Monday, April 12, 2010

Polar Ice And Global Warming

SeeWhat's the Next 'Global Warming'? Herewith I propose a contest to invent the next panic by By BRET STEPHENS. From the WSJ, 4-6-10, p. A15.
"..."much of the record breaking loss of ice in the Arctic ocean in recent years is [due] to the region's swirling winds and is not a direct result of global warming." It also turns out that the extent of Arctic sea ice in March was around the recorded average, according to the National Snow and Ice Data Center."

Freedom Serves Education

See Why Freer Schools Are Better Schools: The charter school movement is succeeding because it liberates teachers and principals from rules and regulations and holds them accountable for results by PHILIP K. HOWARD. From the WSJ 3-25-10, p. A21. Mr. Howard, a lawyer, is chair of Common Good ( and author of "Life Without Lawyers," (W.W. Norton & Co, 2009). Exerpts:
"...a legal library is required to keep up with mandates for due process, special education, work rules, and a jungle of local laws and regulations that try to dictate a uniform response to any issue that might arise. A 2004 study of the rules in one New York City school by Common Good, the legal reform organization I run, found that the daily decisions made by teachers and principals are dictated by thousands of regulations.

Over 60 steps and legal considerations are required to suspend a disruptive student."

"First, we must restore teachers' authority to maintain order. A 2004 Public Agenda survey found that 43% of teachers spend more time trying to maintain order than teaching. The rise of school disorder is directly correlated with the rise of due process, NYU Professor Richard Arum found in his 2003 landmark study "Judging School Discipline." Teachers must be able to remove disruptive students immediately."

Are Speculators Heroes?

Maybe. It was said in the NY Times article titled Those Wall Street Gamblers Might Not Be Bad After All. From the 3-21-10 edition, p. WK 5. It was by NELSON D. SCHWARTZ. Exerpts:
"“If there are heroes in the financial system, these are the heroes,” said Frank Partnoy, a professor of law and finance at the University of San Diego. “They’re the people who bet against Enron, who bet against Lehman and warned it was insolvent.”

It’s not just academics who are coming to the defense of speculators. Earlier this month, BaFin, the regulatory agency that oversees financial markets in Germany, concluded that speculators weren’t behind Greece’s problems. A more likely cause was that investors were simply wary of lending the Greek government any more money following years of heavy borrowing and widening budget deficits."

"“Every time the market goes down, they blame short-sellers and speculators,” said Jim Chanos, a famous short-seller who manages more than $6 billion and was among the earliest voices to warn about Enron as well as the credit crisis. But his trades aren’t gambles at all. “We do as much fundamental research as anybody,” he said.

If that’s the case, speculators are far from being a plague on the markets. Instead, they help reduce risk by taking on the other side of popular trades, resisting the herd mentality that creates bubbles in the first place."

"The speculator “loves freedom, detests cant and abhors restrictions,” Edward Chancellor wrote in his 1999 book, “Devil Take the Hindmost: A History of Financial Speculation.”

According to Mr. Chancellor, a financial strategist in Boston, speculators aren’t motivated by greed, after all. Instead, idealism fuels their trades.

“The essence of speculation remains a utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth,” he argued in his book."

"Victor Niederhoffer, a legendary hedge fund manager and self-described speculator..." said “But when my daughters ask me if my job is as important as the butcher’s, the doctor’s or the scientist’s, I answer that the speculator is a hero, and has been throughout history.”"

The Real Arithmetic of Health Care Reform

That is the title of a New York times article by Douglas Holtz-Eakin, who was the director of the Congressional Budget Office from 2003 to 2005, is the president of the American Action Forum, a policy institute. From the 3-21-2010 issue, page WK 12. To read it go to The Real Arithmetic of Health Care Reform. He thinks health care will cost more than expected. Here are the relevant exerpts:

Could the health care bill lower deficits? He says:
"The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.

In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion."

"Gimmick No. 1 is the way the bill front-loads revenues and backloads spending. That is, the taxes and fees it calls for are set to begin immediately, but its new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only 6 years of spending.

Even worse, some costs are left out entirely. To operate the new programs over the first 10 years, future Congresses would need to vote for $114 billion in additional annual spending. But this so-called discretionary spending is excluded from the Congressional Budget Office’s tabulation."

"...the provision to have corporations deposit $8 billion in higher estimated tax payments in 2014, thereby meeting fiscal targets for the first five years. But since the corporations’ actual taxes would be unchanged, the money would need to be refunded the next year."

"... it would use $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are expected to rise as employers shift from paying for health insurance to paying higher wages. But if workers have higher wages, they will also qualify for increased Social Security benefits when they retire."

"...the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies. But Medicare is already bleeding red ink, and the health care bill has no reforms that would enable the program to operate more cheaply in the future."

"The bottom line is that Congress would spend a lot more; steal funds from education, Social Security and long-term care to cover the gap; and promise that future Congresses will make up for it by taxing more and spending less."

Monday, March 29, 2010

Government Workers Get Paid Very Well. Often More Than In the Private Sector

See The Government Pay Boom: America's most privileged class are public union workers. From the WSJ, 3-26-10, p. A19. Exerpts:
"It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked."

"...nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive."

"What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America."

"A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household."

"The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives."

"Illinois's pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities."

"California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job."

"Across the state, Ohio's State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan."

"The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off."

" Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers."

How One Greedy Lawyer (Bill Lerach) Hurt Business

This comes from a book review in the WSJ From Bully to Felon: How Bill Lerach shook down corporations, until his scam was uncovered. From the 3-2-10 issue, p. A21. Exerpts:
"In 1972, a young lawyer co-authored an article for the University of Pittsburgh Law Review. He targeted class-action securities lawsuits, calling them "procedural monstrosities." They were legal extortion, he said, in which plaintiffs simply use "allegations as a bargaining weapon to be disposed of when an appropriate premium has been extracted from the defendant.""

"In the course of 30 years at the New York-based firm of Milberg Weiss, Mr. Lerach would become the most feared tort lawyer in the country, pioneering an assembly-line model of "strike" lawsuits against corporate America.

In a typical case, he would charge that a company had misled shareholders; he would then sue for damages, claiming to represent a class of people who had lost money on the company's stock; and, finally, he would bully the company into paying over a settlement. In 2008 he became a national symbol for the corruption and greed that lay behind such lawsuits, going to federal prison for helping to orchestrate one of the longest- running legal scams in history."

"Along the way they show how the plaintiffs' bar has transformed the process of class actions into big business."

"Mr. Lerach (eventually with the help of dozens of employees) would monitor company stock prices, waiting for one to plunge. Then he would find some prior sunny statement from the chief executive, dig up an inside trade or two, locate a shareholder plaintiff, and scream investor fraud. Subpoenas would often open up new targets for yet more accusations. Mr. Lerach would then threaten to bankrupt the firm in court or go away for a hefty sum. "I'll own your f---ing house in Maui and the diamonds on our wife's fingers," he once warned a CEO."

"By 1992, Milberg commanded 25% of the country's securities class actions; 90% were settled out of court. The firm's profits in 1993 exceeded $100 million."

"Nobody knew until later that a lot of this legal gamesmanship was rigged. Mr. Lerach had no trouble identifying corporate targets; the hard part was rustling up plaintiff-shareholders to represent. In 1976 an investor named Seymour Lazar proposed a solution: He'd buy stocks and serve as a plaintiff—for a kickback of any payout. It was illegal to pay individual plaintiffs to serve in lawsuits, lest their interests conflict with those of the rest of the plaintiffs' class; Milberg Weiss got around that restriction by sending the kickback money through middlemen lawyers."

"The federal government wouldn't catch on to the scam until the late 1990s, when yet another of the firm's professional plaintiffs was caught in an unrelated crime and came clean."

"Democratic Party thrives on campaign contributions from the securities bar and in return blocks the reforms that might put an end to such legal extortion"

Charter Schools Flourish in Harlem

That is the title of a WSJ article which you can read by clicking here. From the 3-8-10 issue, p. A21. Exerpts:
"Nationwide, the average black 12th grader reads at the level of a white eighth grader. Yet Harlem charter students at schools like KIPP and Democracy Prep are outperforming their white peers in wealthy suburbs. At the Promise Academy charter schools, 97% of third graders scored at or above grade level in math. At Harlem Village Academy, 100% of eighth graders aced the state science exam. Every third grader at Harlem Success Academy 1, operated by Ms. Moskowitz, passed the state math exam, and 71% of them achieved the top score."

"Ms. Moskowitz, a former city council member, says that turnout at the education fair—hundreds of parents and children arrived early and stood outside in the cold before the doors were opened—refute claims that low-income minorities are indifferent to their children's educational needs.'

"Just 2,000 of the nation's 20,000 high schools produce almost half of all high-school dropouts. But nearly half of all black high-school students wind up in one of these "dropout factories.""

"The sadder reality is that 60% of all black male high-school dropouts in their mid-30s have prison records."

The Health Care Bill Could End Up Costing Alot

See Back to the ObamaCare Future: The Massachusetts 'model' moves to price controls. From the WSJ, 3-1-10, p. A24. They compare it to the Massachusetts model. Exerpts:
"As with all new entitlements, the rolling cost crisis began almost immediately. For fiscal 2010 taxpayer costs are $47 million over budget, in part due to the recession, and while the $913 million Mr. Patrick requested for 2011 is a 5% increase over 2010, spending has grown on average 6.7% per year.

Meanwhile, average Massachusetts insurance premiums are now the highest in the nation. Since 2006, they've climbed at an annual rate of 30% in the individual market. Small business costs have increased by 5.8%. Per capita health spending in Massachusetts is now 27% higher than the national average, and 15% higher even after adjusting for local wages and academic research grants. The growth rate is faster too."

"...the political class and providers blame insurers, but a better culprit is the state's insurance regulation. Incredibly, the average "medical loss ratio" in Massachusetts for individual policies is 112%—that is, insurers pay $1.12 in benefits for every $1 in premiums.

This is the direct result of forcing insurers to charge everyone more or less the same rate regardless of age or health status, which makes it rational for people to wait to enroll until they need expensive coverage. It is also the result of the state's decision to merge the individual and small-group insurance markets, which transfers individual costs onto small businesses."

"The average insurance deductible is 28% lower than the U.S. average, and the benefits are more generous with less cost-sharing. Patients are thus insensitive to the cost of care."

"Thirty states imposed hospital rate setting in the 1970s and 1980s. Except for Maryland, every one of them eventually eliminated it—including Massachusetts, in 1991—partly because it didn't control costs."

"A 1988 study in the Journal of New England Medicine found that the states with the most stringent rate-setting had mortality rates 6% to 10% higher than those that didn't."

Can You Really Outlaw Short Selling?

Maybe not. See Regulatory 'Fixes' Miss the Mark(et) By Dennis K. Berman. From the WSJ3-2-10, p. C1:
"Governments have been trying to outlaw or regulate short selling since the Dutch did it in 1610. The English even specified a ban on short sales of bank shares in 1866. In both cases, the rules were repealed or ignored."

Friday, March 26, 2010

Was The Credit Crisis Just Like An Old Fashioned Bank Run?

That is what Steven Landsburg suggests at his blog with What Really Went Wrong. He discusses a book by Gary Gorton titled Slapped By the Invisible Hand: The Panic of 2007. The basic idea is that when mutual funds like Fidelity loaned money to investment houses like Bear Stearns, they started to wonder about the collateral they were given. It is not clear but it seems like the collateral was mortgage backed bonds. Once Fidelity and others questioned the value of those bonds (which is not surprising since we built too many houses), they demanded more collateral from Bear Stearns. But, of course, they could not give everyone more collateral and they went under. Everyone started withdrawing their money. Just like a bank run.

The part about mortgage backed bonds seems similar to what the AEI reported. I had a post on this calledAEI Paper On The Credit Crisis. They suggested that regulations steered banks into hold mortgage backed bonds that were given ratings that were unrealistically high. So they held assets that were more risky than they thought.

Lifestyle Changes Reduce Breast Cancer

See Up to a third of breast cancers could be avoided. It was by AP Medical Writer Maria Cheng, posted 3-25-10, at Yahoo. Here is the intro:
"Up to a third of breast cancer cases in Western countries could be avoided if women ate less and exercised more, researchers at a conference said Thursday, renewing a sensitive debate about how lifestyle factors affect the disease.

Better treatments, early diagnosis and mammogram screenings have dramatically slowed breast cancer, but experts said the focus should now shift to changing behaviors like diet and physical activity."

So once again, individuals can shape their own destiny.

Wednesday, March 24, 2010

Taxing The Rich Has It's Downside

See Maryland's Mobile Millionaires: Income tax rates go up, rich taxpayers vanish. From the WSJ, 3-12-2010, p. A20. Exerpts:
"...after passing a millionaire surtax nearly one-third of Maryland's millionaires had gone missing, thus contributing to a decline in state revenues."

"The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million."

"Yes, a big part of that decline results from the recession that eroded incomes, especially from capital gains. But there is also little doubt that some rich people moved out or filed their taxes in other states with lower burdens. One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008."

"...Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states."

New Book Questions The Need For National Health Care

See Single Payer, Many Faults: Market competition in health care? Imagine that. From the WSJ, 3-12-10, p. A17. This article is actually a book review by JOSEPH RAGO, a senior editorial page writer at the Journal. The book he reviewed is called Health Care Turning Point, By Roger M. Battistella. Exerpts:
""...most consumers of health care are largely insulated from directly paying for the services they use, health care is generally perceived as an unlimited free good. . . . Wants and needs become insatiable when care is believed to be free.""

"... the original sin of modern American health care: the government's World War II-era decision that gave businesses tax incentives to sponsor insurance for their workers but that did not extend the same dispensation to individuals."

"... no one had any reason to be assiduous about controlling the cost of care."

"Health care, he writes, is one of the "most backward sectors of the economy." It ignores "managerial and corporate practices for attaining productivity and quality improvements.""

"Since no one is scrutinizing the relation between costs and marginal benefits, for instance, medical science has become ever more specialized and technologically intensive—leading to unnecessary and overly costly procedures..."

"Medical business models haven't capitalized on economies of scale either: Almost half of U.S. hospitals have fewer than 100 beds, while one-fourth of doctors practice solo. Nor have providers reorganized to manage chronic conditions, such as diabetes, which are better handled by integrated teams than today's fragmented and uncoordinated system. And because the income of doctors and the revenue of hospitals are rarely connected to the quality of the care they provide, preventable errors—like infections acquired in hospitals—may be the third leading cause of death in the U.S."

"The solution, Mr. Battistella argues, is the "hidden pragmatism of market competition." In a competitive environment..."

"This year, government health spending, mostly through Medicare and Medicaid, surpassed private health spending for the first time—even without ObamaCare, which may well bring the public share to 70% or more."

"Mr. Battistella confesses that he finds it "hard to carry on a conversation with true believers," because their idea about health care is "too deeply rooted in ideology." They simply don't want to think about practical solutions, where markets do their best work. There's no convincing some people—especially the supposed pragmatists now pushing for de facto single payer in Washington."

Greed By Insurance Companies Might Not Be A Justification For National Health Care

See Obama's Misleading Assault on the Insurance Industry: The president knows better than his demagoguery suggests. From the WSJ 3-12-10, p. A19. Exerpts:
"One of the chief complaints about health insurers is that they refuse to provide insurance to everyone at the same price, regardless of an individual's pre-existing medical conditions."

"Yet President Obama himself has acknowledged more than once that insurers don't really have a choice.

In his Feb. 3 town-hall meeting in Nashua, N.H., he said: "You can't [demand] insurance companies . . . take somebody who's sick, who's got a pre-existing condition, if you don't have everybody covered, or at least almost everybody covered. And the reason, if you think about it, is simple. If you had a situation where not everybody was covered but an insurance company had to take you because you were sick, what everybody would do is they'd just wait till they got sick and then they'd go buy insurance. Right? And so the potential would be there to game the system."

"In his Jan. 20 ABC News interview, Mr. Obama noted that if insurance firms accepted all applicants, premiums would skyrocket, an insurance mandate would be necessary, and massive taxpayer subsidies would follow. The president obviously knows it makes no sense to blame insurance companies for paying attention to pre-existing conditions when taking on new customers."

[Obama]"... hammered the insurance industry for making huge profits at the cost of patients' finances and health."

" Fortune 500 data show that of the 43 industries that actually made a profit in 2009, health insurance ranked 35th, with profits of only 2.2% of revenues."

"...premium increases are driven not by profits but by costs..."

"When HHS issued "Insurance Companies Prosper, Families Suffer," its Feb. 18 report on firms that implemented "excessive" premium increases, plenty of nonprofit firms...made the list."

"If health insurance is so lucrative, why aren't giant companies jumping in?"

"MetLife has chosen to invest billions of dollars of free cash not in the health-insurance business but in a risky acquisition of the international life insurance business of beleaguered conglomerate AIG. And what about firms like Microsoft, General Electric, Google and Wal-Mart? They know how to enter new markets and make a profit. Why aren't they selling health plans?"

"Those who know best are persuaded that far from being easy, making money selling health insurance is tough. It is no wonder Warren Buffett told CNBC on March 1 that health insurance is one part of the vast insurance market in which he has avoided investing."

"Mr. Obama's third theme is that health insurance needs more regulation."

"Federal regulation of health insurance premiums makes little sense. Most states already have the power to review and reduce premiums. It hasn't done them much good. Massachusetts, which already has the essence of ObamaCare—no restrictions on pre-existing conditions, an individual mandate, and huge taxpayer subsidies—has the highest premiums in the nation."

"The Bay State has the power to cut premiums, but it hasn't figured out how to do that without cutting health care itself"

"State insurance regulators quickly pointed out that Mr. Obama's proposal for a federal rate authority wouldn't work and would complicate their essential task of making sure that insurance firms have sufficient funds to cover future health care costs."

It was by John Calfee, a resident scholar at the American Enterprise Institute.

More Regulations May Not Prevent Another Financial Crisis

Market Failure or Government Failure? Regulators protect the bankers. They continue to lose sight of their responsibility to protect the public. From the WSJ 3-19-10, p. A19. Exerpts:
"Without the policies followed by Fannie Mae and Freddie Mac—and the destructive changes in housing and mortgage policies, like authorizing subprime and Alt-A mortgages for impecunious borrowers—the crisis would not have happened."

"Without warning, the federal government's 30-year policy of bailing out large banks changed when it allowed Lehman Brothers to fail."

"The new financial regulations, spearheaded by Sen. Chris Dodd (D., Conn.), only bring back too big to fail by authorizing a Systemic Risk Council headed by the Treasury secretary.

"Regulation often fails either because regulators are better at announcing rules than at enforcing them, or because the regulated circumvent the regulations."

"This is because regulation is static, while markets are dynamic. If markets don't circumvent costly regulation at first they will find a way later."

"The answer is to use regulation to change incentives by making the bankers and their shareholders bear the losses."

"Secretaries Timothy Geithner and Hank Paulson told Congress at the AIG hearing earlier this month that they faced a choice: a bailout or another Great Depression. This is not true. Classic central banking offered a better alternative. Let AIG fail and lend to the market on good collateral. The Fed, acting as lender of last resort, should protect the market—not the failing firm."

"The market is not perfect. It is run by humans who make mistakes. But the same humans run government where they make different, often more costly, mistakes for which the public pays."

"Regulators talk a lot about systemic risk. They do not—and probably cannot—give a tight operational definition of what this means."

"We will not get sound banking until the CEOs of the large banks and their shareholders are forced to pay for their mistakes."

The author was Allan Meltzer, a professor of economics at Carnegie Mellon University, is the author of "A History of the Federal Reserve" (University of Chicago Press, 2004) and a visiting scholar at the American Enterprise Institute.

Syestemic Risk May Be Hard To Control

See If You Liked Fannie and Freddie... You'll love Chris Dodd's latest reform proposal. It would make many more companies too big to fail and lead to far greater financial consolidation. From the WSJ, 3-18-10, p. A19. Excerpts:
"Although the Fed failed to anticipate the financial crisis, missed the significance of the developing housing bubble, and did not prevent our largest banks from taking excessive risks, it is rewarded in the bill with authority to control the rest of the financial system."

"The Fed's authority over all these firms will extend to setting standards for capital, liquidity, leverage and risk management."

"...the Fed may order a company to terminate one or more activities, impose conditions on how the company operates, or require the company to sell or transfer assets to unaffiliated parties."

" The innovation and risk taking that have always characterized the American financial system will be stifled beneath the Fed's bureaucratic blanket. The center of gravity of the U.S. financial system will move to Washington, where large firms will have to go hat in hand to gain Fed approval for every significant move. Moreover, by designating these firms as potential threats to financial stability, the bill clearly identifies them as too big to fail. This will ensure their competitive survival since it's unimaginable that the Fed will allow them to fail while under its control."

"The real significance of the too-big-to-fail designation, as every small banker knows, is that the implicit protection of the government confers a lower cost of funds and thus significant competitive advantages."

"Gradually, our competitive financial markets will consolidate into markets dominated by a few big firms."

It was by Peter Wallison, a senior fellow at the American Enterprise Institute.

Monday, March 22, 2010

The New Health Care Bill Is Too Much Like The Massachusetts Program: Costly And Inefficient

See The Failure of RomneyCare: The former Massachusetts governor enacted something very similar to the Obama health plan. It isn't working well. From the WSJ, 3-17-10, p. A21. Exerpts are:
"While Massachusetts' uninsured rate has dropped to around 3%, 68% of the newly insured since 2006 receive coverage that is heavily or completely subsidized by taxpayers."

"More than half of the 408,000 newly insured residents pay nothing..."

"Another 140,000 remained uninsured in 2008 and were either assessed a penalty or exempted from the individual mandate because the state deemed they couldn't afford the premiums.

Mr. Romney's promise that getting everyone covered would force costs down also is far from being realized. One third of state residents polled by Harvard researchers in a study published in "Health Affairs" in 2008 said that their health costs had gone up as a result of the 2006 reforms. A typical family of four today faces total annual health costs of nearly $13,788, the highest in the country. Per capita spending is 27% higher than the national average."

"...intrusive government regulations that stifle competition in the insurance market and strict mandates on what services insurance must cover. A 2008 study by the Massachusetts Division of Health Care Finance and Policy found that the state's most expensive insurance mandates cost patients more than $1 billion between July 2004 and July 2005."

"... insurance companies are required to sell "just-in-time" policies even if people wait until they are sick to buy coverage."

"...many people are gaming the system by purchasing health insurance when they need surgery or other expensive medical care, then dropping it a few months later."

"Some Massachusetts safety-net hospitals that treat a disproportionate number of lower-income and uninsured patients are threatening bankruptcy. They still are treating a large number of people without health insurance, but the payments they receive for uncompensated care have been cut under the reform deal."

Masachusetts has a "..."critical shortage" of primary-care physicians."

"...many patients are insured in name only: They have health coverage but can't find a doctor."

"Fifty-six percent of Massachusetts internal medicine physicians no longer are accepting new patients..."

"For new patients who do get an appointment with a primary-care doctor, the average waiting time is 44 days, the Medical Society found."

"...increasing number of patients who rely on emergency rooms for basic medical services. Emergency room visits jumped 7% between 2005 and 2007. Officials have determined that half of those added ER visits didn't actually require immediate treatment..."

"Three of the four major health insurers in Massachusetts showed operating losses for 2009."

It was By GRACE-MARIE TURNER. Ms. Turner is president of the Galen Institute, a nonprofit research organization focusing on patient-centered health reform.

New Taxes That Pay For Health Care Could Damage The Economy

See ObamaCare's Worst Tax Hike form the WSJ, 3-17-10, p. A20. Excerpts are:
"...the investment tax would depress GDP by about 1.3% and reduce capital formation by 3.4%, and thus reduce the after-tax incomes of everyone not paying the tax directly in the neighborhood of 1.1% to 1.2%. Labor productivity and wages would fall across the board, while the lost government revenues from the more-sluggish economy would offset the expected receipts."

"Earning even a single dollar more than $200,000 in adjusted gross income will slap the 2.9% tax on every dollar of a taxpayer's investment income, creating a huge marginal-rate spike that will most hurt middle-class earners, as opposed to the superrich."

Charter Schools Might Be Doing Some Good

See Charter Schools and Student Performance: One study of 29 countries found that the level of competition among schools was directly tied to higher test scores in reading and math. It was in the 3-16-10 WSJ, p. A23. Excerpts:
"...the performance of American high school students has hardly budged over the past 40 years, while the per-pupil cost of operating the schools they attend has increased threefold in real dollar terms."

"Ms. Ravitch and other critics of school choice reverse causation by blaming the sad state of public schools on events that occurred long after schools had stagnated. They point, for example, to President Bush's No Child Left Behind law (enacted in 2002), mayoral governance of schools recently instituted in some cities, and the creation of a small number (4,638) of charter schools that serve less than 3% of the U.S. school-age population."

"One needs to consider the impact of restrictive collective bargaining agreements that prevent rewarding good teachers and removing ineffective ones, intrusive court interventions, and useless teacher certification laws."

"...charters must persuade parents to select them instead of a neighborhood district school. That has happened with such regularity that today there are 350,000 families on charter-school waiting lists, enough to fill over 1,000 additional charter schools."

"Among African Americans, those who favor charters outnumber opponents four to one."

"Union leaders would have us believe that charter popularity is due to the "motivated" students who attend them, not the education they provide. But charters hold lotteries when applications exceed available seats. As a result—and also because they are usually located in urban areas—over half of all charter students are either African American or Hispanic."

"The best studies are randomized experiments, the gold standard in both medical and educational research. Stanford University's Caroline Hoxby and Harvard University's Thomas Kane have conducted randomized experiments that compare students who win a charter lottery with those who applied but were not given a seat."

"...lottery winners subsequently scored considerably higher on math and reading tests than did applicants who remained in district schools."

"...the RAND Corp. found that charter high school graduation rates and college attendance rates were better than regular district school rates by 15 percentage points and eight percentage points respectively."

"...charter critics rely heavily on a report released in 2004 by the American Federation of Teachers (AFT). The AFT is hardly a disinterested investigator..."

"... a report from an ongoing study by Stanford's Center for Research on Education Outcomes (Credo), which found that there are more weak charter schools than strong ones."

"... its results are dominated by a large number of students who are in their first year at a charter school and a large number of charter schools that are in their first year of operation."

"...the greater the competition between the public and private sector, the better all students do in math, science and reading."

The author was PAUL E. PETERSON. Mr. Peterson, a professor of government at Harvard University and a Hoover Institution senior fellow, is author of the forthcoming book "Saving Schools: From Horace Mann to Virtual Learning" (Belknap/Harvard University Press).


From Perestroika Lost, New York Times, 3-14-10, p. 9, "Week in Review" section.
"The Soviet Union was strong in emergencies, but in more normal circumstances, our system condemned us to inferiority."

"What we had to abandon was quite clear: the rigid ideological, political and economic system."

Saturday, March 13, 2010

Irish Economist Responds To Krugman

Constantin Gurdgiev has written a post called Replying to Prof Krugman at his "True Economics" blog. You may have read that Krugman said "Ireland had none of the American right’s favorite villains: there was no Community Reinvestment Act, no Fannie Mae or Freddie Mac." Professor Gurdgiev shows that there were many more similarities than Krugman suggested. The government did encourage risk taking that led to the credit crisis.

Monday, March 8, 2010

Why Financial Reform Is Stalled

That is the title of a 3-1-2010 WSJ article by PETER J. WALLISON (p. A 25). You can read it by clicking here. The brief synopsis is:
"Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress."
Here are the key exerpts:
"The administration appears to have begun its regulatory reform effort with the idea propagated by candidate Barack Obama that the financial crisis was caused by deregulation. There was never any evidence for this. The banks, which were in the most trouble, are the most heavily regulated sector of the economy and their regulation has only gotten tighter since the 1930s."

"So we have the spectacle of Paul Volcker, having recently persuaded Mr. Obama to back the idea of restricting proprietary trading by banks or bank holding companies, telling a puzzled Senate Banking Committee he can't really define proprietary trading but knows it when he sees it."

"The Fed had been regulating the largest banks and bank holding companies for over 50 years—among the very companies that would be considered systemically important—yet it failed to see the risks they were taking or the impending danger.'

"Wouldn't designating particular companies as "systemically important," and subjecting them to special Fed regulation, signal to the markets that these companies were too big to fail?"

"..."the administration says all large and "interconnected" financial firms in crisis should be dealt with by a government agency, rather than by a judge in bankruptcy proceedings.

The term "interconnected" is important here. It implies that when one large firm fails it will carry others down with it, causing a systemic crisis. But that is clearly not the lesson of Lehman. Although the company went suddenly and shockingly into bankruptcy, none of its large financial counterparties failed."

"To be sure, there was a freeze-up in lending after Lehman. But that episode demonstrated the power of moral hazard—the tendency of government action to distort private decision-making. After Bear Stearns was rescued by the Fed in March 2008, market participants assumed that all companies larger than Bear would be rescued in the future. As a result, they did not take the steps to protect themselves against counterparty failure that would have been prudent in a panicky market. When Lehman was not rescued, all market participants immediately had to review the credit standing of their counterparties. No wonder lending temporarily froze."

"And it is clear creditors will be treated far more favorably in a government resolution process than in a bankruptcy.

To understand why this is true, consider the administration's reasons for preferring a government resolution process. The claim is that large, interconnected firms will drag down others when they fail. The remedy for this is to make sure their creditors and counterparties are fully paid when the takeover occurs."

"Creditors will realize that by lending to large companies that might be taken over and resolved by the government, their chances of being fully paid are better than if they lend to others that might not."

" creditors increasingly assume that large firms will be rescued, the too-big-to-fail phenomenon will grow, not decline."

Monday, March 1, 2010

Did The February 2009 Stimulus Do Any Good?

Read The Stimulus Evidence One Year On: Over five years, my research shows an extra $600 billion of public spending at the cost of $900 billion in private expenditure. That's a bad deal by Robert Barro in the WSJ, 2-23-2010, page A19. Keynesian models usually show that a $1 increase in government spendng leads to a more than $1 increase in GDP. Barro disagrees, The key exerpts are:
"I estimate a spending multiplier of around 0.4 within the same year and about 0.6 over two years. Thus, if the government spends an extra $300 billion in each of 2009 and 2010, GDP would be higher than otherwise by $120 billion in 2009 and $180 billion in 2010. These results apply for given taxes and, therefore, when spending is deficit-financed, as in 2009 and 2010. Since the multipliers are less than one, the heightened government outlays reduce other parts of GDP such as personal consumer expenditure, private domestic investment and net exports."

"I estimate that an increase in marginal tax rates reduces GDP, particularly in the next year. When one factors in the typical relationship between tax rates and tax revenue, the multiplier is around minus 1.1. Hence, an increase in taxes by $300 billion lowers GDP the next year by about $330 billion."

"I suppose that the government collects an additional $300 billion of taxes in each of 2011 and 2012. The timing of the future taxes does not matter for the main calculations—the key point is that the government has no free lunch and must collect the extra taxes eventually. Since I assume a tax multiplier of minus 1.1, applying with a one-year lag, the higher taxes reduce GDP by $330 billion in each of 2012 and 2013.

We can now put the elements together to form a "five-year plan" from 2009 to 2013. The path of incremental government outlays over the five years in billions of dollars is +300, +300, 0, 0, 0, which adds up to +600. The path for GDP is +120, +180, +60, minus 330, minus 330, adding up to minus 300. GDP falls overall because the famous "balanced-budget multiplier"—the response of GDP when government spending and taxes rise together—is negative. This result accords with the familiar pattern whereby countries with larger public sectors tend to grow slower over the long term.

The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake."

Mr. Barro is a professor of economics at Harvard University and a senior fellow at Stanford University's Hoover Institution.

Speculation Can Be A Good Thing

So says Darrell Duffie, a professor of finance at Stanford University's Graduate School of Business. See In Defense of Financial Speculation: It is not the same thing as market manipulation from the WSJ, page 2-24-2010, page A15. The key exerpt is:
"Speculators earn a profit by absorbing risk that others don't want. Without speculators, investors would find it difficult to quickly hedge or sell their positions.

Speculators also provide us with information about the fundamental values of investments. When the fundamentals appear favorable, they buy. Otherwise, they sell. If their forecasts are correct, they profit. This causes prices to more accurately forecast an investment's value, spreading useful information."

Creative Destruction Works As Blockbuster Loses Market Share

It seems like not that long ago Blockbuster was seen as the capitalist bully on the block or the evil empire. But market forces and competition are serving consumer needs. Read Blockbuster Plots a Remake form the WSJ, 2-24-2010, page B1. The key exerpt is:
"Blockbuster's plight comes amid major shifts in how people rent and watch movies. Consumers are now getting movies through Redbox, a unit of Coinstar Inc. that operates $1-a-night movie-vending machines in grocery stores and McDonald's Corp. outlets. Netflix Inc., a mail-order and online rental service, has also stolen Blockbuster customers. Consumers are also watching movies and TV shows through on-demand cable services and electronic gadgets such as Apple Inc.'s iPod."
In trying to eye-ball the numbers from the chart they provide, it looks to me that from 2004-7 then number of stores fell about 10%, even befor the recession started.

Some Good Ideas On Health Care

Go to A Better Way to Reform Health Care: The critical problem is rising costs. The solution is more competition and greater individual control over health spending. Here's how. From the WSJ, 2-25-2010, page A13. The key exerpts are:
"Right now, $5 out of every $6 of health-care spending is paid for by someone other than the person receiving care..."

"To reduce the growth of costs, individuals must take greater responsibility for their health care, and health insurers and health-care providers must face the competitive forces of the market. Three policy changes will go a long way to achieving these objectives: (1) eliminate the tax code's bias that favors health insurance over out-of-pocket spending; (2) remove state-government barriers to purchasing and providing health services; and (3) reform medical malpractice laws."

"...for most families, buying health care through an employer is 30%-40% cheaper than buying it directly. The best way to address this clear bias is by making all health spending—including out-of-pocket payments, purchases of individual insurance, and purchases of COBRA coverage—tax-deductible."

"First, individuals must be allowed to buy health insurance offered in states other than those in which they live. The current approach of state-by-state regulation has raised costs by reducing competition among insurance companies. It has also allowed state legislatures to impose insurance mandates that raise prices, while preventing residents from getting policies more suitable for their needs.

Second, reasonable caps on damages for pain and suffering need to be established in medical malpractice cases. Caps on these kind of damages reduce costs and decrease unnecessary, defensive medicine."

"Taken together, the policy changes outlined here will produce a substantial decline in health-insurance premiums."

"It is also important to increase access to health care—but this should not be confused with increasing access to health insurance, and it cannot be achieved without getting costs under control. There are several ideas for improving access worth considering: removing artificial barriers to entry for physicians and within specialty groups, allowing states greater flexibility with Medicaid, providing tax credits for health spending, and expanding programs that provide services directly, such as Community Health Centers."
The authors were JOHN F. COGAN, GLENN HUBBARD, AND DANIEL KESSLER. Mr. Cogan, a senior fellow at Sanford University's Hoover Institution, was deputy director of the Office of Management and Budget under President Ronald Reagan. Mr. Hubbard, dean of Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush. Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

Short Selling Might Be Good

See Selling Investors Short: The SEC refutes its own short-sale ban from the Wall Street Journal, -26-2010, page A14. The key excerpt is:
"In fact, short-sellers make for a more efficient market by allowing all points of view to be expressed in a company's stock price. The SEC came to this conclusion several years ago when it abandoned the so-called uptick rule that had prevented a short-sale unless the last movement in the stock price had been up. The idea was that the rule would serve as a brake on market panics, preventing sharp declines in stock prices, while also preventing short-sellers from manipulating the market.

After years of study and a long pilot test, the SEC staff found no evidence that the uptick rule did any of these things. Studying the 2008 crisis, when the SEC enacted outright bans on short-selling many financial stocks, the SEC staff still hasn't found evidence that such limits benefit investors."

Monday, February 22, 2010

AEI Paper On The Credit Crisis

It is called A Silver Lining to the Financial Crisis: A More Realistic View of Capitalism By Jeffrey Friedman and Wladimir Kraus. Here is the abstract followed by the key exerpts:
"There is little evidence that deregulation or banks’ compensation practices caused the financial crisis. What did seem to cause it were capital regulations imposed on banks across the world. These regulations explain why bankers who are commonly seen as having recklessly bought risky mortgage-backed bonds in order to boost earnings—and bonuses—actually bought the least-risky, least-lucrative bonds available: those that were guaranteed by Fannie Mae or Freddie Mac or were rated AAA. These securities were decisively favored by capital regulations, raising the question of whether regulation actually increases systemic risk. By definition, regulations aim to homogenize the otherwise heterogeneous behavior of competing enterprises. Since one set of regulations has the force of law, it homogenizes the entire economy in that jurisdiction. But regulators are fallible, and if their ideas turn out to be wrong—as they appear to have been in the case of capital regulations—the entire system is put at risk."

"First, the Gramm-Leach-Bliley Act of 1999, which amended the Glass-Steagall Act of 1933, did not erase the distinction between commercial banks, which take deposits and make loans and investments, and (the somewhat confusingly labeled) investment banks, which underwrite and trade securities. The 1999 act merely allowed both commercial and investment banks to be subsidiaries of a common holding company, but they remained subject to the same restrictions on the nature of their activities as before. These restrictions were loose in the case of investment banks but tight for commercial banks—and as we shall see, the crisis took place within the commercial banks."

" default swaps did not mysteriously “interconnect” banks and increase systemic risk. In essence, a credit default swap is a loss-protection insurance contract. This risk is swapped (for a fee) by the lender to a “counterparty”; the amount of the risk remains the same but has merely been transferred from the lender to the counterparty. This transfer no more increases overall risk levels than does a car insurance policy, which transfers risk from the driver to the insurance company."

"...past counterparties do not remain on the hook when they pass a policy to a new counterparty. There remain only two meaningfully connected parties—the ultimate insurer and the insured."

"...starting in the 1930s, regulations issued by the Securities and Exchange Commission (SEC) made the close supervision of corporations by “insiders” who financed these companies—the dominant practice before the SEC regulations—impossible. Since the 1930s, therefore, equity investors in most corporations have, by definition, been “outsiders” who have had to use publicly reported information to infer what is going on inside. In making these inferences, they rely on short-term, legally mandated heuristics for long-term performance, such as quarterly earnings reports."

"To date, there have been only two studies of the matter [on the role of executive compensation], the first of which found that the banks whose executives held the most stock in the bank lost the most money in the crisis—indicating that the executives did not engage in deliberate risk taking motivated by a quest for higher bonuses..."

"...most of the risk taking found by the authors was among insurance companies, not banks."

"there is decisive evidence against the thesis that incentives to take risks caused the financial crisis. The evidence is this: 93 percent of all the mortgage backed securities held by American banks either were issued by Fannie Mae or Freddie Mac, and were thus implicitly guaranteed by the U.S. Congress (as the American taxpayer soon found out), or were issued by investment banks and rated AAA by one of the three rating agencies: Moody’s, Standard and Poor’s, or Fitch."

"...these three private corporations had had a legally protected oligopoly since 1975, thanks to another SEC regulation."

" is true of all bonds, AAA-rated bonds paid less than lower-rated (AA, A, BBB, etc.), supposedly riskier bonds."

"If bankers were being lured by their banks’ compensation systems into acquiring risky but lucrative assets—on the basis of which the bankers would have gotten bigger bonuses—then they should never have bought AAA bonds. Instead, they should always have bought higher-paying AA-, A-, or BBB-rated bonds, but they did so only percent of the time."

[the crisis was] "...caused by a sharp drop, in September 2008, in the market price of mortgage-backed bonds, in anticipation of their declining value as the bubble deflated. The first victims of the falling price of mortgage-backed bonds were Fannie and Freddie; in quick succession came the investment bank Lehman Brothers; and finally came the commercial banks—because they held so many mortgage-backed bonds, not mortgages."

[an important cause is]" obscure regulation called the recourse rule. The recourse rule was enacted by the Federal Reserve, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Office of Thrift Supervision in 2001."

"...the after-tax cost of equity capital, say 12 to 15 percent, is substantially greater than the aftertax cost of debt, which is generally in the 3 to 5 percent range."

"By reducing their capital holdings, banks can, at least in principle, increase their profitability. But under the recourse rule, “well-capitalized” American commercial banks were required to spend 80 percent more capital on commercial loans, 80 percent more capital on corporate bonds, and 60 percent more capital on individual mortgages than they had to spend on asset-backed securities, including mortgage-backed bonds, as long as these bonds were rated AA or AAA or were issued by a government-sponsored enterprise (GSE), such as Fannie or Freddie. Specifically, $2 in capital was required for every $100 in mortgage-backed bonds, compared to $5 for the same amount in mortgage loans and $10 for the same amount in commercial loans. One can readily see that the recourse rule was designed to steer banks’ funds into “safe” assets, such as AAA mortgage-backed bonds."

"Unfortunately, these bonds turned out not to be so safe. Without the recourse rule, however, there is no reason for portfolios of American banks to have been so heavily concentrated in mortgage-backed bonds."

"...the recourse rule covered commercial banks, not hedge funds or anyone else. If not for the recourse rule’s privileging of mortgage-backed bonds, the burst housing bubble almost certainly would not have caused a banking crisis."

"Was there a connection between the recourse rule and the housing bubble?"

"The artificial demand for mortgage-backed bonds created by the recourse rule may therefore explain why, as the decade wore on and the pool of credit-worthy borrowers who made traditional down payments dried up, banks and mortgage specialists lowered their lending standards and made the terms of their mortgages more generous."

"Between the middle of 2001 and the beginning of 2002, mortgage securitization jumped from about $20 billion to $50 billion per quarter, peaking at nearly $150 billion per quarter in 2006."

"Citi jumped into mortgage-backed bonds with both feet, putting them on its balance sheet through the recourse rule but also buying them off-balance-sheet through SIVs (structured investment vehicles)..."

"...JP Morgan lost billions of dollars in potential revenue for years in order to avoid mortgage securitization. JP Morgan’s Jamie Dimon was among those who recognized the danger..."

"What explains this diverse behavior is that the individual bankers in question had different perceptions of the magnitude of the risk. In unregulated markets, that kind of diversity of viewpoints is precisely what makes capitalism work."

"The recourse rule, Basel I, and Basel II loaded the dice in favor of the regulators’ ideas about prudent banking. These regulations imposed a new profitability gradient over all bankers’ risk/return calculations, conferring 80 percent capital relief on banks that bought GSE-issued or highly rated mortgage backed bonds rather than commercial loans or corporate bonds, and 60 percent relief for banks that traded their individual mortgages for those “safe” mortgage-backed bonds."

"Bank-capital regulations inadvertently made the banking system more vulnerable to the regulators’ errors. But this is what all regulations do."

It Is Hard And Costly To Protect The Environment, Even In Liberal Cities

The article is Even Boulder Finds It Isn't Easy Going Green from the 2-13/14-2010 WSJ, page A1. Here are the key experts:
"But Boulder has found that financial incentives and an intense publicity campaign aren't enough to spur most homeowners to action, even in a city so environmentally conscious that the college football stadium won't sell potato chips because the packaging isn't recyclable."

"Since 2006, Boulder has subsidized about 750 home energy audits. Even after the subsidy, the audits cost each homeowner up to $200, so only the most committed signed up. Still, follow-up surveys found half didn't implement even the simplest recommendations, despite incentives such as discounts on energy-efficient bulbs and rebates for attic insulation.

About 75 businesses got free audits; they made so few changes that they collectively saved just one-fifth of the energy auditors estimated they were wasting."

"In 2006, Boulder voters approved the nation's first "carbon tax," now $21 a year per household, to fund energy-conservation programs. The city took out print ads, bought radio time, sent email alerts and promoted the campaign in city newsletters.

But Boulder's carbon emissions edged down less than 1% from 2006 through 2008, the most recent data available."

"But there are signs Boulder's efforts are starting to lose favor. Voters county-wide last fall rejected a measure that would have doubled a public fund set up to give homeowners low-interest loans for efficiency upgrades, such as a new furnace.

In the same November election, city voters elected to the council several newcomers eager to moderate Boulder's aggressive environmentalism."

[a consultant] "...suggests the city measure every home's carbon footprint and publicize the results.

City officials aren't willing to go that far. But they are hoping to leverage peer pressure."

"'s extremely difficult to reduce emissions without a wholesale switch to renewable energy sources. Boulder depends almost entirely for energy on a coal-powered plant."

Policy Lags And The Stimulus

The post below this one explains the policy lag problem. The article here is Bulk of Stimulus Spending Yet to Come: Most Cash So Far Has Gone to Services, Government Jobs; Infrastructure Surge Unlikely to Put Big Dent in Unemployment. The recession began in December 2007 in 2010 we get the bulk of the stimulus. The article was in the WSJ 2-17-2010, page A2. The key exerpts are:
"Most of the money allocated to specific projects hasn't been paid out yet, and there are still an additional $195 billion in tax cuts on the way."

"But the bulk of the money proposed for projects like new rail lines and water projects—about $180 billion in all—is likely to be spent this year at the earliest. During year one of the stimulus, only about $20 billion of money was handed out for infrastructure projects."

"The "shovel ready" projects administration officials pointed to as a source of new jobs have taken months to get organized."

"In some cases, federal agencies have had to set up entirely new programs.

Many signature projects—including $20 billion for doctors to create electronic medical records, $4.5 billion for an energy Smart Grid and $7.2 billion for broadband networks—are still in their very early stages."

"Government data indicate that most of the jobs supported by stimulus spending belonged to public employees at the state and local level, including about 325,000 teachers and school staff."

"Government data indicate that most of the jobs supported by stimulus spending belonged to public employees at the state and local level, including about 325,000 teachers and school staff.

Subsidizing those jobs avoided layoffs, or state and local tax increases that could have further undermined the economy. But they didn't result in substantial hiring of people who had lost private-sector jobs."

"Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis."

Policy Lags Hit Housing Policies

One problem in government macro problems is the policy lag problem. It takes time to recognize that we are in a recession, time to decide a policy and then it takes time for that policy to have an effect. I think this problem came up the article Housing crisis reality sets in. It is an AP article that I saw in the San Antonio Express-News on 2-18-2010, page 4C. It is about the government plan to help people keep their houses that began about a year ago. The key exerpts are:
"The plan, Obama told a cheering audience of high school students, would keep as many as 9 million people in their homes by lowering their monthly mortgage payments."

"The numbers show a program that failed to deliver. About 116,000 homeowners have had their loans modified to reduce their monthly payments, the Treasury Department said Wednesday. Only about $15 million in incentive money has been paid to more than 100 participating mortgage companies. That's 0.02 percent of the $75 billion available."

"Interviews with officials in the Obama and Bush administrations, bank executives and housing experts show the government launched the effort without thinking through many of the details of such a complex program. Banks were ill-prepared, as well. To implement the program, it took months to hire and train thousands of workers — many of whom had no experience in the mortgage industry."

"Since March:

•1 million people have entered the modification program, and almost 12 percent, or 116,000, have completed the process.

•A third of homeowners who made the three monthly trial payments on time now have fallen behind.

•More than 61,000 homeowners have dropped out, and hundreds of thousands more are expected to do so in the coming months."

•About 220,000 homeowners whose homes have plummeted in value have refinanced."
Notice that an unforseen consequence arose, that alot of workers had to be trained to handle the program so it took longer than expected to get things going. That is the policy lag problem. It can take too long for government programs to work and they might end up being the wrong thing at the wrong time.

Incentives, Choices Matter In The Health Care Debate

The article is Reviving the Health-Care Debate. From the WSJ, 2-19-2010, page A15. It is By JEFFREY S. FLIER AND DAVID GOLDHILL. "Dr. Flier is dean of the faculty of Medicine at Harvard. Mr. Goldhill is president and CEO of GSN, a media and technology company." The key exerpts are:
"First, health and health care must not be conflated. Health is shaped by genetics, diet and lifestyle choices, social factors and chance as much as it is shaped by medical care. And all too often, expenditures on medical treatments fail to promote health.

Second, health care should be distinguished from health insurance. Insurance doesn't guarantee appropriate or equitable care."

"Our system favors treatment—especially costly treatment—at the expense of other options."

"...we need to recognize that over the past 50 years we created incentives that have encouraged more expensive—rather than better—care.

The two most important incentives are the tax advantage conferred on employer-based and low-deductible insurance and the administrative structure of Medicare and Medicaid."

"The government's willingness to meet rising costs with ever greater spending and subsidies has also undermined efforts to discipline costs or to seek alternative approaches to organizing care."

"A successful approach would aim to reform misplaced incentives. Giving individuals the same health-care tax deductions businesses get would be a good start."

[we should] "...encourage the purchase of high-deductible insurance coupled with putting money aside in health savings accounts, including a shift to HSAs of some of the funds now paid to insurance premiums."

Complex Loans Didn't Cause the Financial Crisis

That is the title of a WSJ article from 2-19-1010, page A15, that you can read by clicking here. It was by Todd Zywicki who "is a law professor at George Mason University and a senior scholar at the Mercatus Center. This op-ed is based in part on a Mercatus working paper, "The Housing Market Crash."" Here are the key exerpts:
"But there is no evidence, as Elizabeth Warren (a champion of CFPA and chair of the TARP Congressional Oversight Panel) recently asserted on these pages, that lender fraud was the overriding cause of the crisis."

"There were three distinct stages of the housing crisis. In the first, the Federal Reserve's extremely low interest rates from 2001-2004 induced consumers to switch from fixed to adjustable rate mortgages and drew short-term speculators and house-flippers into the market in certain cities."

"My own research confirms the analysis provided by University of Texas economist Stan Leibowitz on these pages last July: The initial onset of the foreclosure crisis was a problem of adjustable-rate mortgages, whether prime or subprime. It was not initially a subprime problem."

"None of this analysis has anything to do with fraud or consumer protection problems. Consumers rationally switched to adjustable-rate mortgages when their prices fell relative to fixed-rate mortgages—a pattern that has repeated itself numerous times since the 1980s. And when housing prices fell, underwater homeowners rationally responded by walking away from their houses. The proliferation of mortgages with minimal downpayments, interest-only or even negative amoritzation terms, and cash-out refinances meant that many consumers fell into negative equity territory much more rapidly than they would have otherwise."

"So the problem isn't consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well."

What Will Price Controls On Insurance Do?

President Obama suggested that regulations limit the size of increases in insurance premiums. Tyler Cowen at Marginal Revolution points out that "If current proposals fail to pass, insurance companies can still just dump people. Forcing them to lower their prices will induce them to dump even more people and to have a tighter definition of preexisting conditions."

At Regulating a Natural Monopoly I show that marginal cost price regulation and a subsidy is the best policy using the concept of social welfare. So there is a case where regulations work. But I don't think that the insurance industry fits the definition of a natural monopoly. It would have to have big economies of scale, meaning that their average cost falls with each additional customer. I have never heard that that is true. Usually price ceilings cause shortages.

Sunday, February 21, 2010

Unintended Consequences-Credit Card Regulations

This is from a Coordination Problem post called "Unintended Consequences of the New Credit Card Regulations." Here it is:
"This CNN Money (Watch out for new credit card traps) piece does a nice job in laying out all of the negative unintended consequences of the new credit card regulations, including:

1. New kinds of fees and higher annual fees.

2. Higher interest rates.

3. Less credit being offered.

4. More stringent and costly financial requirements of borrowers.

5. Fewer associated benefits, such as airline miles.

Most of these will disproportionately affect the poor and the young who need the unsecured, if high rate, credit that credit cards offer. It will also hurt those who have had a more spotty credit history, but who could still get cards under the prior regulatory regime. Once again the intent of regulation is far different from its actual consequences.

To re-ask the question Tom Palmer recently asked in a different context: “Does loudly professing concern for the poor translate into actually benefiting them?”

And here's my follow-up: Why is it that the same people who think government is captured by the rich and powerful also believe that government intervention into the market is the best way to help the poor?

Posted by Steve Horwitz on February 20, 2010 at 10:15 PM"
I also wonder that people might turn to criminals to get loans if they have harder time getting credit.

How many people die from lack of health insurance?

This was a post at Marginal Revolution
"Megan McArdle has an excellent post on that question and here is her column. Here is one startling bit:
To my mind probably the single most solid piece of evidence is this: turning 65--i.e., going on Medicare--doesn't reduce your risk of dying. If lack of insurance leads to death, then that should show up as a discontinuity in the mortality rate around the age of 65. It doesn't. There are some caveats--if the effects are sufficiently long term, then it's hard to measure, because of course as elderly people age, their mortality rate starts rising dramatically. But still, there should be some kink in the curve, and in the best data we have, it just isn't there.
And this:
The possibility that no one risks death by going without health insurance may be startling, but some research supports it. Richard Kronick of the University of California at San Diego’s Department of Family and Preventive Medicine, an adviser to the Clinton administration, recently published the results of what may be the largest and most comprehensive analysis yet done of the effect of insurance on mortality. He used a sample of more than 600,000, and controlled not only for the standard factors, but for how long the subjects went without insurance, whether their disease was particularly amenable to early intervention, and even whether they lived in a mobile home. In test after test, he found no significantly elevated risk of death among the uninsured.
I agree with her conclusion:
Intuitively, I feel as if there should be some effect. But if the results are this messy, I would guess that the effect is not very big.
Posted by Tyler Cowen on February 12, 2010 at 07:10 AM"

Here are the links to the pieces by Megan McArdle:

How Many People Die From Lack of Health Insurance?

Myth Diagnosis

World may not be warming, say scientists

This was posted at Division of Labor as Measurement error and temperature records:
"For what it's worth, the Times UK runs this story, "World may not be warming, say scientists," which piles a further and even more interesting layer of doubt atop the Intergovernmental Panel on Climate Change.

The IPCC faces similar criticisms from Ross McKitrick, professor of economics at the University of Guelph, Canada, who was invited by the panel to review its last report.
The experience turned him into a strong critic and he has since published a research paper questioning its methods.

“We concluded, with overwhelming statistical significance, that the IPCC’s climate data are contaminated with surface effects from industrialisation and data quality problems. These add up to a large warming bias,” he said.

Such warnings are supported by a study of US weather stations co-written by Anthony Watts, an American meteorologist and climate change sceptic.

His study, which has not been peer reviewed, is illustrated with photographs of weather stations in locations where their readings are distorted by heat-generating equipment.

Some are next to air- conditioning units or are on waste treatment plants. One of the most infamous shows a weather station next to a waste incinerator.

Watts has also found examples overseas, such as the weather station at Rome airport, which catches the hot exhaust fumes emitted by taxiing jets.

Posted by Edward J. Lopez at 01:48 PM in Economics"

Here is the link to the article from the Times Online:
World may not be warming, say scientists

Wednesday, February 17, 2010

The U.S. Ranks High In Some Health Care Measures

See Where U.S. Health Care Ranks Number One: Isn't 'responsiveness' what medicine is all about? by MARK B. CONSTANTIAN in the WSJ, 1-8-2010 page A15.
"The scale is heavily subjective: The WHO believes that we could have done better because we do not have universal coverage. What apparently does not matter is that our population has universal access because most physicians treat indigent patients without charge and accept Medicare and Medicaid payments, which do not even cover overhead expenses. The WHO does rank the U.S. No. 1 of 191 countries for "responsiveness to the needs and choices of the individual patient.""

"...cardiac deaths in the U.S. have fallen by two-thirds over the past 50 years. Polio has been virtually eradicated. Childhood leukemia has a high cure rate. Eight of the top 10 medical advances in the past 20 years were developed or had roots in the U.S."

"Eight of the 10 top-selling drugs in the world were developed by U.S. companies. The U.S. has some of the highest breast, colon and prostate cancer survival rates in the world."

"We have the shortest waiting time for nonemergency surgery in the world; England has one of the longest. In Canada, a country of 35 million citizens, 1 million patients now wait for surgery and another million wait to see specialists."

"Actually, health-care spending now increases more moderately than it has in previous decades. Food, energy, housing and health care consume the same share of American spending today (55%) that they did in 1960 (53%)."

Did The Stimulus Place A Burden On The States?

The WSJ had an editorial titled The States and the Stimulus
How a supposed boon has become a fiscal burden
"...stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed "maintenance of effort" spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes."

"A study by the Evergreen Freedom Foundation in Seattle found that "because Washington state lawmakers accepted $820 million in education stimulus dollars, only 9 percent of the state's $6.8 billion K-12 budget is eligible for reductions in fiscal year 2010 or 2011." More than 85% of Washington state's Medicaid budget is exempt from cuts and nearly 75% of college funding is off the table. It's bad enough that Congress can't balance its own budget, but now it is making it nearly impossible for states to balance theirs."

Hugo Chavez Turns To Capitalists For Help

See Chávez Seeks to Reassure Investors on Venezuela from the WSJ 1-26-2010. They have not been producing as much oil as they can.
"Speaking at a ceremony for the launch of a joint venture between Petróleos de Venezuela SA, Venezuela's state oil monopoly, and Italian energy company Eni SpA, Mr. Chávez said foreign investors have nothing to fear from his government."

"Mr. Chávez said at the ceremony that "investment and experience from foreign oil firms is necessary in Venezuela.

"We need it," confessed the president, in a rare concession to critics who charge that his rough tactics with foreign producers, combined with a lack of investment in PdVSA, have undermined the country's ability to further develop its vast reserves and allowed rivals to eat away at its share of the global demand for oil."

Is The FED Doing Enough To Fight Inflation?

That is the question raised in an article by ALLAN H. MELTZER called The Fed's Anti-Inflation Exit Strategy Will Fail: Sooner or later the pressure to lend out excess bank reserves will be unstoppable.
"When will inflation start? The date is uncertain. But the triggering event will be either a sustained increase in bank lending or a large increase in Fed purchases of government debt."

"With the exception of the early years after Paul Volcker became Fed chairman in 1979, the Fed has paid no attention to money growth."

"The Federal Reserve has a well-known dual mandate to prevent both inflation and unemployment. It chooses to act on only one part of its mandate at a time. That cannot be the best way to achieve both targets, and it has failed repeatedly to bring low inflation and low unemployment."

"But the Fed abandoned its success by keeping interest rates too low after 2003."

"...the Fed should announce a policy for preventing inflation that reduces the enormous stock of excess reserves, such as by selling securities."

What Happened At AIG?

The story has been changing over time. This is from a WSJ editorial on 1-28-2010, page A18 called The Latest AIG Story: Regulators can't agree on what the real systemic threat was. The key exerpts are:
"At yesterday's House hearing, Secretary of the Treasury Timothy Geithner and predecessor Hank Paulson said they didn't bail out AIG to save its derivatives counterparties. Instead, said Mr. Geithner, the now-famous 100-cents-on-the-dollar buyouts of credit default swap contracts were necessary to prevent a further downgrade of AIG by credit-ratings agencies."

"the Federal Reserve Bank of New York, where Mr. Geithner was president, had by that time already seized AIG. We're guessing that a ratings agency is pretty comfortable with the creditworthiness of a firm 79.9%-owned by Uncle Sam."

"... the hearing showed that the story of why AIG could not be allowed to fail continues to change,..."

"The original Beltway line was that the systemic risk was caused by AIG's inability to back up the credit default swap contracts it sold..."

"Yesterday, however, Messrs. Geithner and Paulson went further than ever in stating that the real systemic risk was to AIG's heavily regulated insurance businesses. Their testimony directly contradicts that offered to Congress by former New York Insurance Superintendent Eric Dinallo, who was AIG's principal insurance regulator at the time."

"The Geithner and Paulson story now is essentially that the system of heavy state insurance regulation was a sham. When push came to shove, policyholders were not protected from a default by the parent company."

"This also makes us wonder about all of the political and media chatter over the last year that derivatives were the doomsday machine that caused the meltdown. If this testimony is correct, then the systemic risk wasn't that if AIG collapsed it would infect Goldman and other financial companies like falling dominoes across the world."

"But if bad bets on derivatives would only have ruined AIG and its subsidiaries, that's not the same kind of danger to the entire financial system."

Do Proposed Policies Efficiently Fight Global Warming?

Maybe not. That is the gist of an article in the WSJ, 1-28-2010 called Time for a Rethink on Global Warming: Mandated carbon cuts won't work by BJøRN LOMBORG. Here are the key exerpts:
"All the major climate economic models show that to achieve the much-discussed goal of keeping temperature rises under two degrees Celsius, we would have to impose a global tax on carbon emissions that, by the end of the century, would cost the world a phenomenal $40 trillion a year. Even the wealthiest of nations would have trouble paying that price."

"An expert panel including three Nobel Laureate economists concluded that devoting just 0.2% of global GDP—roughly $100 billion a year—to green-energy R&D could produce the kind of breakthroughs needed to fuel a carbon-free future. Not only would this be a much less expensive fix than trying to cut carbon emissions, it would also reduce global warming far more quickly."

Do Alcohol Regulations Work?

Maybe not. Here is an interesting letter that was in the WSJ on 1-13-2010, page A22.
"...more government regulation either fails to achieve the intended result or actually achieves the opposite result. We find that people living in states with greater controls on liquor sales consume alcohol (on a per-capita basis) at the same rate as do people living in states with lesser controls."

Antony Davies
John Pulito

Duquesne University
Click here to see the letter.

Did Interest Rates Play A Role In The Credit Crisis?

From the WSJ, 1-13-2010, page A2 Bernanke Challenged on Rates' Role in Bust. Some economists think that low interest rates, as set by the FED, were part of the problem:
"In a monthly survey of mainly Wall Street and other business economists, 42 said low interest rates were partly to blame for the housing boom while 12 sided with Mr. Bernanke and said they weren't. Academic economists who specialize in monetary policy were split in a separate survey: 13 said low interest rates helped cause the housing bubble; 14 said they didn't."

"The "basic problem" was "the mistake" of raising short-term interest rates too slowly from 2004 through 2006, said Miles Kimball of the University of Michigan. "Going up quicker would have been better.""

"Some noted that low rates encouraged banks to write the riskier loans that Mr. Bernanke puts at the center of the crisis."

""There is plenty of blame to go all around," said Martin Eichenbaum of Northwestern University, expressing a commonly expressed view. "Loose monetary policy certainly contributed to easy financing, which was one element of the bubble.""

Monday, February 8, 2010

State Tax Incentives May Not Boost Economy

The article is Pennsylvania Tax Incentives Questioned (WSJ, 1-13-10, P. A3). Here is the intro:
"Pennsylvania's attempts to lure high-tech companies by offering big tax incentives have brought only marginal gains, according to a new study.

The state had a net gain of 43 high-tech employers between 1990 and 2006, but a net loss of 2,850 jobs, according to the study, funded by the Pittsburgh nonprofit Heinz Endowments and conducted by the Washington nonprofit Good Jobs First."

"The study contends that the job losses show the tax incentives aren't enough to offset other factors like globalization. It said Pennsylvania's tax and incentive codes provided "little appreciable advantage or disadvantage"..."

"Richard Florida, director of the Martin Prosperity Institute at the University of Toronto, said he thinks competition among states has calmed down amid the recession because there is less to fight over. He said that while many economic-development policy makers want to use the same incentives as competing states, many academics are finding that "at best they don't work, and at worst they're counterproductive and wasteful.""

[tax incentives] have " sum across all states."

"...companies could game the system by firing workers before using a credit to rehire more workers..."

"...more jobs were lost to other countries than to other states by a 30-to-1 ratio. It also found that job creation is driven more by factors in the state, such as expansion of pre-existing companies, than by interstate relocations."

Economic Policy Changes May Be Causing The Uncertainty That Is Slowing The Recession

That is what University of Chicago professors GARY S. BECKER, STEVEN J. DAVIS AND KEVIN M. MURPHY said in the WSJ article titled Uncertainty and the Slow Recovery: A recession is a terrible time to make major changes in the economic rules of the game (1-4-2010, P. A17). Here are the key exerpts:
"...the overall package (the stimulus) was not well designed to foster a speedy recovery or set the stage for long-term growth. Instead, the "stimulus" was oriented to sectors that liberal Democrats believe are deserving of much greater federal help."

"...other government proposals created greater uncertainty and risk for businesses and investors. These include plans to increase greatly marginal tax rates for higher incomes."

"The separate bills passed by the House and Senate worry small businesses, in particular. They fear their labor costs will increase because of mandates to spend much more on health insurance for their employees."

"... there is a potential for the money supply to grow rapidly, possibly producing a substantial inflation. How hard the Fed will fight inflationary pressures through open market sales and other actions that raise interest rates is a significant source of uncertainty about future inflation..."

" Faced with a highly uncertain policy environment, the prudent course is to set aside or delay costly commitments that are hard to reverse. The result is reluctance by banks to increase lending—despite their huge excess reserves—reluctance by businesses to undertake new capital expenditures or expand work forces, and decisions by households to postpone major purchases."

"A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows."

"The weak economy is far and away the most prevalent reason given for why the next few months is "not a good time" to expand, but "political climate" is the next most frequently cited reason,..."

"The authors of the NFIB December 2009 report on Small Business Economic Trends state: "the other major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy."

"Business investment in the third quarter of 2009 is down 20% from the low levels a year earlier."

Poverty May Not Be The Cause Of Crime

The article is A Crime Theory Demolished: If poverty is the root cause of lawlessness, why did crime rates fall when joblessness increased? (WSJ, 1-5-2010, P. A17). Here are the key exerpts:
"The 1960s themselves offered a challenge to the poverty-causes-crime thesis. Homicides rose 43%, despite an expanding economy and a surge in government jobs for inner-city residents. The Great Depression also contradicted the idea that need breeds predation, since crime rates dropped during that prolonged crisis."

"According to the FBI's Uniform Crime Reports, homicide dropped 10% nationwide in the first six months of 2009; violent crime dropped 4.4% and property crime dropped 6.1%. Car thefts are down nearly 19%. The crime plunge is sharpest in many areas that have been hit the hardest by the housing collapse. Unemployment in California is 12.3%, but homicides in Los Angeles County, the Los Angeles Times reported recently, dropped 25% over the course of 2009. Car thefts there are down nearly 20%."

" increase in the number of people incarcerated had a large effect on crime in the last decade and continues to affect crime rates today..."

"The spread of data-driven policing has also contributed to the 2000s' crime drop."

"As New York Police Commissioner in the mid-1990s, Mr. [William] Bratton pioneered the intensive use of crime data to determine policing strategies and to hold precinct commanders accountable—a process known as Compstat. Commissioner Kelly has continued Mr. Bratton's revolutionary policies, leading to New York's stunning 16-year 77% crime drop."

"In 1990s New York, crime did not drop because the economy improved; rather, the city's economy revived because crime was cut in half."

Glaring errors found in report on climate

You can read that article by clicking here. My original source was the San Antonio Express-News (p. 9A, 1-21-2010). Here are the key exerpts:
"• The paragraph starts, "Glaciers in the Himalayas are receding faster than in any other part of the world." Cogley and Michael Zemp of the World Glacier Monitoring System said Himalayan glaciers are melting at about the same rate as other glaciers.

• It says that if the Earth continues to warm, the "likelihood of them disappearing by the 2035 and perhaps sooner is very high." Nowhere in peer-reviewed science literature is 2035 mentioned. However, there is a study from Russia that says glaciers could come close to disappearing by 2350. Probably the numbers in the date were transposed, Cogley said.

• The paragraph says: "Its total area will likely shrink from the present 500,000 to 100,000 square kilometers by the year 2035." Cogley said there are only 33,000 square kilometers of glaciers in the Himalayas.

• The entire paragraph is attributed to the World Wildlife Fund, when only one sentence came from the WWF, Cogley said. And further, the IPCC likes to brag that it is based on peer-reviewed science, not advocacy group reports. Cogley said the WWF cited the popular science press as its source.

• A table says that between 1845 and 1965, the Pindari Glacier shrank by 2,840 meters. Then comes a math mistake: It says that's a rate of 135.2 meters a year, when it really is only 23.5 meters a year."

The Great Money Binge

That is the name of a new book on the credit crisis that was recently reviewed in the WSJ. The book is by George Melloan. The review was called Crisis Management: We need less government intervention in the economy, not more (P. A17, 1-22-2010). Here are some key exerpts:
"Mr. Melloan writes that "seeing the problem clearly will be the first step" toward restoring the economy, and "The Great Money Binge" greatly assists with this task by laying out the real reasons for a crisis that has been wrongly blamed on free markets. Mr. Melloan notes that the housing bubble was turbo-charged by Fannie Mae and Freddie Mac, government-sponsored enterprises that—by buying, bundling and reselling housing debt—gave banks a ready market for reckless loans. Fannie and Freddie operated with an implicit government subsidy that became explicit when they went into conservatorship in September 2008, leaving taxpayers on the hook for billions of dollars. Relatedly, the Community Reinvestment Act, hugely expanded by the Clinton administration in the 1990s, encouraged banks to make loans to less-than-creditworthy borrowers."

"...the accounting mandates of the Sarbanes-Oxley Act, rushed through after Enron and WorldCom imploded in 2002, stifled entrepreneurial dynamism by increasing the costs of initial public offerings."

"Mr. Melloan argues that Mr. Spitzer's crusade against American International Group—involving charges now dropped or yet to be proved—made the 2008 crisis worse, by forcing out longtime CEO Maurice "Hank" Greenberg."

"Mr. Melloan also fingers the mark-to-market accounting rules promulgated by the Financial Accounting Standards Board in 2007. They added gasoline to the fire of the crisis, he says, by requiring companies to adjust their books every time an asset changed value. The result was often paper losses that had a cascading effect, forcing companies to sell assets that they had intended to hold and thereby lowering prices further. "Since uncertainty had locked up the market for [mortgage-backed securities], the mark-to-market rule exacerbated the problem. How do you mark something to market if there is no market?""

Report: 40 percent of cancers are preventable

To read the article click here. Here is the intro:
"About 40 percent of cancers could be prevented if people stopped smoking and overeating, limited their alcohol, exercised regularly and got vaccines targeting cancer-causing infections, experts say.

To mark World Cancer day on Thursday, officials at the International Union Against Cancer released a report focused on steps that governments and the public can take to avoid the disease.

According to the World Health Organization, cancer is responsible for one out of every eight deaths worldwide — more than AIDS, tuberculosis and malaria combined."
So it looks like individual behavior and individual responsibility are the key. Also, the report said:
"In Western nations, experts said many of the top cancers — like those in the lungs, breasts and colon — might be avoided if people changed their lifestyle habits. To reduce their risk, the agency recommended that people stop smoking, limit their alcohol consumption, avoid too much sun, and maintain a healthy weight through diet and exercise."
The report was from International Union Against Cancer. But I reported something just like this over a year ago. Click here to read that post.