May 16, 2013

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Obamacare Slowing Job Growth, at Least for Now

obamacare

A new Gallup poll reveals small business owners as wary about the Affordable Care Act. Forty-eight percent of the 603 small business respondents think that Obamacare will be “bad for [their] business.” Fifty-two percent said the ACA will reduce the quality of the healthcare they and their employees receive, while 55 percent believe the ACA will raise the amount the business will pay for healthcare.

But this isn’t even the most notable finding. Opponents of the ACA have long claimed that the new law could repress US job growth. This new poll provides some evidence that, at least for now, small businesses are suspending hiring in the face of ACA provisions:

When asked if they had taken any of five specific actions in response to the ACA, 41% of small-business owners say they have held off on hiring new employees and 38% have pulled back on plans to grow their business. One in five (19%) have reduced their number of employees and essentially the same number (18%) have cut employee hours in response to the healthcare law. One in four owners (24%) have thought about eliminating healthcare coverage for their employees.

It may be that these effects are a kind of initial panic that will ease over time as employers see how the implementation of the ACA plays out. But as an early indicator of the economic effects of the President’s central domestic achievement, this data raises some major red flags.

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We, the People of Kunming, Prefer Clean Air to Rapid Development

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Depending on who you ask, “hundreds” or “thousands” of people marched on the streets of Kunming, China, today to protest the construction of a chemical plant owned by CNPC, the national oil company. This is the second such protest in the past month, and representatives from many world news organizations were on the scene to watch the demonstrators brave police batons and plain-clothes thugs to show their displeasure with the government’s lack of transparency about the environmental impact of this potentially dangerous facility.

“We, the people of Kunming, cherish the skies of blue and the clouds of white, as well as good air. If you want to build a refining plant with a capacity of 10 million tons where we live, we resolutely oppose it,” one protestor told a reporter from the Voice of America.

The Kunming protest made headlines today but it is only one such protest against the CNPC’s facilities that use PX, a chemical used to make plastic, and only one such protest by Chinese citizens against the government, which often take place on a smaller scale across the country.

Yet the Kunming protest and similar events show the challenges that the government faces in maintaining economic growth while keeping the people satisfied. It’s a difficult balancing act, and it’s going to get tougher as Chinese people in ever greater numbers start agitating for more of a say over their lives and surroundings. But if the Chinese people want their country to continue on its path of rapid economic development, PX factories and others like them must and will be built, in Kunming or elsewhere. As Jeremy Goldkorn, a China analyst, wrote on Twitter, “Kunming: now what are they going to do? Move the PX to some place with peasants who don’t use Weibo, right?”

[Online photo from anti-PX protest on May 4, via offbeatchina.com]

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‘Bulgarian Fraud’ Threatens the EU Welfare State?

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There’s a scandal brewing in the Netherlands that could weaken support for the European welfare state. A well-organized crime ring in Bulgaria has been rounding up villagers and putting them on buses to Rotterdam. When they arrive there, they are sent to fill out welfare forms using forged rental contracts to prove that they have taken up residency. As soon as their claims are approved, they come back to Bulgaria and hand off the ‘account’ to their handlers, who then proceed to milk the Dutch welfare state for up to €8000 per person.

The FT reports that the scandal is still being used as a sign of administrative incompetence on the part of the Dutch government rather than a flaw in the country’s immigration policy. But that could soon change:

…while the Dutch press refers to the scandal as the “Bulgarian fraud”, most MPs have concentrated on their own government’s mistakes, with the nationalist overtones so far remaining in the background.

“The reaction has mainly been a rather cynical ‘What did you expect?’” said Mr Schnabel. “Next year Bulgarians are free to settle in the Netherlands, there’s nothing anyone can do about it.”

Europeans have a mixed attitude at best towards immigration. Muslim and North African immigrants and refugees have had trouble integrating into European societies, with the resulting intercommunal tensions sometimes spilling over into street violence. Since 2010, both France and Italy have dismantled Roma camps, even expelling their inhabitants back to their home countries in the French case. This is in tension with the elites’ idea of a United States of Europe, where the population of any constituent nation-state is allowed to move and settle wherever they so choose on the continent.

Bulgaria and Romania are home to large Roma populations—estimated to be up to half a million in Bulgaria and 1.5 million in Romania —and these people tend to be much, much poorer and less well educated than those around them. And by reputation, the Roma are great travelers and, in stereotyped thinking that is so widespread as to be practically universal among West European average citizens, the Roma are thought to be habitual swindlers and grifters. Although there’s no evidence that the Bulgarian villagers in this case were Roma, it’s not too far a stretch to think that “Bulgarian fraud” is conjuring up images of thieving Roma in the popular Dutch imagination.

One likely consequence of this latest episode could be the scaling back of many welfare programs in some EU states. Between unpopular immigrants from predominantly Muslim states and a perceived mass movement of the Roma into the richer EU countries, public sympathy for the poor and the marginal is likely to diminish. Throw that together with budgetary problems, and the outlook is pretty clear.

[Impoverished Romanian Roma photo courtesy of Getty Images]

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China’s Water Problem Is Already Here

China’s unprecedented growth has brought millions out of poverty and made the country a geopolitical heavyweight, but its environment is footing the bill for this growth. Beijing’s citizens are choking on the city’s toxic smog, and the country spends an estimated 5.8 percent of its GDP on health care costs, premature deaths, and material losses associated with air pollution. The country’s water supply might be an even bigger problem.

There are two components to China’s water problem: scarcity and pollution. About 28,000 rivers have disappeared over the past few decades. The country’s has just one-quarter of  the world’s average per capita water resources. Two-fifths of what water the country does have is so toxic that humans can’t safely touch it, let alone consume it. And “dead animal flotillas” have mysteriously surfaced in rivers recently. There’s not much water to work with.

This water scarcity is going to hit China’s energy industry especially hard. China has the world’s largest shale reserves, but fracking is a very water-intensive process. For that reason, don’t expect China to catch up to the US in the shale energy boom any time soon. Desalinization plants are a possible solution, but they’re terribly expensive. We’re more likely to see China continue to dam its rivers, even if that means depriving countries downstream of water access. Beijing has no problem with playing the role of regional strongman.

The Financial Times has an in-depth write up of China’s water problems and focuses on Minqin county, where water scarcity is forcing farmers off of their land and into China’s cities, trading water problems for air quality problems. Choices like that can make for a very angry populace.

Pollution is more than a threat to China’s environment and its industry; it’s a threat to its leaders.

[Gobi desert image courtesy of Shutterstock]

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Is There A Path Forward for Egypt?

Mohammed Morsi

Can Egypt turn the corner? Ashraf Swelam, currently the senior adviser to the Egyptian National Competitiveness Council and previously an adviser to presidential candidate Amr Moussa, thinks so. Writing in the FT, he points to Mohammed Morsi’s inability to transform Egypt’s economy from a rent-seeking, clientilist model to a more broadly inclusive, entrepreneurial one. Morsi’s mistake, he says, has been to misread the revolution:

For 10 months, [Morsi's Muslim Brotherhood] have done nothing but to reduce the revolution to nothing more than the transfer of political and economic power from one closed group to another. That won’t happen; for even the most generous of support packages from the IMF, the US, Europe and rich Gulf countries can’t deliver it. The gap is simply too wide to plug.

Swelam’s analysis is right, as far as it goes. But his underlying assumption is that the right presidential leadership could make Egypt succeed. That may not be true, either because in the current state of the world economy there is no path open to Egypt for the broadly based, inclusive growth Swelam wants, or because even if such a path exists, Egyptian society may not have the political will or the cultural or institutional capability to take it.

That’s a hard idea for Americans to wrap their heads around, but it’s more likely than not that nothing anybody does can put Egypt on a path to real prosperity anytime soon. It’s more likely than not that the children of today’s poor Egyptians will not live much better than their parents, and that the gap between Egyptian and western levels of development will grow rather than shrink. Egypt is not a “developing country” in the way that Brazil, China and Malaysia are. It is not catching up with the leading edge of the world’s most advanced societies; it is floundering and struggling somewhere back in the pack.

Given all that, Egypt’s rulers whoever they are must think about governance and power differently from the way leaders in developed and developing countries do, and Egypt is not the only country where this is true. The governance problem in many floundering, non-developing countries today is a different kind of problem than Americans are used to thinking about. The question Americans ask about government is “How can we get it to work?” But Egypt’s problem today may be “Since no government can really work, but since human societies must have government to avoid anarchy and worse, how can a government keep power even though the people are and will remain very unhappy with the results of the government’s policies?”

This pessimistic view about national possibilities leads to a very different kind of political calculus than the liberal quest for win-win solutions that shapes political discourse in the democratic west. Western and especially American experts will never understand the thinking of leaders and their rivals in vast stretches of the world if they can’t understand the perspectives and priorities of those who take this state of affairs as normal, obvious, and unchanging.

[Photo of Mohammed Morsi courtesy of Getty Images.]

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May 15, 2013

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Jerry Brown to Cali Spendthrifts: ‘Keep Your Paws Off My Surplus’

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For the first time in a decade, California is expecting a budget surplus. Governor Jerry Brown has a plan for this extra $1.1 billion: Put it all into a reserve fund, lock it up, and throw away the key. “Everybody wants to see more spending—that’s what this place is, it’s a big spending machine,” said the Governor yesterday. “But I’m the back stop.”

Brown was right: Grasping hands desperate to immediately start spending the extra dough on social services and special interest projects have predictably called the Governor’s plan “unacceptable.” But Brown is keen to avoid a financial disaster like the one that followed California’s last projected surplus ten years ago. The WSJ reports:

Mr. Brown warned that a shaky recovery of the international economy, the federal sequestration budget cuts and the expiration of a federal payroll-tax holiday are expected to weigh on California in the year ahead.

“We’re sailing into some rather uncertain times,” he said.

This is prudent thinking by a Governor who, despite the “D” next to his name, remains closer to the center politically than some of his colleagues in the legislature and even many of his supporters.

We support the Governor’s approach. Caution is the way to go for California, which still has many economic wounds to heal before indulging its prodigal impulse again.

[Governor Jerry Brown image courtesy of Wikimedia Commons]

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The End of Health Insurance as We Know It?

obamacare

Up to one-third of independently practicing physicians in the US may soon stop using health insurance as we have come to think of it. Kaiser Health News reports on attempts by health care practices to change how they do business as a result of shifting industry patterns, the uncertainty created by the ACA, and the public pressure on them to offer better and cheaper care.

One of the most notable experiments is the so-called “subscription model,” in which a patient pays a basic monthly flat fee to a practice that covers the costs of all basic services. We’ve written about this model before. Though it sounds like health insurance by another name, it manages to cut out a lot of the administrative overhead of that method, saving both the practice and the patient money. According to Kaiser Health news, the subscription model may soon be coming to a primary care physician near you:

 The proportion of independently practicing physicians, working in groups or solo, will fall to 36 percent this year. One-third of those will choose a subscription-based model.

This is only one of the new funding models the piece highlights. Another is the “medical home,” which is, according to the National Committee for Quality Insurance, “a model of care where patients have a direct relationship with a provider who coordinates a cooperative team of healthcare professionals.” Kaiser reports:

The medical home model’s focus on preventive care includes newer technologies, like a weighing scale that reports a patient’s weight directly from home to the clinic, and reminders to patients of routine diabetes or cancer screenings. The Heights Medical Center, as the practice is called, has also expanded from two to five doctors and nurses, and hired a patient coordinator who organizes doctor visits, referrals and prescriptions.

This kind of experimentation is exactly what we want to see more of in our health care system. We need to find new ways to deliver services and to introduce price sensitivity to the health care market for consumers. Obamacare does little to move us toward these goals.

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Game of Thrones in the Far North

Arctic

A new battleground opened in Asia’s Game of Thrones today when the Arctic Council, an organization of the eight countries adjacent to the Arctic region, agreed to admit observer states, including five from Asia: China, South Korea, India, Japan, and Singapore.

“There is nothing that should unite quite like our concerns for both the promises and the challenges of the northernmost reaches of the earth…. The consequences of our nations’ decision don’t stop at the 66th parallel,” John Kerry said after the agreement was struck.

To riff off of George R.R. Martin’s fantasy epic just a bit further:Summer is coming to the Arctic, and the ice is melting. With that momentous change could come a variety of trading and resource-extraction opportunities, especially for energy-hungry Asian nations like China and India.

From the Strait of Malacca to the South and East China Seas to the newly opened icy regions of the far north, Asia’s Game of Thrones extends to waters near and far, warm and cold.

[Icebergs image courtesy of Shutterstock]

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Georgia Tech Takes MOOCs to the Next Level

Virtualized

Georgia Tech announced yesterday that it is teaming up with Udacity, one of the leading providers of massively open online education, to offer a full graduate program in computer science. For a mere $7,000 dollars—or 1/6 the cost of the equivalent program offered on campus—students who meet the prerequisites can fulfill the requirements of a master’s degree entirely through open courseware.

This is a big deal. As the Washington Post notes, even MOOC-friendly colleges like Stanford, Harvard, and San Jose State have been reluctant to actually grant credentials for their online courses, preferring to use them as a teaching aids rather than as the foundation of a program. There have been the usual concerns about quality control, as well as worries that an all-MOOC degree could dilute the value of Georgia Tech’s traditional degrees, but Georgia Tech claims it has taken these concerns into account:

Notably, the university said it hoped to admit anyone who meets its admissions requirement, which it emphasized remain stringent. It estimated it could eventually enroll 10,000 students in the program, in a field facing a shortage of workers. That’s nearly half the size of the whole student body on Georgia Tech’s Atlanta campus.

“We’re turning down people that are probably capable. We just can’t handle them,” said Rafael Bras, Georgia Tech’s provost and executive vice president for academic affairs, who said current demand for the program outstrips supply by 10 to 1. “We’re now reaching out to the world through a different medium. There’s a lot of people out there that will have this great opportunity.”

At $7,000 per student and with these kinds of enrollment numbers, this may be not just a boon for students but a good way of significantly widening Georgia Tech’s student base: 10,000 is a lot of students, and the open nature of MOOCs makes it relatively simple to scale up without dramatically expanding staff or administrative costs.

This is the first program of its kind, so nobody knows if the students it graduates will pass muster in the marketplace. But the potential for both cutting costs and broadening the educational base is certainly there. Rest assured we will be watching to see how this experiment shapes up.

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It’s Raining Salt! Hallelujah!

Good news for fans of salt: a new study has found that there are no health benefits to cutting down on salt. Though national dietary guidelines have set recommended salt levels for many Americans at just half a teaspoon a day, levels that low can actually increase the risk of heart attack. The NYT reports:

[T]he new expert committee, commissioned by the Institute of Medicine at the behest of the Centers for Disease Control and Prevention, said there was no rationale for anyone to aim for sodium levels below 2,300 milligrams a day. The group examined new evidence that had emerged since the last such report was issued, in 2005.

“As you go below the 2,300 mark, there is an absence of data in terms of benefit and there begin to be suggestions in subgroup populations about potential harms,” said Dr. Brian L. Strom, chairman of the committee and a professor of public health at the University of Pennsylvania. He explained that the possible harms included increased rates of heart attacks and an increased risk of death.

As with most things, salt is apparently best consumed in moderation. That’s good news, because salt is the chef’s best tool in the kitchen. A pinch of it can go a long way in bringing out other flavors in a dish.

Nutrition is far from a settled science. Indeed, experts are still in the dark about some very important questions in other disciplines—such as, to pick completely at random, climate science. Not surprisingly, when you try to predict future developments of an immensely complicated system involving countless variables using relatively simple models, sometimes you get it wrong.

So while we enjoy the new technologies and marvel at the deeper understanding of the world that science brings, we should keep in mind the fundamentally provisional nature of science, and we should always take the pronouncements of its practitioners with a grain of salt.

[Salt image courtesy of Wikimedia]

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Christie to Bond Investors: Don’t Trust My IOUs

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New Jersey Governor Chris Christie is sending an unusual message to investors: His state’s bonds may be no good. NJ.com reports that potential investors have been informed that in the future New Jersey may not make its required pension payments, which are estimated to explode from $1.7 billion next year to about $5.5 billion in 2018:

The disclosure…also casts doubt on one of the key commitments Christie and leading Democrats made to public employees as part of the 2011 health and pension reform: Workers would shoulder a greater share of pension costs in exchange for the state making required payments to the cash-strapped pension fund. [...]

“No assurances can be given as to the level of the State’s pension contributions in future fiscal years,” the prospectus reads.

In 2011, Christie spearheaded a bipartisan pension reform that promised to save taxpayers $120 billion over thirty years. It’s often touted as one of his signature achievements, but as of last June New Jersey’s pension fund had just 57 percent of the cash it needs to cover promised benefits. As the report notes, it’s difficult to see how the state could possibly afford $5.5 billion in pension payments in 2018 without taking at least one of the measures the Governor would really like to avoid: tax hikes, deep spending cuts, or further increases in contributions from public employees. New Jersey already spends ten times more money on employee pension and health benefits than on welfare support ($186 million) or economic development ($183 million). Pensions are sucking the state dry and diverting large sums of much-needed money from social services.

A handful of up-and-coming Republican governors like Christie have enjoyed fawning praise from commentators who have crowned them as innovative and revolutionary reformers ready to sweep away all our financial troubles. But these assessments understate just how bad our blue model problems really are. States like New Jersey have been digging themselves into this hole for fifty years, and decades of imprudent and unaffordable policies won’t be fixed in one fell swoop. Governor Christie’s 2011 reform was only the first bite of one apple, not the whole orchard. Incremental, purposeful reform over many, many years is what this country really needs.

[Gov. Chris Christie image courtesy of Shutterstock]

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France Rejects American TV

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The French Ministry of Culture has released a letter co-signed by 14 European culture ministers stating that television and audiovisual production must be excluded from any EU-US free trade talks. Here’s an excerpt from French cultural minister Aurélie Filippetti’s passionate cri de coeur on behalf of European culture:

While the [European] union and its member states have made cultural diversity one of the cornerstones of the European edifice, working for years to promote this goal, it will mean nothing if the negotiations we’re opening with the United States compromise our individual and collective ability to implement this shared commitment. That’s why it’s essential to wholeheartedly maintain the position constantly reaffirmed by the Union, which has always excluded, in both the WTO and bilateral negotiations, audiovisual production from all trade liberalization commitments. [...]

Our conviction is that, faced with huge challenges that are threatening her, Europe needs to aid and develop cultural production on her own land. To renounce the pursuit of political ambitions in favor of culture, including cinema and audiovisual, would be to renounce a part of the influence of Europe, depriving it on a powerful tool for growth and employment, and to forget this belief widely shared by our fellow countrymen  culture is not a commodity like any other.

If this accurately reflects the position of these countries, this suggests that any trade agreement between the EU and the US will be minor. In addition to this exception for cultural products, the Europeans are also committed to fight the US on agriculture and are unlikely to give much ground on aerospace. Given those are top US trade priorities, it’s hard to see US doing much to address European concerns.

France does not want free Transatlantic trade; if anything the French at this point are more interested in undermining the Single European Market than in reducing trade barriers with the rest of the world. Much of southern Europe agrees. There are bureaucrats on both sides of the Atlantic who want trade negotiations because they give them something to do, and there are specific companies and industries on both sides who are pressing for liberalization in their particular sector, but the low hanging fruit—trade liberalization that makes a real economic difference that doesn’t have powerful enemies—has largely been stripped from the tree, and the pace of trade liberalization negotiations has dramatically slowed around the world.

This latest news from Europe suggests that this trend is here to stay.

[Television image courtesy of Shutterstock]

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Russia Kicks More Dirt in Kerry’s Face

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The story of the amateur-seeming American spy caught by Russian agents in Moscow continues to bewilder the media today. Why, for example, was the American “spy,” identified as Ryan C. Fogle, outfitted with a map, compass, two ill-fitting wigs, dark sunglasses, and an old-model Nokia phone? These are decidedly un-21st-century spy tools.

Nevertheless the incident, for all its uncertainties and absurdities, is most definitely a setback for Washington. Over the past few weeks Russia and the United States have shown a remarkable willingness to cooperate on security issues. When the Americans asked the Russians for help in tracking the activities of the Boston bombers, the Russians agreed. And when John Kerry arrived in Moscow about a week ago, he and Sergei Lavrov, the Russian Foreign Minister, appeared almost chummy as they announced that their two countries have “common interests” in Syria and would set up a joint conference to resolve the civil war.

It has been all downhill from there. Days later, Russia promised to honor an arms contract with the Assad regime in Syria and ship it powerful anti-aircraft weapons over the objections of both the US and Israel. Now Moscow goes and arrests an American “spy.” Whether he actually was an employee of the CIA remains to be determined, but the Russians certainly made the most of the incident by posting videos of his arrest and questioning.

Washington should be cautious when striking deals with Moscow. It isn’t America’s chief geopolitical foe, as Mitt Romney once said, but it certainly can’t be called a friend.

[John Kerry image courtesy of Shutterstock]

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CBO Projections Lulling Lawmakers

deficit

The good news is that the Congressional Budget Office is forecasting that deficits will shrink drastically next year and continue to do so for the two years following. The government will add $642 billion to the debt in 2013, $560 billion in 2014, and $378 in 2015. The bad news is that they also see the trend promptly reversing in 2016, with entitlement spending starting to ramp up aggressively.

But the real news seems to be that the short-term projections have largely depressurized the atmosphere in Washington. Both the FT and the Wall Street Journal have stories today detailing how both Democrats and Republicans feel like they’ve earned some breathing room on dealing with the long-term debt problem. A telling quote from the Journal:

“You can hear the air fizzing out now,” said Steve Bell, a Republican and senior director at the Bipartisan Policy Center who has called for Congress to reach a budget deal. “They are just overly tired of the same fight, tearing the same scab off the same wound.”

And a similar one from the FT:

“A lot of the energy and appetite for a substantial [deficit] fix is gone,” said Doug Holtz-Eakin, the former Congressional Budget Office director and head of the American Action Forum, a moderate Republican think-tank in Washington.

As the data vividly shows, the long term entitlement crunch is just around the corner, and both articles dutifully cite lawmakers from both parties denying that they are in denial about these realities and that they will buckle down and come up with meaningful reforms. But with the only budgetary breakthrough of the past two years having been an automatically imposed sequester that everyone thinks leaves us worse off,  it’s hard not to be at least a little skeptical of their claims.

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Gosnell: The Killer Had Help

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After a full and fair trial, abortion doctor Kermit Gosnell was convicted this week on three counts of first-degree murder in the killing of three babies whose necks he “snipped,” as well as involuntary manslaughter in the death of patient Karnamaya Mongar. Gosnell, who performed hundreds of gruesome and macabre abortions out of his Women’s Medical Society Clinic, managed to skirt the death penalty when he agreed to forego an appeal in exchange for a life sentence. The sentencing brings to end a trial that revealed the gruesome practices of Gosnell and his staff. But more disturbing is the grotesque oversight and inaction of the bureaucrats who knew what was happening, and whose responsibility it was to protect the women and infants Gosnell murdered and maimed.

Gosnell spent nearly forty years running his clinic. According to the grand jury report, during that time he performed hundreds of abortions on women who were well past the legal gestational stage, inducing labor and snipping the spinal cord of babies that were born alive. The procedures were messy, frequently botched, and sent dozens of women to the emergency room with severe infections that left some near death. Anesthetics were frequently overused, which is what led to Karnamaya’s eventual overdose and death. The list of horrors goes on and on, but we’ll spare you the gory details. Continue reading →

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