Why ObamaCare won't solve denied claims problem

Okay, let's say that you have a choice of two insurance policies, policy A and policy B. Policy A charges $500 a month, and policy B charges $600 a month. Which one are you going to buy?

But wait. Obamacare caps profit margin that an insurer can make. So how can insurer A sell insurance for cheaper than insurer B? Well, either insurer A has healthier people -- but because Obamacare allows you to pick a cheaper policy regardless of pre-existing conditions, so why wouldn't the sicker people decide to go to insurer A? -- or insurer A is doing something nasty and evil -- they're arbitrarily denying claims.

So why would they arbitrarily deny claims? Because that's the only way to make more profit if you're required to take everybody and your profit margin is capped. The way to make more profit is to have more customers. The way to have more customers is to have lower rates. The way to have lower rates is to deny claims. It's a vicious cycle because insurer B will then decide that *they* have to arbitrarily deny claims too, in order to get back the customers they're losing to insurer A... repeat all over the industry, and you get denied claims galore.

But wait, I hear you say. There is a medical review panel mandated by Obamacare too, they can't just deny claims arbitrarily! Well, you show me a government regulation, I'll show you a dozen lawyers rubbing their hands with glee figuring out some way to get around it. My guess is that they'll either dump so many people on these medical review panels that there's no way to review all those denied claims, or drag out the proceedings for so long that people die before their claims get reviewed, or they may not even do any of that -- they may simply hope that a percentage of the people whose claims they deny don't know about the medical review panel and won't appeal the denial of the claim. And before I hear you say, "but... but... that's unethical..."... bwahaha! Ethics? These people have only one ethic: Making money. The Almighty Dollar is their God. Their notion of ethics is "greed is good".

So what's going to happen? Well, what eventually happened in *other* nations that have tried this scheme is that the insurance companies were eventually either nationalized and became branches of the federal government (see: Germany, prior to recent re-privitizations), or they became heavily regulated utilities with rates and profit margins both set by the government, meaning no incentive structure to deny claims beyond what's necessary to preserve their profit margin (since they can't reduce rates to steal customers from other insurers). Well, actually, there's a third possibility: Medicare For All, with the insurers relegated to the role of Medi-gap providers. This is what Taiwan did. But this is usually the end game of heavily regulated insurers deciding that health insurance isn't profitable enough to be worth their time -- that's why Taiwan's insurers didn't fight Medicare For All there, they were already so heavily regulated that they could make more money selling Medi-Gap on the unregulated market than by selling the core insurance as heavily regulated insurers.

Because one thing is certain: A continued spiraling downward of the services paid for by insurers won't be tolerated by either the general public or by regulators. If Republicans try to push that mule harder, they're gonna end up with the imprint of a horseshoe on their forehead. Just sayin'.

- Badtux the Health Care Economics Penguin

Taxes are too high?

We can't raise taxes because then companies couldn't spend to invest. Only problem: big American companies like Apple Corporation are sitting on literally hundreds of billions of dollars that they've simply piled under giant mattresses. Sayyyyy... why can't we tax that big hoard of cash? I mean, if Apple was going to spend it, they woulda spent it, right, so clearly they don't need it, right? And it's not as if they're paying huge amounts of taxes on the dough -- they paid a whole 3%, yes, THREE PERCENT, on the cash they got from overseas, and are whining that bringing that cash here to America would mean they'd have to pay SEVENTEEN percent tax. Oh wah! The majority of Americans only wish they paid only 17% tax -- crap, I pay 7.5% sales tax on everything I buy in the first place, nevermind income tax, Social Security and Medicare tax, and all that!

Yet you still have tools whining American companies can't afford tax hikes, even though the taxes are primarily on mattress money like what Apple is dumping on its shareholders today -- i.e., the taxes will basically take money out from under mattresses and put it back into circulation in the economy where it can do some good. Unbelievable. Truly unbelievable. But not surprising. After all, we can't expect corporations today to pay the 1/3rd of taxes that they paid in that horror that was America under that socialist President Dwight D. Eisenhower, instead of the under 10% of taxes that they pay today... why, that'd be Communism!

- Badtux the Snarky Penguin

Math is hard

But J. Brad Delong proves that the math behind deficit spending in a down economy works. That is, money in a depressed economy is seeking safe havens to hide in. What's safer than the full faith and credit of the United States of America? Nothing. What to do if bond buyers drive bond rates to effectively negative? Sell more bonds, duh -- I mean, if you're *making* money selling Treasuries, why the hell not?

So anyhow, that's just mathematical proof of what we already knew -- the proper role of government in a consumption-slump-caused recession is to be consumer of last resort, taking the money that would ordinarily be spent on consumption (but is now looking for a mattress to hide under) and putting it to use doing something useful rather than just sitting under a mattress effectively being pretty-colored toilet paper from the perspective of the economy.

Which brings to mind something that JzB and I have been hashing about in emails, about the nature of money and how do you measure the amount of effective money in an economy (i.e., the money actually in use to buy and sell stuff). Some thoughts: 1. Consumer consumption is money. 2. Government purchases is money. 3. Consumer and government wages are money. 4. Capital improvement purchases are money. All of these involve money changing hands in exchange for something of real value (money itself has no real value, it's just toilet paper with pictures of dead people for, it's the fact you can exchange money for things of real value that give it effective value despite no intrinsic value). If you add up all of these money flows in a month, you should have a good notion of the effective money supply in a given month. If you compare this number to the inflation rate, what do you see? I don't know. Maybe JzB will do one of his pretty charts and show us :).

-- Badtux the Random Economics Penguin

The economics of employer-paid health insurance

There's a wide variety of folks who claim that employer-paid health insurance was a side-effect of wage freezes during WW2. The claim is that employers couldn't raise their employees' pay due to the Federally-mandated wage freezes, so they instead started providing health insurance.

The thing is, this is unadulterated balderdash. If it had been a response to the wage and price controls, then employers would have immediately dropped the health insurance plans once wage and price controls were lifted after the end of the war and instead raised wages by that amount. But the reality is group health insurance is cheaper than individual health insurance, and that's why it became standard even for employers where 100% of the cost was paid by employees. The tax break is one reason, but by far not the only reason -- until recently, the cost of health insurance simply wasn't big enough to make the tax deduction a big deal, I paid something like $40/month for health insurance when I was a young adult for example, back when dinosaurs roamed the Earth and penguins lived in Antarctica rather than in the Silly Cone Valley.

So anyhow, why do I say that group health insurance will invariably win out over individual health insurance in a free market for health insurance? Let us list the reasons why:

1. Reduced marketing costs. There are 10 million businesses in the USA. There are 115 million households in the USA. You do the math -- group plans have 1/10th the marketing costs.
2. Reduced billing and collection costs. Again, 10 million bills, 10 million checks to process, rather than 115 million bills and 115 million checks to process.
3. Increased reliability of collections. Businesses tend to pay their bills on time due to having automated processes for collecting the money out of people's paychecks then cutting a check to the insurance company (or e-paying them). Individuals pay when they pay, and you have to deal with late pays, missing pays, and all sorts of other billing issues if you're billing individuals.
4. Homogenization of product. Individuals would want all sorts of different insurance policies and you'd need to provide all of them or your competitors would win the business for the ones you want to provide. But by selling to businesses, you can sell one of a very few insurance products, which greatly reduces your cost of selling and administering insurance plans, because businesses are primarily interested in getting the cheapest insurance acceptable to their employees.

The reality is that in countries that have evolved a universal health care system, a large number of them started from the viewpoint of having businesses pay for and administer the plans. For example, traditionally in Germany the only time you got health insurance provided by the government was if you and everybody else in your family was unemployed -- otherwise your employer handled registering you and your otherwise-uninsured family members with the health insurer for your region and employer type, and sending them the check for your health care costs. Japan works like that too -- employers handle the collection and registration part of providing health insurance. Given that in today's capitalist countries virtually everybody is employed, it's simply easier/cheaper to have the employer enroll you and take the money out of the paycheck and send it to the insurer, rather than to directly bill or enroll individuals.

In short, in virtually every country that doesn't have centralized socialist healthcare where everybody is automatically insured and automatically gets the money taken out of their paychecks as taxes, you'll find employers directly involved in the enrollment and provision of insurance, because it's simply cheaper. There is only one Switzerland (where insurance is provided on an individual basis rather than group basis), and even Switzerland has been Switzerland for less than twenty years (before that the primary funders of healthcare were employer-based group plans like the USA) and individual insurers haven't been driven out of business by cheaper group plans there only because group plans have been banned by government fiat. When you have group plans and individual insurers in the same system, people buy individual insurance only when they're self-employed... because otherwise, it's simply cheaper to buy it through your employer, even if you're paying 100% of the cost out of pocket.

-- Badtux the Healthcare Economics Penguin

Government spending and production

One thing that the Austerians are fond of saying is that government spending doesn't increase production in an economy, it just retargets production from the private market to the government market. They have an accounting formula that "proves" this -- an accounting formula that conveniently disappears slack resources, unemployed people and idle factories (or, rather, their formula claims that such are impossible to exist -- ignore our lying eyes, those unemployed slackers aren't unemployed, they're just taking a long vacation!).

Of course, this ignores the fact that we only count as unemployed those who are looking for work -- i.e., people who are *not* taking a long vacation (they wouldn't be looking for work if they were vacationing!) -- and that the current stats show a *lot* of idle resources all over that could be put to productive use if there was demand for the goods. Joe the Sandwich Shop owner, looking gloomily at his empty shop, isn't making sandwiches. But if someone came in and wanted a sandwich, he'd make one for that person. Duh.

So what creates demand? Well... money, and the willingness to spend it. And it doesn't matter, from the viewpoint of the economy, whether that money is "government" money or "corporate" money. If Joe the Sandwich Shop Owner sees someone come in his shop with the money to buy a sandwich and the desire to buy a sandwich, he's going to make a sandwich for that person -- a sandwich which did not exist until Joe produced it. And Joe's going to do this regardless of whether the guy who wants the sandwich was paid with "government" money or "private" money, money is money, from Joe's perspective -- he's a businessman, not a theologian or ideologue, he's in business to sell sandwiches, not to query people about where they got the money to buy his sandwiches.

Now, one argument is that the government can only spend by taking money away from other people that would otherwise be used for consumption. That ignores the fact that the Fortune 500 has literally stuffed $2 *TRILLION* under a mattress -- it's just sitting there, consuming *nothing* -- that could be taxed without reducing consumption by one iota, but also ignores the fact that the government possesses this wondrous invention the printing press and thus could actually print the money that it intends to spend. Now, mind you, this has to be done cautiously since hyperinflation can cause Joe to not sell sandwiches too (because he can't haul wheelbarrows full of cash to his suppliers fast enough to get the stuff to make sandwiches before it inflates to worthlessness), but hyperinflation is a worry only under certain circumstances that don't exist at present.

So the government *can* increase consumption without reducing consumption elsewhere, and thus *can* increase actual production of goods and services. Joe the Sandwich Shop Owner produced one more sandwich because the bridge builder who had been paid with freshly printed government stimulus money bought a sandwich there. That sandwich is increased production of goods and services that otherwise wouldn't exist. And if you say otherwise, Joe will just look at you like you're some crazy-ass lunatic and point you at the fresh green in his cash register and say "what, are you a fucking moron? You think that government dude gave me this money just 'cause he liked my fucking face? Get outta my shop, asshole!" Multiply by thousands of Joe the Sandwich Shop Owners, not to mention steel mill workers now working because of all the steel needed to build that bridge paid for by government money, and so on and so forth, and you have a significant difference. *IF* the government consumption is big enough to make a significant difference. If not... (shrug). You get today's economy, where increases in federal government consumption have been offset by a collapse of state and local spending as their tax revenues dive. Just another reason why WASF.

-- Badtux the Economics Penguin

Greece: No Way Out

Greece is melting down. Right now the Eurozone is kicking the can down the road while Greeks die from austerity. The other choice is for Greece to default on its debt, leave the Eurozone, and go their own way, financing their deficit by printing their own currency.

So why don't they do that? Three words: 1) Medicine. 2) Fuel. 3) Food.

Greece is not self-sufficient in any of those. Greece doesn't have overseas assets like Iceland had when Iceland defaulted that can be used to import these items. And they certainly aren't going to be able to buy any of this from the EuroZone, since they just kicked the Eurozone into a new Great Depression due to the collapse of all the banks that are invested in Greek debt.

The only other alternative is to leave the Eurozone but go hat in hand to the IMF for a bailout, where the IMF funds the imports of medicine, fuel, and food. Thing is, the IMF isn't going to do any such thing unless Greece has a government willing to make the hard choices. Pretty much every asset that Greece has needs to be repurposed towards bringing in sufficient foreign currency to pay for the medicine, fuel, and food that Greece needs to survive, which isn't going to leave a lot for the Greek people.

So what's the end game? Well, the German proposal -- lots of dead Greeks due to starvation, exposure, and lack of medicine -- isn't going to pass political muster, the Greeks might as well default at that point since default is going to have the same result. IMF bailout isn't going to happen until the current government collapses and a new government is in place, and given that the Greek police are out of tear gas (and lack the cash to buy more) this might be sooner rather than later unless they resort to live bullets, in which case game over, there will be government officials hanging from street lamp posts shortly thereafter. What it looks like to me is going to be the messy default scenario, where a revolutionary government ends up taking office and imposes a hard-core socialist reallocation of the nation's assets to bring in the foreign exchange needed to keep the country from freezing and starving to death. Eurozone or non-Eurozone? 50-50 chance, my guess though is non-Eurozone. How many Greeks will die for Germany before all of this goes through? I suspect fairly few -- low tens of thousands -- because the government is already teetering on the edge of irrelevancy and collapse so this farce cannot go on for much longer. And then? Well, we'll see. They'll either create a new model for how to handle an economy in a time of depression, or they'll become Somalia North. Either way, Greeks are in for some interesting times...

- Badtux the Economics Penguin

Ron Paul's economics

Ron Paul is a big fan of the gold standard. The problem with the gold standard, which caused every nation to have to abandon it during the Great Depression (no nation began to recover economically until after they dumped the gold standard), is that it is fundamentally deflationary. Productivity rises over time -- we learn new ways to increase the amount of goods and services that each person in the workforce can produce. Population also rises over time -- people have kids, immigrants enter the country, and so forth. The end result is that the amount of goods and services in the economy grows over time -- but gold doesn't. The amount of gold is pretty much fixed, and grows only slowly, as new sources of gold are discovered then exhausted.

So why is deflation so bad? First, let's look at price deflation. Price deflation is so bad because it makes businesses unprofitable. They can no longer sell their goods for more than the price they paid for their goods because price deflation has reduced prices in the meantime. The goal is to buy low, sell high. If you're instead buying high, selling low, you're a former business.

Which is why there's price stickiness during monetary deflation (a reduction of the money supply) -- but that means businesses have to lay off people because their goods are now more expensive relative to the now-scarcer dollars, and thus they sell fewer goods. So basically the gold standard artificially reduces economic activity to match the amount of gold in the economy. Which is a great thing if you're wanting to reduce people's standard of living and create lots of unemployment, but *not* a great thing if you want jobs for people.

So anyhow, Paul Krugman, Brad DeLong, and even our very own Jazzbumpa have all produced graphs showing that the #1 indicator of economic recovery during the Great Depression was abandonment of the gold standard. When the gold standard was abandoned and the printing presses fired up to produce enough currency so that prices were rising again rather than falling, businesses could make a profit since they were no longer buying high and selling low -- and profitable businesses can hire people, and hired people can buy more, which in turn causes *more* economical activity, a virtuous circle that keeps going upwards until you have near-full employment again, at which point you have to stop printing so much money otherwise you start going Weimar.

So anyhow, to summarize the effects of Ron Paul's economic policies if adopted: If Ron Paul got his way, it would be legal to buy weed -- but you wouldn't be able to afford it. Which means the Ron Paul Youth who support Ron 'cause, like, they wanna be able to buy weed without The Man arresting them, are sorta barking up the wrong tree. What good is it to have weed be legal, if you can't afford it (and can't afford food, for that matter)?

-- Badtux the Economics Penguin

Caterpillar, EMD, unions, and nonsense

Caterpillar bought EMD, the former General Motors subsidiary that is one of the world's foremost manufacturers of diesel-electric locomotives, back in July 2010. They immediately started construction on a locomotive plant in Muncie, Indiana, on the site of a former Westinghouse transformer plant that had a gigantic building with a rail spur already running through it (with doors big enough for the biggest of locomotives to go through it) and enough open land behind it to build sheds and tracks for testing of the locomotives. They had multiple reasons to do this:

1. Buy American mandates on the part of U.S. transit authorities, the same reason why Bombardier is forced to maintain a facility in Plattsburg, NY.
2. The fact that GM had sold off the LaGrange IL locomotive assembly facility (EMD's original U.S. assembly facility ) many years before to a trucking firm that had demolished the original buildings, so there was no ability to produce locomotives there,
3. The availability of this huge assembly plant for cheap -- it had been shuttered since 1998, and Westinghouse was eager to quit paying taxes on it.
4. The proximity of Muncie to existing Caterpillar and EMD parts suppliers
5. The extensive rail network coming in and out of Muncie from all directions, making it easy to get parts into Muncie and get assembled locomotives out to customers.
6. The availability of workers -- Muncie had long been a railroad center, and there were a large number of railroad workers in Muncie with experience in repair of EMD equipment who could easily be turned into assembly line workers
7. The obsolete nature of the London, Ontario plant, which could not be renovated to modern standards because it was EMD's only facility and was operating at capacity, due to its age and configuration it was very expensive to operate and could not be fixed short of shutting it down and rebuilding it entirely. Which could only be done by building a new facility capable of building as many locomotives per month as the London plant built.

The net result of all this was that a) the Muncie plant was built, taking approximately one year to build and with the first locomotives rolling off the end of the line in October 2011, and b) it had more than sufficient capacity to build as many locomotives as EMD needed to build. At which point the London, Ontario plant becomes surplus, with the inevitable result -- the plant is now closed.

Please note the *timing* on all the above. The Indiana "Right to Work" union-busting law was passed last month. Construction on the Muncie plant started in September 2010. So, uhm, what is the relationship between the two? Hint: None. Nada. Zero. Zilch. It had absolutely nothing to do with Caterpillar's decision to build in Muncie, because it hadn't even been proposed then. So the CBC even mentioning that law in conjunction with EMD is nonsense, the sort of thing I'd expect from a Faux News story, not a supposedly reputable journalistic outlet.

Now, the way Caterpillar set about closing the Ontario plant -- by proffering a union contract that they knew wasn't going to be accepted, so that the contract would expire and thus they could shutter the plant without having to pay out the severance pay required by the contract -- was pretty shitty. They should have just bit the bullet and taken the one-time cost of paying everybody the severance pay they were owed under the union contract. But that plant was toast, period, from the moment Caterpillar started work on the Muncie plant. It was simply too small, too run-down, and too expensive.

-- Badtux the Business Penguin

Austerian dreams

The Austerians have been driving economic policy in Europe lately, cutting government budgets dramatically in order to eliminate "crowding out" and thus spur economic growth. So has economic growth increased? Erm... No. In fact, much of Europe now is seeing economic collapse on a scale that exceeds the Great Depression, with enormous increase in unemployment and sizable declines in economic output.

So what's the retort of the Austerians? Well, their retort is to lie -- to say that despite huge budget cuts, their retort is to claim that there is no austerity in Europe because the unemployed are receiving unemployment insurance. At which point it's, WTF? Are the unemployed supposed to simply drop dead in the streets from starvation and exposure?

The Hayekian response seems to be, "yes". Or, rather, the actual argument of Cafe Hayek is that the unemployed workers are voluntarily unemployed, they’d have jobs if they only lowered their wages to the point where their value to employers exceeded their wages. I.e., the Great Vacation explanation for the New Great Depression, same one they use for the Old Great Depression. This of course ignores two points: a) that there is a bottom to wages imposed by survival (i.e., people will not voluntarily accept wages that are insufficient to provide basic food, shelter, and clothing), a point explicated further on Angry Bear where it's pointed out that when machines replaced horses for many tasks, the result was mass slaughter of horses whose feeding costs now exceeded their economic worth (i.e., Hayekians want humans whose feeding costs now exceed their economic worth to be slaughtered? Soylent Hayek?) and b) employers won’t hire additional employees at any cost above $0 if there is no demand for their product, because employers are in business to make money, which means having as few people on payroll as possible to meet current demand, which means the only way they’ll hire *at any wage above $0* is if demand increases.

But of course these unpleasant realities don’t happen in the bubble universe that Hayekians live in, where basic biological needs don’t exist and employers are charities. Of course, in *our* universe, neither of those statements are true…

- Badtux the Reality-based Penguin

I guess they thought I wouldn't notice

Compost, my Internet provider, did their usual Comcraptastic job and raised my Internet bill by $3 this month. I had looked at the rate hike sheet and had not seen a rate hike for Internet-only service, but apparently I was looking at it wrong, because Comcast certainly raised my rate.

Because I'm now paying more for Internet service without receiving any better service, I guess it's time for me to switch to the competitor, uhm... err... what competitor? Comcast has a monopoly on Internet service in my area! Not a government-enforced monopoly, mind you -- our local government has encouraged AT&T to expand DSL availability, for example, and has been very helpful to ClearWire in getting towers up and encouraged a WiFi startup too -- but none of these have "taken" for the reasons that I discussed earlier in this blog -- i.e., that the primary cost of providing Internet service is infrastructure, infrastructure is a fixed cost regardless of how many people use it, and there just aren't enough customers to pay for twice the infrastructure given that the current rates are already less than that. A competitor simply wouldn't be able to recoup their investment in duplicating Compost's infrastructure, so they won't do it.

So I will take my bitter pill of an unregulated monopoly up the ass without lube, just like a good American, because what choice do I have? No Internet? Yah, this Libertarian "no regulations" thingy is workin' out *real* good...

-- Badtux the Sore-bum Penguin

Giving the consumer what he wants

So we should make more stuff in America, you say? So here's the question: Are you willing to put your money where your mouth is?

Look. Shit didn't start getting made overseas because it was better. It started getting made overseas because it was cheaper. I mean, c'mon. Ya got slave labor in Vietnam making underwear, and they're paid a few pennies a day in rice and fish. That's *always* going to be cheaper.

But you say you are willing to pay 50 cents extra for a package of American made underwear? Dude. That experiment's been done. Fruit of the Loom tried it. It didn't work. They went bankrupt and Warren Buffet moved all their production overseas when he took them over.

Same deal with those hard drives made in Thailand, the ones that caused a world-wide shortage when Thailand was hit with flooding. They're about $20 cheaper than if they were made down the street from me in the Western Digital plant that used to make consumer drives back in the early 90's. It might as well be infinity, because once again, people weren't willing to pay a price premium to buy an American made consumer drive. Businesses still happily pay the price premium to buy American-made server-grade SAS drives because they care about quality and reliability as much as they care about price and the American-made drives are simply better quality, but consumers won't buy American-made consumer drives because they cost a sawbuck too much.

Given all this, why *should* business give a shit about America and Americans? I mean, c'mon. American consumers quite clearly have said they don't give a shit about America and Americans, so if the consumers don't care, why should businesses care? It's not as if businesses are charities, after all. They're in business to make money, and if consumers say "we want low prices and don't care that the goods are made in Vietnam", why *should* businesses care? They're just giving consumers what consumers want!

Which is just another reason why WASF...

-- Badtux the Contrarian Penguin

Inflation targeting in a 0% realm

There has been a proposal floated to set a Fed inflation target tied to unemployment. The upside is that this could be done simply via a vote of the Federal Reserve board, since this is within the purview of the authorizing legislation for the Federal Reserve. The downside is that it wouldn't work.

Look: I can see why the idea appeals to some people. It completely side-steps the legislative log-jam in Congress. The problem, however, is this: How is the Fed going to create inflation when it already has reduced real interest rates to 0%? Once you hit the 0% boundary, you're basically stuck -- you can't reduce real interest rates below that, because people simply aren't going to pay banks to keep their money in the bank. They just won't. They'll stash their money under mattresses instead, and at that point you're talking about bank collapses and a massive deflationary spiral and a world of hurt.

Now I hear the acolytes of Milton Friedman crying, "what about helicopter drops?!" But what we've seen over the past three years is that helicopter drops -- the Federal Reserve printing money with all the abandon of a Wiemar Republic finance minister -- only accomplishes creating inflation in China and in oil prices. That's because the money gets into the consumer's pocket and the consumer either spends it in China -- since pretty much all he wants to buy is in China -- or he spends it on gasoline to get to work -- since demand for gasoline is inelastic (you don't have any choice but to burn it to get to work) the oil companies can simply increase their prices to suck that money right back out of the workers pockets, and there's nothing that workers can do about it, if they want to work they *have* to drive in the 98% of America that has no functional mass transit system. Then once the oil companies get it, what do they do with it? Well, they either spend it overseas -- which is no help at all to America and Americans -- or they stash it under (virtual) mattresses where it effective disappears from the economy -- again doing nothing to employ the 20%+ real unemployed Americans, and until you get a significant number of those Americans re-employed you *can't* see significant wage inflation, because there's simply too much supply and not enough demand for workers.

So you can't lower interest rates right now, and you can't print money, so how could the Fed create a realistic expectation of inflation? Answer: They can't. All that would happen if the Fed made such an announcement would be widespread laughter, because anybody who's serious knows that Keynes may have been wrong about a lot of thing, but he was utterly correct about what happens at the 0% boundary -- at the 0% boundary monetary policy becomes utterly ineffective, and you must then rely on fiscal policy (i.e., the government directly buying or hiring to create employment in America for Americans) to soak up the surplus workforce, trigger wage inflation, and get things to the point where monetary policy *could* be effective.

Which, given that we're currently in the grips of an Austerian religious ideology which holds that fiscal stimulus is evil, means we are seriously, totally fucked.

-- Badtux the WASF Penguin

Too little, too late

One of the most important jobs of a central bank in possession of a printing press is to act as a lender of last resort when there is a run on the other banks in the nation. I.e., it is literally physically impossible for a central bank to run out of money, so if a bank with typical reserve ratio of 20% suddenly has 40% of its customers show up wanting their money, it's the central bank's job to trade freshly printed cash for the long-term loans on the member bank's books, then soak the cash back up as the long-term loan gets repaid.

The Federal Reserve, to its credit, did that in the 2007 credit crisis here in the United States. The Fed accepted trash for cash to the tune of over $1.5B, or roughly 6% of the outstanding loans in the USA. But the European Central Bank did not. The Fed did an indirect bailout of some of the most important European banks by trading cash for trash, but nowhere near what would be necessary to re-float those banks -- only enough to keep U.S. insurers of those banks solvent, because the Federal Reserve's charter is to serve the USA, not Europe.

The end result in Europe is deflation, and as I've mentioned here before, deflation is the same thing as debt inflation -- that is, your debts are rising and rising and rising in value until they finally reach the point at which they cannot be repaid, a point which has arrived for far too many Europeans and even entire European countries. There's a term for what happens after that: circling the drain, as debtors default, banks collapse, cause further deflation, causing *more* debtors to default, wash, rinse, repeat, swirling down down down with less and less currency in circulation (it's disappearing under mattresses) until entire economies are reduced to barter, probably the most inefficient method of conducting business, like, evah.

So it's good that the ECB *finally* is stepping forward to do their own trash for cash to keep European banks from collapsing. On the other hand, the ECB is run by Germans, and a good percentage of the banks owed money by the countries on the verge of default are German banks, so it may be that they finally simply didn't have a choice but to do the minimum needed to keep the whole Eurozone from circling the drain into the Barterzone.

But note the *size* of this loan program: less than half the size of the Fed's loan program in 2007, despite the fact that the Eurozone's combined economies are approximately the same size as the USA's economy. Too little. And four years too late.

My suggestion to Europeans (other than the British, who avoided the Euro madness): Turnips. Seriously. When the Soviet ruble collapsed with the nation that created it, turnips were the currency of choice for much of Russia because they're durable, useful (if you have too many turnips you can ferment them to make vodka, even!), and not dependent upon a central bank to make the decision to create them. What, you say this is daft? Well, no more daft than those silly people who collect shiny-colored metal in hopes that it will have value after the Euro collapses. You can eat turnips. You can't eat gold.

-- Badtux the Snarky Economics Penguin

Quick hits

Tiny Kim apparently has the support of the security services, which has now sent a number of senior Party officials tiptoeing through the tulips. Seems Tiny Kim ain't as dim as he might have seemed from his early appearances and isn't going to be tiptoeing through the tulips himself anytime soon -- or turnips either, given the abysmal yield of North Korean agriculture over the past couple of decades.

Gratuitous video of new North Korean dictator:

In other news, Newt the Gingrinch appears to think he's running for President of North Korea, what with basically proposing to take judges who rule in ways he don't like out behind the barn and shoot'em in the head or somethin'. The sad part is that there's a large contingent of Americans who break out in giant shit-eatin' grins at the very thought, who have no problem with the notion of living under a North Korean style dictatorship, as long as it's *their* dictator.

Who are the 1% and what do they do for a living? Hint: It ain't work in the way you and I think of work.

Regulations are not a huge jobs killer. Like, duh. If there's demand for my product I don't give a shit about what regulations I have to comply with, I'm gonna hire folks to produce more product.

50% of Americans are too poor to pay Federal income taxes, but they still pay plenty of other taxes, starting with the 15% payroll tax that the 1% (who don't work for a living, they "invest" for a living and don't earn income, they earn "capital gains") don't pay.

The wealth gap, graphically. It ain't a pretty picture.

Why haven't any of these Wall Street fraudsters gone to prison yet, again? Oh wait, because they're "job creators" in some alternate universe where unicorns are pink and cotton candy grows on trees. Alrighty, then!

-- Badtux the Snarky Penguin

Quick hits

71-year-old man drives 225 miles with dead wife in passenger seat beside him. He didn't know what to do without his wife to tell him what to do.

How do you ask a man to be the last man to die for a mistake? Apparently you just order him to go out on patrol, and he follows orders. So now John Kerry knows the answer to his question.

Over the past four years, the monetary base has been tripled. According to Austrian economists, this means we should be going Weimar, and should have been going Weimar for at least a couple of years. According to Keynesian economists, tripling the monetary base when you're in a liquidity trap will have no (zero) effect. So, uhm... who's right? (Hint: Krugman is right. Of course.)

Soldiers are having trouble feeding their families, and can't find jobs after they're mustered out of service, having a harder time than non-veterans even. America supports our troops, woot!

Yet more evidence of the shrinking middle class. Soon there will be only the filthy rich and the abjectly poor. Serfin' USA, dude!

- Badtux the Hits Penguin

Conspiracy theory

Heard about the OMG $29 trillion dollar Fed bailout of the U.S. banks? Yes? Congratulations... you've been taken in by yet another conspiracy theory!

The reality is that the Federal Reserve never had $29T outstanding in loans to the banks. During the peak crisis period when the banks could no longer raise money on the open markup due to a complete lockup of equity markets, the peak liquidity lending was about $1.5 trillion, or roughly 6% of outstanding corporate and household debt. The current balance, BTW, is $0 -- that's how much the banks owe the Fed right now, because they repaid everything they were loaned once equity markets unfroze.

Furthermore, this is sort of the purpose of the Federal Reserve, the whole reason it was created -- to provide liquidity by trading cash for long-term assets when there's a bank run. Which there was. The failure of the Federal Reserve to do this job during 1929-1932 is what caused the collapse of over half of the banks in the United States and massive deflation that resulted in over 30% unemployment.

In short, the conspiracy theorists find a conspiracy in the Fed doing its job. Which is just whack. The whole point of the Federal Reserve is to loan money to banks in exchange for long-term assets when the banks need short term cash, otherwise there's no reason to have it. Blasting the Fed for doing what it's supposed to do is either dishonest, idiotic... or both.

-- Badtux the Monetary Penguin

Empty stores

So this season I've visited two Target stores and one Wal-Mart store. And... uhm. Hello? Helloooo? Anybody there?

The two Target stores were virtually deserted. At one of them, two checkout counters were operating, this during a prime shopping time. The other had four checkout counters operating. And no lines. The place virtually echoed.

Wal-Mart was a little busier, but nowhere near the zoo that it was before the Great Recession. Only half of the checkout lanes were open, and there were no lines. Before the Great Recession, all the checkout lanes would have been open, all the parking in the parking lot would have been filled, and the store would have been so jammed with people you would have had a hard time moving. Now... not so much.

All that happy happy joy news about how great the economy is doing yada yada? Uhm, yeah. Not seein' it. Just sayin'.

-- Badtux the Observant Penguin

I love my credit union

Got a phone call from my landlady asking where her money was. I pulled up my statement on the web, and said "that's funny, bill pay says they mailed it to you on November 18 and took the money out of my account on November 22. Let me contact my credit union and have them call you to see what happened." So I opened a support case on the credit union's web site and soon got a response back that yes, they mailed the check and had the postal receipt to prove it, but it hadn't been cashed. So they called the landlord, verified the landlord hadn't found the check between the time she called me and the time they did their search, verified that they had the correct mailing address and account number on the check, and re-issued the check after verifying with the landlady that no late fees were due since she probably just lost the old check. No reissue fees or check cancellation fees or anything, just plain old customer service :).

Thank the Great Penguin that I wasn't with some Big Bank! They would have just shrugged and said, "not our problem", then charged me fees out the wazoo to resolve the Not Our Problem!

I love my credit union :).

-- Badtux the No-bank Penguin

Average American makes near-poverty wages

Wonder why the bottom 50% of Americans have nothing? Well, it's simple: the median American wage is almost at poverty level for a family of four.

Don't believe me? Really? Well... here's the official Social Security data. There's a lot of interesting things to note in that table. First of all, note that income is really toploaded, and that's been true for a long time. The huge sums of money earned by the top 10%, and especially by the top 1%, skew the averages way up. But over the past twenty years, that's gotten even worse. The median income was 72% of the average income in 1991. In 2010, the last year for which SSA publishes data, the median income was 65.976% of the average. In other words, the share of national income held by the bottom 50% has gone down significantly over the past twenty years.

But we already knew that. So just *how* significantly? Well... the median wage -- which half of Americans make less than -- was $26,363.55 in 2010. The Federal poverty level for a family of four in 2010 was $22,050 in 2010 -- and the 133% mark, which most experts consider the line below which a family of four is living under conditions of extreme financial distress and has difficulty meeting basic needs, was $29,326 in 2010.

In short, it's basically impossible for at least 50% of Americans to make ends meet in a one-income family. And because of the Great Recession, all too many families have become one-income families and are one paycheck away from losing everything. And that's not counting the one-income families where the income earner lost his job -- those families are already out on the streets homeless, or shacked up with relatives, or otherwise living under conditions of dire hardship.

Now, if income were normally distributed -- that is, if the average American made the average income -- the average American would be making $39,959 per year. That's a far cry from $26,364! That amount of money -- $13,595 -- is basically what the top 1% are stealing from the average American worker via claiming ownership of the wealth produced by hard-working Americans, without whom the 1% would have a tiny fraction of their current wealth because they can, at best, produce only 1% of the goods and services of the nation with their own two hands. There is no way that this is sustainable in a democracy. You're going to see continued unrest like the Occupy movement because the situation for over 50% of American workers is simply unsustainable, they work and work and work and the result is poverty while the 1% rejoice in their millions? Something's broken, and if it doesn't get fixed, nothing good will happen. That much I can guarantee.

-- Badtux the Numbers Penguin

Right wing economics in a nutshell

Okay, first of all, economies are like magic zoos, see. There are lions and tigers and bulls and bears, oh my, and stuff goes in and stuff goes out and like everybody lives happily ever after and such. So how do these "economy" thingies work? Well, first of all, meet the Free Market Fairy:

Now, the first thing the Free Market Fairy does is, like, jizz magic free market fairy dust all over the place by waving her (his?) magic wand around. This free market fairy dust is then gathered together by the Invisible Hand (no picture, because the Invisible Hand is, like, invisible, like God and Dick Cheney's conscience and stuff like that), which turns it into magical Competition Unicorns which then excrete magical substance called Choice that makes all goods cheap and widely available. Here is a picture of a Competition Unicorn:

Now, as you can see, the magical substance is excreted at the nether end and then consumers get all the benefit of this "Choice" thingy, which is, like, rainbows and sunshine and puppy dogs, oh my, and guarantees that you'll always get great service at a great price, sort of like those TV preachers who guarantee that if you send them a million billion dollars you'll go to a place where magic unicorns live and some hairy old dude has a lot of mansions for everybody to live in.

So anyhow, these magic unicorns poop this "choice" stuff and then we get all the benefits of low prices and good service. Like, at my house, I have a lot of this Choice stuff when it comes to high speed Internet -- I have Comcast, and I have, err, Comcast. Hmm. I must be wrong, because these magic Competition unicorns are EVERYWHERE, even though nobody's ever seen them outside of narrow marketplaces for consumer baubles, and thus there's ALWAYS a choice, just like my choice between Comcast and, err, Comcast, for high speed Internet. The Competition Unicorn *does* exist, like Santa Claus, magically bringing gifts to all the deserving people. And if you don’t get gifts from this magic competition unicorn, why, it just means you’re a bad person and probably deserve to get coal in your Christmas stocking, ho ho ho!

And that's right wing economics in a nutshell. Tomorrow, boys and girls, we'll talk about right-wing biology. That's even stranger than right-wing economics... like, *really* strange, as in, it's a wonder that right-wingnuts ever manage to reproduce. See ya!

-- Badtux the Snarky Penguin