forth by the Obama foes have been about people experiencing negative impact (as if the Republicans actually cared for their constituents as opposed to the moneyed interests) from the PPACA website failures, purposeful insurance company cancellations, and higher rates due to broader coverage. All of this is occurring in the individual market as opposed to the much larger group market. The cancellations have been made by companies, the increased costs have mostly been disproven, and the website is being worked on feverishly. Going forward, the answer to today’s issues and the success of the PPACA will be determined by the numbers who benefit from coverage. As a result, the outlook is still unsettled but positive when the entire numbers are reviewed as shown. The PPACA is moving forward albeit slower than expected. It is accomplishing at a less than spectacular rate on the exchanges what it is supposed to do . . . cover people. Given time, it will succeed.

What the Obamacare enrollment numbers really tell us,” Greg Sargent, Washington Post November 13, 2013

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Socialism At Its Finest

The Grey Matter Blog does a nice little bar chart on insurance profitability; “Socialist” Obamacare a boon to insurance companies” since the passage of the PPACA in 2010. I gotta say this is nothing like what I would have expected to happen; but, I have to acknowledge my other blogger-foil’s told-you-so remarks to me repeatedly.

With all of those socialism programs we liberal put out there, who would have thought the healthcare insurance racket would do so well under government regulation? Only one insurance company failed to outperform the S&P.

Insurance

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How the Democrats Should Deal With the AnthemBlueCrossCare Issue. Really.

Today, the House of Representatives will take up GOP Rep. Fred Upton’s proposal to ”fix” Obamacare by undermining it, and the vote is being widely cast on a referendum on whether Dems will continue distancing themselves from the law. Meanwhile Senate Dems are also still considering fixes of their own that could undermine it, though that’s subsided.

The Morning Plum: For Democrats, it’s gut check time, Greg Sargent, Washington Post, this morning

The Washington Post’s Ruth Marcus is not among my favorite political pundits, but the apt title of her column today–Obama’s political malpractice–sums up not just the current Obamacare-related debacle but my abiding assessment of Obama dating almost to the outset of his presidency.  Marcus’s column makes the point that Obama’s attempts, such as they have been, to gain control of this spiraling situation just make the situation worse. But that’s par for his course.

Actual smart and competent congressional Democrats and party leaders–four senators who come quickly to mind are Elizabeth Warren, Sherrod Brown, Jeff Merkley, and Dick Durbin–need to grab the reins and use Democratic Party funds to establish a massive phone bank, and rent small neighborhood offices, where people who have received cancellation notices of their teensy-coverage plans can get quick easy assistance in learning of their actual options.  These Dems need to get the word out, loud and clear, that insurance agents are engaging, en masse, in misleading these people by, most conspicuously but not exclusively, telling them that the particular “replacement” policy they are offering or suggesting is the individual’s cheapest option.

I call it AnthemBlueCrossCare, because nearly every one of these misleading cancellation letters that I’ve read about is from one or another state’s Anthem Blue Cross or Blue Cross company; I keep wondering whether that is the only company that has been offering these teensy-coverage policies, or whether instead this company has just perfected the strategy to a science.

Occasionally, some diligent journalist will actually investigate the situation and will find that the individual or family actually has options that provide better coverage at about the same or less cost.  The 46-year-old woman, for example, who chafes at being forced to buy a plan that includes maternity care can get a plan for that costs the same or less than the one being cancelled that does not.  But by now, largely thanks to mainstream news media organizations such as the New York Times that have credulously published the Anthem-Blue-Cross-is-canceling-my-policy-and-only-offering-one-at-a-500%-increase-in-premiums-and-I’m-forced-under-pain-of-prison-to-not-look-elsewhere-for-health-insurance anecdote–and thanks (surprise, surprise!) to Obama’s failure to inquire into the actual options of these anecdotal victims–journalists’ refutations of these stories is, as my mother would say, like pushing back the sands.

But surely actual smart congressional Democrats and party leaders recognize that what matters to these people is not being able to keep their current plan but in not having to pay more, or a least not a lot more, to get acceptable coverage.  The 46-year-old woman who doesn’t want to pay for maternity coverage or, as she complains, coverage for stage-four-cancer treatment, or for sex-change surgery (surely something that represents most of the additional 500% increase in premiums from Blue Cross that this woman inferred was her only option since Blue Cross didn’t mention any other, because of the commonness of this surgery), might be happy to pay, say, an extra $100 a month for doctor and hospitalization coverage–which apparently her soon-to-be-cancelled policy does not include, since if it does it would have been the best-kept-secret-about-the-best-insurance-for-the-price-in-this-entire-country; hospitalization coverage for $100 a month!–in case, y’know, she needs an appendectomy or surgery for a broken ankle.

Okay, well, Obama apparently recognizes this too.  He just can’t trouble himself to assign a few people within the administration to, maybe, look into these anecdotes and report on their accuracy.  But the Democratic Party can pick up the slack, and the actual smart and competent congressional Democrats need to start aggressively picking up the slack and making that happen and getting out the word.

I’m sure they recognize by now that the next three years must be devoted to aggressively picking up the slack on a veritable slew of important policy matters and presenting facts and policy proposals clearly, loudly, and often, to the public.  Sure it would be nice to have the president do this, but the president won’t do this, probably because he can’t do this. I mean that literally; he lacks not only the desire but also the ability to do it.  But it’s critical that it be done.

And that it start en force immediately.

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Columbia U. Conference Shows Incentives Pervasive but Controls Work

Columbia U. Conference Shows Incentives Pervasive but Controls Work

 Day one of the Columbia International Investment Conference in New York has concluded, and the takeaways are very clear. The topic is investment incentives, prompted by Louise Story’s “United States of Subsides” series last December. Story moderated panel 1, which covered the pervasiveness of subsidies. How widely used are investment subsidies? As the presentations made clear, they are used by virtually every country in the world. That is depressing takeaway number one.

The second big lesson is that for most types of foreign direct investment, the use of incentives has no effect at all. Resource companies, companies seeking strategic assets, and companies needing to sell in a particular market are coming regardless of the use of incentives. (I would qualify the last part to say that only applies when coming to markets that aren’t divided into a number of competing jurisdictions, such as the US and EU, where the member states can engage in subsidy wars, related but gated article here.) It is only for “efficiency seeking” or cost minimization investment that incentives can make some difference in location decisions.

Third, one of the biggest cost of incentives consists of funds given to firms that were coming to your location even if they had not received the subsidy, according to Louis Wells, the panel 2 moderator. He says most studies place this at 60% to 70%. A more recent study by Peter Fisher (p. 8) says that a more typical figure for the amount of jobs is only about 9%, versus the 30-40% implied by Wells. This means that the real cost per job of projects is at least 2.5 times as large as reported cost per job, and may be up to 11 times higher. And don’t forget that there is also a big opportunity cost based on the value of other possible uses of the funds given away. As I have pointed out, all the public sector jobs lost since December 2007 could be replaced if incentives were abolished.

Fourth, the good news is that there are control methods that do work. I have written before about this, and a conference presentation by Investment Consulting Associates (p. 3) illustrates this with a comparison of incentives in the United Kingdom and the Czech Republic. Recall that European Union state aid policy aims to direct bigger incentives to poorer regions of the EU. ICA’s database shows that the mean incentive was more than twice as large ($8.61 million vs. $3.41 million) in the Czech Republic than in the UK; the  mean “aid intensity” (subsidy/investment) was 36% in the Czech  Republic compared to just 15% in the UK; and mean cost per job was $67,088 in the Czech Republic versus only $20,288 in the UK. These are precisely the outcomes the European Commission wants to achieve with the state aid rules, creating a reliable bias in favor of poorer regions (and at the same time the poorer regions have subsidy limits holding down what investors can receive).

Tomorrow (Thursday, November 14) will have panels on “What are the alternatives” and my panel, “The way forward,” where we will discuss EU rules and other methods of controlling out-of-control incentive wars. You can follow the action on Twitter at #CIIC13.

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