Flipping the script: Are wealthy people necessary?

Handprints said:

"Safety net" program that works: Central-government (plus private top-up) purchasing of drugs.

Click to expand...

Oops - there went the private pharmaceutical research industry. No point in investing a billion in the next cancer cure if the gubmint's only going to let you recoup a third of that.

Sorry mom, but that cancer you're going get four years from now? It's going to kill you, because the drug that would have been there to save you wasn't invented. With the ability to earn a profit taken away, no investors could be found to finance it.


(Gosh, when the program started the politicians said they would fullly fund medical research, but every year they shifted more money out of that and into nurses aids at hospices - the voters love seeing that kind of compassion showered on the dying.)

Roxanne Appleby said:

Oops - there went the private pharmaceutical research industry. No point in investing a billion in the next cancer cure if the gubmint's only going to let you recoup a third of that.

Sorry mom, but that cancer you're going get four years from now? It's going to kill you, because the drug that would have been there to save you wasn't invented. With the ability to earn a profit taken away, no investors could be found to finance it.


(Gosh, when the program started the politicians said they would fullly fund medical research, but every year they shifted more money out of that and into nurses aids at hospices - the voters love seeing that kind of compassion showered on the dying.)

Click to expand...

Yeah... Speaking as a seriously (by medical standards, I take it pretty damned lightly) disabled person who, by his wife's estimate, has consumed more than USD1m worth of prescribed drugs and had at least a quarter of that sum's worth of excruciatingly painful surgical procedures inflicted on him, I'm not impressed with the argument.

(I'm at the extreme right edge of the curve graphing the amount of Crohn's Disease damage it's possible to survive. Don't send flowers: I ran three miles this morning and moved more than three tonnes of metal in the gym. My scars now mostly serve to highlight the quality time I spend with my abs...)

I'm not impressed because, speaking as a financial professional whose employers (and who, personally) avoid Big Pharma like a case of the clap, I'm hard pressed to name a worse-run, less-efficient, more calamitously wasteful industry. Maybe the valuable and praiseworthy efforts now underway to combat the horrors of restless leg syndrome, male pattern baldness and erectile dysfunction among cheeseburger-chomping chainsmokers would be slowed by an American decision to bulk buy, say, 500 of the most commonly prescribed drugs that treat real problems. But I doubt it.

I'm reluctant to accuse you of taking a disingenuous stance, designed to give your post greater emotional impact, but I suspect you know as well as I do that discovery/development of real treatments for real problems is almost exclusively the province of university spinouts and defection-capital start-ups and that the majority of successfully-developed drugs these spins/starts produce are sold at a profit outside the US. That, at least as much as the US pricing system, is why such spins are the bread and butter of both university commercialisation departments and the hard-faced PE guys.

Do the super-duper-premium profits available to good marketers in the US really speed the development of new drugs noticeably faster than ordinary profits would? I'm not convinced they do. I think they're mostly used to pad the accounts of an industry that's ten parts marketing hustle for every part real value creation. I think withdrawing the US subsidy to drug companies would force them to focus on making drugs people really need.

And, for the record, none of the many socialised-medicine countries in which I've lived ever had any difficulty finding and handing over the (relatively) unusual combination of drugs I take to stay alive - including, of all places, Vietnam.

Regards,
H

Handprints said:

That really made me laugh, not just because I've been to all three countries to work in the past two years. All three currently enjoy governments which were elected after convincing a skeptical and impatient electorate that they really, really were going to stay out of capitalism's way and let the market do its thing to an extent which the (currently) ruling parties had never previously been able to stomach.

Your assessment of how and where the rich/middle/poor splits are in those countries is a good summary of their aristocracies' wishful thinking - none of it has been true since WW1.

Regards,
H

Click to expand...

Ah, but it was true from the time their financial empires collapsed up until WWI, no?

I will allow that things might change a bit ofver the course of a century or two, I really have no idea what conditions are like in these countries now, but I do know that they don't figure highly in most economic assessments.

The point being these were countries that had global trading networks, all followed the same prescription: displacement of manufacturing with financial and service economies, regressive taxation, etc., and all were never heard from again in terms of being any kind of trade heavyweights, other than a few specialties, diamonds, etc.

Countries like Ireland, by contrast, with their solid manufacturing bases, and low dependent ratios do affect the global economy in significant ways - whether this is a cycle, and manufacturing ultimately give way to services, while manufacturing chases low wages across the globe may be predictable, I dunno, but it's certainly a thing worth paying attention to.

It amounts to a cash flow situation, if more wealth is being exported than is being imported, i.e.e, the trade deficit, etc., but also outsourcing, sheltered Cayman accounts, interest on the debt etc.

In theory, it's simply the Capitalist dynamic that profits are reinvested in order to remain competitive, whereas the corporate tendency is innovate only when you're forced to and whine about unfair comptetition when simple repackaging becomes inadequate - the auto industry, etc., which only started innovating in the face of Japanese competition.

The feared takeover of the Japanese never materialized, they at one time owned practically half the country which they bought with American money, interest on Reagans debt, but they ran a surplus and got smacked with deflation coupled with a lack of aptitude for cutthroat American corporate culture, but the Chinese have a longer history in this country than the Japanese, and have similar business styles - what is always in question with the Chinese is whether they have the motivation to make a move, they tend to move incrementally, rather than in big, bold operations.

In short, I don't buy this idea that we'll contiue to thrive by selling them financial services, we sold exported manufacturing equipt. to them in the Eighties, tools and dies in the Ninties, now they make theior own tools and dies, and I suspect it won't nbe long before their financial services sector catches up too - white collar jobs are already being eaten into by outsourcing.

I suppose there will be jobs in sales - of Chinese goods.

Granted, the wage disparity and the dependent ratio are difficult forces to talk away, but a lot of our problem is that lean production values never caught on to the extent they needed to, purchasing and inventory control are still pretty much hit or miss, even in the big boxes like Wal Mart that got their start based on JIT inventory control.

Thus, even what little American manufacturing remains tends to be brittle - Ciscos stock tanked because they were carrying so much excess inventory, and they were another big proponent of JIT and rapid retooling - in the beginning.

Handprints said:

Yeah... Speaking as a seriously (by medical standards, I take it pretty damned lightly) disabled person who, by his wife's estimate, has consumed more than USD1m worth of prescribed drugs and had at least a quarter of that sum's worth of excruciatingly painful surgical procedures inflicted on him, I'm not impressed with the argument.

(I'm at the extreme right edge of the curve graphing the amount of Crohn's Disease damage it's possible to survive. Don't send flowers: I ran three miles this morning and moved more than three tonnes of metal in the gym. My scars now mostly serve to highlight the quality time I spend with my abs...)

I'm not impressed because, speaking as a financial professional whose employers (and who, personally) avoid Big Pharma like a case of the clap, I'm hard pressed to name a worse-run, less-efficient, more calamitously wasteful industry. Maybe the valuable and praiseworthy efforts now underway to combat the horrors of restless leg syndrome, male pattern baldness and erectile dysfunction among cheeseburger-chomping chainsmokers would be slowed by an American decision to bulk buy, say, 500 of the most commonly prescribed drugs that treat real problems. But I doubt it.

I'm reluctant to accuse you of taking a disingenuous stance, designed to give your post greater emotional impact, but I suspect you know as well as I do that discovery/development of real treatments for real problems is almost exclusively the province of university spinouts and defection-capital start-ups and that the majority of successfully-developed drugs these spins/starts produce are sold at a profit outside the US. That, at least as much as the US pricing system, is why such spins are the bread and butter of both university commercialisation departments and the hard-faced PE guys.

Do the super-duper-premium profits available to good marketers in the US really speed the development of new drugs noticeably faster than ordinary profits would? I'm not convinced they do. I think they're mostly used to pad the accounts of an industry that's ten parts marketing hustle for every part real value creation. I think withdrawing the US subsidy to drug companies would force them to focus on making drugs people really need.

And, for the record, none of the many socialised-medicine countries in which I've lived ever had any difficulty finding and handing over the (relatively) unusual combination of drugs I take to stay alive - including, of all places, Vietnam.

Regards,
H

Click to expand...

We can agree to disagree about the efficacy of government-funded research vs. private * (although I think your characterization of where the balance of effort is directed in the latter is a caricature), but you yourself note that it is the profit motive that gets that university research out of the Ivy-covered halls and into the marketplace - "university spinouts and defection-capital start-ups." Without the opportunity to take the government-funded research outside and make a bundle it's very possible that those brilliant and dedicated researchers who "spin out" from the U's would not have gone into them in the first place, but instead gone directly to private companies.


*One anecdotal story suggests that the waste and inifficiency that's the hallmark of government in other sectors also applies to this one: The government-funded human genome project vs. the private one orchestrated by Craig Ventor. Ventor's company cracked the code in a tenth of the time and 1/100th of the cost of what the "official" program would have done under its announced timetable and budget. Indeed, for all the fulminating about Ventor wanting to patent and make a profit on genes, his patents would have run out before the main body of the government project's work was complete under its pre-Ventor timetable. IOW, but for his actions, anyone whose life was saved or improved by a drug based on Ventor-patent would have suffered, because the goverment research product would have come too late for them (assuming that this itself ever got out of academia without the profit motive pushing it out).

Handprints said:

Let's distinguish between government-owned companies, which I don't much like, and worker-owned companies, which I adore. Bluntly, I probably wouldn't consider working for a company unless the chance to purchase its shares was part of the deal.

Worker-owned companies are often more innovative, profitable and risk-embracing than any other kind: they're being managed primarily to make the workers rich and anything which has a chance of accomplish that end looks like a good idea to everyone involved. There is some academic - and tons of anecdotal - evidence to suggest that they're better at doing this than any other kind of company, which is why stock options and "forced" equity participation are so common at start-ups.

Click to expand...

Take that further and institute prifit sharing, and you have a formula for competitiveness - doesn't woth that way outside the financial sector unfortunately, it's more profitable to pay th eminimum you can get away with and profit share with troubleshooters who try to contain the damage from teh unmotivated, underperforming employees you get when you maximise profit taking.

And, with respect to the OP, that's the rub - it's all abotu profit taking, justifed under trickle down theory, except that when you get all that excess liquidity, it seems to always end up feeding a bubble - since profit taking is the only motivation for either doing business or investing, investors chase the fastest, easiest buck, business are incentivized to cook the books and make everything look good on paper, while stripping companies of all real value, ala Enron.

Handprints said:

Government-owned enterprises which are managed to satisfy a multiplicity of policy goals (from full employment, through the "prestige" of owning a national airline, to find a management job for the commerce minister's moronic nephew) have the sorriest track record at creating value you'll ever see.

The problem isn't necessarily which goals or structures the government imposes, it's that any goal other than "make more money" significantly reduces the chances of any value being created anywhere.

The game is value creation: what can I think up, then make, that people might prefer at a given price to whatever else is for sale? A big win is when they're offering you your choice of blonde to move a few places up your buying queue. The more people who are trying to play the game, the more good ideas get into the world, the more value is created for everyone, the better the government/legal/funding system becomes at catering to them and - if it's not stretching the point - the more people maximise their economic liberty (or at least make efforts at it than others can respect.)

Click to expand...

Any business George Bush has ever been involved with follows the "Value subtracted" pattern - it's either a pump and dump, make a lot of noise to attract investors, then sell out and walk away leaving investors with a hollow shell, or like Carlyles satellite TV operation, when you have a captive market, raise prices and cut services.

It's the same model they're using to run the government: payroll taxes are still actually inthe Black, but in order to "save it" they have to cut services and raise the revenues - all to pay for the overruns in the general budget caused by tax cuts - profit taking, which combined with debt on the interest make calling WIC - milk for babies - "wealth redistribution" a sick joke - that interest is better than a fifth of your income taxes, and will begin to rise precipitously by the next decade - it woud consume all general revenues by 2070 if not dealt with - not only is a huge percentage of income redistributed upwards, but it creates what amounts to an even bigger tax shelter in government bonds for creditors, all paid for with SS payroll taxes by the debtors.

It's a very cynical operation. So much for "transparency" - if it was so transparent, the republicans couldn't argue that raising the minimum wage "distorts" the labor market, when monetarist policy has been being routinely employed to suppress wages for the last Twenty Five years.

xssve said:

Ah, but it was true from the time their financial empires collapsed up until WWI, no?

Click to expand...

If we're talking about the social structure, certainly more before WW1 than after but, in truth, nothing like the extent to which you appear to be arguing. Marx was writing about the "unstoppable" rise of the bourgeoisie a lot earlier than that...

xssve said:

I will allow that things might change a bit ofver the course of a century or two, I really have no idea what conditions are like in these countries now, but I do know that they don't figure highly in most economic assessments.

Click to expand...

Unless, of course, you live in, say, the EU or trade there or invest there, sure...

xssve said:

The point being these were countries that had global trading networks, all followed the same prescription: displacement of manufacturing with financial and service economies, regressive taxation, etc., and all were never heard from again in terms of being any kind of trade heavyweights, other than a few specialties, diamonds, etc.

Click to expand...

Everybody's trade networks disintegrated during WW2, including the US', Canada's and Switzerland's, to give three capitalist examples. It's called the trade U-curve and you can find any number of scholarly articles discussing. If you're seriously proposing that something other than two wars rolling over their infrastructure and decimating their populations of young men did the "real" economic damage to the UK, Spain and Holland, you're on your own.

xssve said:

Countries like Ireland, by contrast, with their solid manufacturing bases, and low dependent ratios do affect the global economy in significant ways - whether this is a cycle, and manufacturing ultimately give way to services, while manufacturing chases low wages across the globe may be predictable, I dunno, but it's certainly a thing worth paying attention to.

Click to expand...

Ireland has enjoyed the fastest growth in the services sector of any country in Europe since 1980. As a direct consequence of this shift, it has enjoyed the fastest-growing GDP of any country in Europe since 1980. Before that, it was a backwards bog full of closed factories...

xssve said:

It amounts to a cash flow situation, if more wealth is being exported than is being imported, i.e.e, the trade deficit, etc., but also outsourcing, sheltered Cayman accounts, interest on the debt etc.

Click to expand...

I have no idea what this means. Ireland, if that's what we're talking about, enjoys a huge surplus in services, despite having the UK, a services giant, right on its doorstep.

xssve said:

In theory, it's simply the Capitalist dynamic that profits are reinvested in order to remain competitive, whereas the corporate tendency is innovate only when you're forced to and whine about unfair comptetition when simple repackaging becomes inadequate - the auto industry, etc., which only started innovating in the face of Japanese competition.

Click to expand...

I'm sorry, I'm unable to see how this links to your earlier points.

xssve said:

The feared takeover of the Japanese never materialized, they at one time owned practically half the country which they bought with American money, interest on Reagans debt, but they ran a surplus and got smacked with deflation coupled with a lack of aptitude for cutthroat American corporate culture, but the Chinese have a longer history in this country than the Japanese, and have similar business styles - what is always in question with the Chinese is whether they have the motivation to make a move, they tend to move incrementally, rather than in big, bold operations.

Click to expand...

The Chinese are categorically less incremental in business than the Japanese. Japan's economic problems from 1990-2006 were primarily the result of deflation after a runaway asset bubble. Their exports to other nations didn't slow but, like most developed nations, exports are small compared to in-country trade, which was dead on its feet.

xssve said:

In short, I don't buy this idea that we'll contiue to thrive by selling them financial services, we sold exported manufacturing equipt. to them in the Eighties, tools and dies in the Ninties, now they make theior own tools and dies, and I suspect it won't nbe long before their financial services sector catches up too - white collar jobs are already being eaten into by outsourcing.

Click to expand...

We, by which I assume you mean the developed world (the white world, the USA? You tell me) will only thrive by continuing to find better ways to add value to what we make, whether its goods, services or hybrids of the two. Everybody's jobs are eaten into when that fails to happen. White collar professionals are only being exposed directly to the cold for the first time because technology now allows the offshoring of services. They got hit just as badly by every recession of the past 50 years.

xssve said:

I suppose there will be jobs in sales - of Chinese goods.

Granted, the wage disparity and the dependent ratio are difficult forces to talk away, but a lot of our problem is that lean production values never caught on to the extent they needed to, purchasing and inventory control are still pretty much hit or miss, even in the big boxes like Wal Mart that got their start based on JIT inventory control.

Thus, even what little American manufacturing remains tends to be brittle - Ciscos stock tanked because they were carrying so much excess inventory, and they were another big proponent of JIT and rapid retooling - in the beginning.

Click to expand...

"What little American manufacturing remains..." I assume you're talking about the sector that produced 81% of America's exports in 2005, up from 78% in 1995.

Hope that's of use,
H

Roxanne Appleby said:

We can agree to disagree about the efficacy of government-funded research vs. private * (although I think your characterization of where the balance of effort is directed in the latter is a caricature), but you yourself note that it is the profit motive that gets that university research out of the Ivy-covered halls and into the marketplace - "university spinouts and defection-capital start-ups." Without the opportunity to take the government-funded research outside and make a bundle it's very possible that those brilliant and dedicated researchers who "spin out" from the U's would not have gone into them in the first place, but instead gone directly to private companies.

Click to expand...

I am caricaturing Big Pharma, although they probably deserve it more than Big Oil or Big Banks. I suspect that you and I would agree far more often that we'd disagree about almost any economic issue. That said, I'm from a culture that finds the social costs of the US healthcare system both shocking and morally intolerable. However, it's not my bed and I only lie in it when I'm well-paid (and well-insured) to. Americans are free to prefer their healthcare system and I don't plan to discourage them from doing so.

Neither of us, I suspect, has much appetite for an examination of how much more research is sparked by "super-duper-profitability" than would be achieved by mere normal profitability. I applaud and support the involvement of capitalists and market incentives in health research. I don't have any enthusiasm for revolutionary change in functioning economic systems, of which the US healthcare system is an example. I just don't see how bulk-buying the most commonly-prescribed drugs (the overwhelming majority of them now available as generics) is going to take the gravy train off the rails.

The Human Genome Project is a superb lesson in why the competition of ideas ought to exist everywhere. I don't think I proposed anything that would damage it noticeably.

Regards,
H

Roxanne Appleby said:

Oops - there went the private pharmaceutical research industry. No point in investing a billion in the next cancer cure if the gubmint's only going to let you recoup a third of that.

Sorry mom, but that cancer you're going get four years from now? It's going to kill you, because the drug that would have been there to save you wasn't invented. With the ability to earn a profit taken away, no investors could be found to finance it.


(Gosh, when the program started the politicians said they would fullly fund medical research, but every year they shifted more money out of that and into nurses aids at hospices - the voters love seeing that kind of compassion showered on the dying.)

Click to expand...

Puh-leeze - when did the Pharmaceutical industry innovate anything - 90% of pharmacueticals come from publically underwritten research at the university level - they just stop seeling the safe drugs when their patents expire, and most of their "research" involves digging through the all the shit that was discarded because it didn't work so well, but is still a propriatary formula.

What's this shit about "recouping a third of their costs"? It's one of the most heavily subsidized industries on the planet, and consists primarily of marketing and packaging.

Where is that cure for Cancer, BTW? This is what I find so irritating about wealth worship: Americans have always been about the "Big Easy", but the creditor conservative demographic has elevated easy money to an entitlement and divorced the consequences of their actions from any social responsibility.

Presumably, you possibly mean that whenever a given pharmaceutical property has been discovered to have dangerous side effects, they're forced to dump it on Third World Markets where they can only charge what those markets will bear, while being shielded from the legal consequences of fast tracking new properties through the approval process over here, while offering inducements to physicians to overprescribe - mental health crisis anyone? Take a pill baby.

Doing anything entails risk, if you can't stomach the risk, then stay on the porch, there are no guarantees and no free lunches, current corporate practice is to use political power to eliminate risk and maximise reward rather than compete in markets.

Just make the case for corporatism already, tell us all why we should fall on our knees and suck your dick, which is what this sort of portfolio based philosophy amounts to - it's all good - if you're making 150% returns.

Just to jump ahead, it may well be in your self interest to defend predatory business practices, but please refrain from suggesting that pointing it out when it isn't in mine is some sort of comunism/ludditeism/sour grapes, etc., or any of your other pet class bias propaganda/marketing memes.

Call shit what it is, that's all I ask.

[/QUOTE]

Handprints said:

If we're talking about the social structure, certainly more before WW1 than after but, in truth, nothing like the extent to which you appear to be arguing. Marx was writing about the "unstoppable" rise of the bourgeoisie a lot earlier than that...

Click to expand...

I didn't know that I was argueing anything to any extent, these countrieds do happen to socialized to a greater degree than we are, but I'm not suggesting they're suffering for it - European workers are more productive by the hour, even with those long vacations, maybe even because of them, and in spite of the horrors of socialized medicine, they don't dump parapalegics in the gutter -I'm not a socialist, per se, but like I'm not afraid of them, the fact that markets chase value and that this leaves some big gaping holes in the social structure is one of those observations that a Randian "capitalist" will take issue with, not me.

No, I'm talking history, not the present, and I've never read Marx, this is Adam Smith - I'm talking about the fix they got themselves in that caused the stressors that resulted in the current system, which, while there is still an aristocratic element, is generally far less subject to the violent extremes of the American system - I'm sorry, I remember families with young children living in cars back in the Eighties, lots of destruction, very little creation.

Handprints said:

Unless, of course, you live in, say, the EU or trade there or invest there, sure...

Click to expand...

Again, historic - I'm sure you know a lot more about the current situation than I do, which essentially nothing.

Handprints said:

Everybody's trade networks disintegrated during WW2, including the US', Canada's and Switzerland's, to give three capitalist examples. It's called the trade U-curve and you can find any number of scholarly articles discussing. If you're seriously proposing that something other than two wars rolling over their infrastructure and decimating their populations of young men did the "real" economic damage to the UK, Spain and Holland, you're on your own.

Click to expand...

Prior to WWI and WWII - I'm talking about the Tulip bubble.

Handprints said:

Ireland has enjoyed the fastest growth in the services sector of any country in Europe since 1980. As a direct consequence of this shift, it has enjoyed the fastest-growing GDP of any country in Europe since 1980. Before that, it was a backwards bog full of closed factories...

Click to expand...

Right, and their current success is based largely on their low dependency ratio and an educated workforce - countries like this stand to gain from globlization, I'm thinking in terms of downt he road when dependency ratios are not so favorable, and woindering if there is a sustainable paradigm, an even distribution, or if it's always going to be a matter of manufacturing chasing low wages/benefits/worker protections.

Handprints said:

I have no idea what this means. Ireland, if that's what we're talking about, enjoys a huge surplus in services, despite having the UK, a services giant, right on its doorstep.

Click to expand...

I switched gears, no, I'm talking about the US, I'm not Irish, don't give a damn abotu the Irish - well, you know, they're lovely people, but I'll let them run their own economy as they see fit.

Handprints said:

I'm sorry, I'm unable to see how this links to your earlier points.

Click to expand...

I'm talking about corporate culture - all this rhetoric about innovation and private industry. It's similar to evolution in a way, typically the herd does not evolve until they have to, i.e., stressors force an adaptation, which is often pioneered by a small fring of outcasts who innovate because they're easily bored of whatever, i.e., motivated by amusement, or whatever, usually not marketing.

Anyway, the example is the American automobile industry which sold the same car from about the mid fifites tothe early Eighties, i.e., nearly thirty years, and managed in all that time to alter the product only cosmetically - differnt body styles, a new grille every year, etc. When gas crunch happened in the Seventies, we had to bail out the American auto industry because they were simply to lethargic to adapt, and we've had to do it repeatedly ever since - when gas gets cheap again, like during the IRan Iraq war, they just slide right back, now we've got 3/4 of the population driving what are essentially 4WD busses, in a country with some of the best, and best maintained roads in the world.

It's just stupid. The argument against CAFE standards is that econimcal cars are unsafe on the road in midst of all these behemoths.

Handprints said:

The Chinese are categorically less incremental in business than the Japanese. Japan's economic problems from 1990-2006 were primarily the result of deflation after a runaway asset bubble. Their exports to other nations didn't slow but, like most developed nations, exports are small compared to in-country trade, which was dead on its feet.

We, by which I assume you mean the developed world (the white world, the USA? You tell me) will only thrive by continuing to find better ways to add value to what we make, whether its goods, services or hybrids of the two. Everybody's jobs are eaten into when that fails to happen. White collar professionals are only being exposed directly to the cold for the first time because technology now allows the offshoring of services. They got hit just as badly by every recession of the past 50 years.

Click to expand...

Yeas, that's what I'm saying, current corporate culture is largely about wringing blood from turnips.

Handprints said:

"What little American manufacturing remains..." I assume you're talking about the sector that produced 81% of America's exports in 2005, up from 78% in 1995.

Hope that's of use,
H

Click to expand...

I'd like to see your source, I'm guessing that the majority of the reversal in the trade deficit, is subsidized agricultural product being dumped on the global market, wiping out budding agricultural economies right and left.

It's mnot a miricle, it's a tradgedy - they make their own tools now, all we've got left to sell is GM soy and corn - but we have a buttload of that.

Handprints said:

I am caricaturing Big Pharma, although they probably deserve it more than Big Oil or Big Banks. I suspect that you and I would agree far more often that we'd disagree about almost any economic issue. That said, I'm from a culture that finds the social costs of the US healthcare system both shocking and morally intolerable. However, it's not my bed and I only lie in it when I'm well-paid (and well-insured) to. Americans are free to prefer their healthcare system and I don't plan to discourage them from doing so.

Neither of us, I suspect, has much appetite for an examination of how much more research is sparked by "super-duper-profitability" than would be achieved by mere normal profitability. I applaud and support the involvement of capitalists and market incentives in health research. I don't have any enthusiasm for revolutionary change in functioning economic systems, of which the US healthcare system is an example. I just don't see how bulk-buying the most commonly-prescribed drugs (the overwhelming majority of them now available as generics) is going to take the gravy train off the rails.

The Human Genome Project is a superb lesson in why the competition of ideas ought to exist everywhere. I don't think I proposed anything that would damage it noticeably.

Regards,
H

Click to expand...

It's off topic, but I did want to address your criticism of the US health care system, which is general the envy of the world, but has some huge problems that you alluded to. My desire is the keep the former status and change the latter. Unfortunately most of the solutions advanced for correcting the problems would have the result of leaving the US with two plans - a sucky one for the poor and much of the middle class, combining the medocrity of Medicaid with the waiting lists of Europe and Canada, and a superb one for the more affluent. Here's what I have proposed previously here:


You may be surprised by what I view as a "happy future" in health care.

I do believe that health care must be consumer-driven for the reasons the OP article describes. With several reforms in that direction it becomes possible to provide every person in the country with a health insurance voucher that will cover all expenses above $2,500 year. Here's how:

First, we need to repeal the restrictive state licensure and scope of practice regulations that masquerade as consumer protection but actually only protect the provider cartels from competition. This would allow someone like Lucky (with perhaps enough extra training to acheive nurse practitioner status) to open an urgent care clinic that could treat all the various nicks and bruises encountered in daily life (like falling off 5 gallon buckets, or nasty cuts that require a dozen stitches and antibiotics). The cost would be be a fraction of what emergency rooms cost, manned as they are by highly trained MDs who aren't needed for 90 percent of the stuff that rolls through the doors. Naturally our Lucky would have the training to recognize the stuff that she can't handle and would refer it on.

Second, allow binding waivers of liability so you could only sue Lucky for screwing up the thing you paid her to do - sew up the 12 stitches and prescribe the right antibiotic, for example, instead of a bunch of crap that some shyster thinks of afterwards that she should have done. Oh, and Nurse Lucky would only need to charge you around $40 or so for that service, because this reform and the previous one lets her operate her clinic in the most efficient manner possible (think Wal-mart vs. Rodeo Drive boutique.)

Third, every adult over age 21 would be required to buy insurance with a $2,500 deductable. Because everyone buys, including young people who don't get sick much, the costs of those who do get very ill are "socialized," and there's enough left over that the money those healthy youngsters contribute grows sufficiently to cover their own old age costs. And, because of the high deductable and everyone paying in, the cost of this insurance would only be around $4,000.

Fourth, there would be universal community rating - every person pays the same. No "prior conditions," etc. This is impossible without the universal insurance mandate because the incentive is for individuals to "free ride" by waiting until they get sick to buy insurance (in which case it's not insurance but welfare). The only things the $4,000 policy would not cover would be extraordinary end of life expenses - if you wanted you could pay more to get insurance for those, but most people would decide it's not worth it. There would be some variation in the available policies, but not much. The policies would cover children as well as their parents - in the aggregate kids are a very small portion of total health care costs.

Fifth - and here is where you will be surprised - the government would pay for those $4,000 insurance policies for every person. Not just the poor - everyone. No more employer-provided health insurance, Medicare or Medicaid.

Essentially, this plan socializes the cost of health care, but leaves the provision of in to the private sector, and removes the constraints on innovation described in the OP. It is a win-win for every member of our society. I'm sure all those who imagine some socialist paradise will find 100 quibbles over this scheme, but there's no free lunch, including in the single payer plans. This one is sustainable, and the incentives are all in the direction of making it more cost effective and patient-friendly. That is not the case in the government-run systems.

I didn't invent this - it's described by Charles Murray in his "In Our Hands: A Plan to End the Welfare State."

Roxanne Appleby said:

Second, allow binding waivers of liability so you could only sue Lucky for screwing up the thing you paid her to do - sew up the 12 stitches and prescribe the right antibiotic, for example, instead of a bunch of crap that some shyster thinks of afterwards that she should have done.

Click to expand...

This is a perfect example of why applying the same capitalist system that works for apples to all other sorts of transactions is a recipe for disaster. You've just asked the patient to diagnose him or herself. If the patient was well prepared to do that, we wouldn't need general practice doctors at all - just surgeons, pharmacies, and band-aids.

Hands up, people who have ever been to a doctor with the impression that they knew what was wrong with them and discovered that they were incorrect. Some of my more notable gaffs: mistaking a bacterial infection for a fungus, believing I needed an antibiotic when in fact I needed an immediate in-office procedure to spare me surgery in the next 48 hours, and believing that I had poison ivy when I was experiencing a potentially lethal drug reaction.

If I'm buying apples, I know exactly what apples I need because I know how my pie works - and hey, if I guess wrong, the worst thing I've got is mushy pie. Medicine does not work in the same way and does not present the same range of potential consequences. I'm very fond of nurse-practitioner quick-care facilities, but no one needs to be signing a liability waiver which says, "I hereby release my health care workers from any diagnostic functions."

Essentially, this plan socializes the cost of health care, but leaves the provision of in to the private sector, and removes the constraints on innovation described in the OP. It is a win-win for every member of our society. I'm sure all those who imagine some socialist paradise will find 100 quibbles over this scheme, but there's no free lunch, including in the single payer plans.

Click to expand...

Actually, it's the capitalist in me that's querying it. You've objected to the government bulk-buying drugs on the grounds that the price constraints involved would discourage investment in drug research, but here you've mandated both the coverage and the price of the insurance and set the price well below what most people are paying now for less. You claim that this will still be attractive as an investment because of the masses of healthy people being required to buy insurance and therefore reduce average payouts, but that seems to assume that right now, the chief thing driving up health insurance is a disproportionately high number of sick people buying it. I've got serious doubts about that assumption.

Of course, I'm still leery of your refusal to grapple with collective bargaining issues. The latest bills from my surgery: two that were both billed at over a thousand and were cut to $350 and $400, respectively, by the insurance company. I'm still not keen to pay the two grand.

*sigh*

Black! Please don't disillusion someone! I mean seriously; if Roxanne has had a life that the rational choice between Nurse or Doctor is Nurse, let her continue to enjoy it.

I've been here... twice.

I wouldn't wish that someone experience what you go through knowing a couple of hours was the difference between your girlfriend dying of a 'tummyache' and calling her mom to say "Quick Recap. Tummyache. Emergency Room. Emergency Surgery. She's fine!" I shudder to think of having to live with making the choice of "Rox Clinic" and wondering if that delay killed her.

This is just going to get into that area where 'rationality' says one thing and a different life experience makes one wonder what the fuck the rational people are smoking?

I don't question it though; I'm sure in most cases, it would work out just fine. Especially because in the important cases, my family, they'd always go to the doctor. After all, they're covered.

Handprints said:

It has become increasingly difficult to run a public company as a gravy train for executives over the past 20 years, in large part because a lot more money is now in the hands of aggressive hedge fund types who will short your stock into the ground while slipping photos of your matching yachts to their willing accomplices in the media. However, it remains much more difficult and expensive to short a stock than to buy one and the majority of large investors (mutual funds, pension funds) are prohibited by law from shorting. That, to my mind, is an extremely poor way to run a railroad: it should be at least as easy to punish as it is to reward.

Click to expand...

Hmmm. But wouldn't you be punishing everyone who owned stock as well as the people running the company? Wouldn't the stockholders lose more money than the execs? I'm all in favor of holding people accountable for their job performance, but that seems to get tricky if you have to go through a lot of other people to get to them.

Certainly we should compare all to all. However, if we do that, I can (without stretching credibility much) frame the argument in a way that almost guarantees victory for industry.

Click to expand...

*laugh* Well, at least you confess that it's the framing that is the crucial element. And it is excellent airport-waiting-lounge (or porn board posting area) fun. I still enjoy that sort of "spot the slight-of-hand in my parameters" exercise so long as everyone's playing. However, I did have an actual "in-frame" query ...

If you've got those two core elements, one of the things you can try to price in dollars is risk. One of the risks you can price is the risk of losing 100% of your investment. And, if you can price risk with only a reasonable track record of success, you can use those risk judgments to help you decide how to distribute your capital.

You'll note that I've been careful to avoid introducing any moral judgments into this description but there's one that now becomes inevitable: the only real sin in this system is to withhold information that might help the system's participants assess risk.

In practice, that means you can raise a lot of money for a project that has almost no chance of success, if success could earn more money than the risk-adjusted value of the investment.

A very great many companies have this to thank for the entirety of their funding. Their odds of ever becoming profitable lie somewhere between "not good" and "no chance" but the money invested in them is by no means wasted: it's an honest and (hopefully) well-priced effort to find a new and different way of adding value to something, somewhere.

The potential value they offered by their plans to try to invent something new and better was, through the mechanism afforded by capitalism, translated directly and concretely into a current cash value, no different and no more abstract than the price written on the windshield of a used car.

If you accept that argument, I've just removed 90+% of the company failures of the past hundred years from the waste column in our ledger. Try doing that for a social programme widely viewed as a failure - Europe's Common Agricultural Policy, for example.

Click to expand...

Possibly I'm missing something. If I'm understanding you, it seems that I could make the same argument about a government's budget. Every program in it has a chance of working, and so could be described in the same way: There are good, strong, likely programs, and for others, "Their odds of ever becoming profitable lie somewhere between 'not good' and 'no chance' but the money invested in them is by no means wasted: it's an honest and (hopefully) well-priced effort to find a new and different way of adding value to something, somewhere." There will always be failures (EU Common Agriculture Policy, if you like - I'm happy to cede wholly unknown territory), but then there will also be successes (medical research, if you like, since if I read your post correctly you seemed to feel that that worked).

We might need to ask our governments to give more thought to risk-pricing, but then I think that they really do some of that already. The military have invested large quantities of money in computers and rockets and internal combustion engines, and very small (from their point of view, not mine) quantities into psychic powers and bizarre pseudo-scientific attempts - telling me that they're risk-pricing the stuff that looks very unlikely, but not proven to be impossible.

But we both know I'm just having some airport-waiting-lounge rhetorical fun with a question that's impossible to answer. As someone who prefers the parliament/independent civil service model of government, I'm obviously prepared to put up with a lot more bureaucracy (and, presumably, waste) than the average American. As long as I can see a detailed account of where it all went and, if I want to, vote for someone who wants to change it, I have no real complaints about civil service spending. In the markets, as long as I'm free to do similar research before I buy, waste is and ought to be my problem, not the company's.

Click to expand...

Actually, I think that this was the question I really had. It's just taken a massive joint effort to work out what the hell I was talking about. I've often heard government projects lambasted for their paperwork and bureaucracy. Given that in the one very small sector I worked in, the majority of the bureaucratic paper-shufflage landing on my personal desk had to do with accounting for the expenditure of resources and eliminating waste and theft (with the rest dedicated to me attempting to spell "bureaucracy" the same way twice running), I was wondering if that was the thing that slowed down governmental projects and if the private world ran any differently. It seems to me that you're saying that a well-run private company would have similar quantities of checking-up.

Ah, well. I shall have to consign to my fantasies the magic land of job-doing in the blissful absence of reporting job-doing, measuring job-doing, reporting measuring job-doing, and measuring reporting of measuring job-doing. Oh green and pleasant valley of my dreams.

Wait. I'm self-employed now. There is indeed a divine providence.

Non-American proponents of capitalism, such as me, tend to come at these questions from a very different perspective than Americans. The result is often happiness with a "works better than pure socialism" finding rather than disappointment at a "fails to maximise market involvement" result.

Click to expand...

I lean toward a blended approach myself. Doctrinal purity is a pretty thing on its own, but it doesn't seem to do well off of the shelf. I'm enjoying your posts because they're so nicely concrete and specific about what works and how it functions.

Ahhh. It's been a good day. Thirteen hours of writing in a delightful blur. Talk about non-dollar-priced commodities of stunning value. Hope yours has been equally pleasant.

elsol said:

*sigh*

Black! Please don't disillusion someone! I mean seriously; if Roxanne has had a life that the rational choice between Nurse or Doctor is Nurse, let her continue to enjoy it.

I've been here... twice.

I wouldn't wish that someone experience what you go through knowing a couple of hours was the difference between your girlfriend dying of a 'tummyache' and calling her mom to say "Quick Recap. Tummyache. Emergency Room. Emergency Surgery. She's fine!" I shudder to think of having to live with making the choice of "Rox Clinic" and wondering if that delay killed her.

Click to expand...

I am, of course, delighted that your girlfriend survived to enjoy using this as a great cocktail-party story. However, just think of the savings the entire health-care system could have enjoyed from a, erm, slightly different personal outcome - provided, of course, that she'd signed a waiver stating that she wanted to be treated for a tummy ache and released her physicians from any need to inquire into whether that was the entire problem.

Roxanne, Shanglan...love ya both...and this is no doubt 'off the wall', if even I can recall the thought...

It will take historians a century from now, much endeavor, to comprehend 'our' period of time. I predict they will describe this era as a time of inward or internal considerations.

I think those historians will pay heed to the post world war two generation, the so called, 'baby boomers', as something unique in history and of and by itself, definitive and influential.

They will tie that also, I predict, to the rise of the 'feminist' influence in this society and some others and perhaps refer to it as a re-emergence of a 'nesting instinct'.

They will note the rising demand for energy and goods and services yet determine the resistance to such growth in the energy field and space exploration. The thirty year hiatus in new energy sources and absence of space exploration are not just coincidental, but symptomatic of a general change in the direction of society, influenced by the two factors I referenced above.

I ask you to stretch your imagination and visualize a different mindset that would have this nation totally energy independent with a near ninety percent of electrical energy generated by nuclear plants and all fossil fuel resources being utilized at maximum percentage economically feasible.

I would further ask you to visualize existing manned bases on the Moon and Mars, both of which have been possible for well over a decade, had the industry been given free reign.

A major portion of health care services are directed at women and children and will soon be of a geriatric nature as the 'baby boomers' begin to retire in about 2010. Looking inward, as this post war generation has done in all other things, they seek security and guarantee's; they want the government pension, they want the guaranteed infrastructure to support them and as they retire, they want the healthcare to sustain them and their larvae.

Supposing the 'mindset' about medical insurance and examples of socialized medecine had been replaced with the vitality that provided the scenaria in energy and space travel that I portrayed above.

Supposing we, as a nation, had turned to the medical experts, taken the government and politics out of health care and insurance, no medicare, no welfare, how would the medical professionals have responded?

We could have been energy independent; we could have boots on the ground on the Moon and Mars; could we also have had a McDonald's like healthcare system with a clinic in every neighborhood providing service on demand and thus have eliminated the coming crisis of healthcare providers?

If we broke the back of the Medical Unions who control the number of medical students and nurses and left it to the market place to decide?

Health care is a commodity like any other goods or services demanded by people, could the market not have served equally well, had it been free to function?

I pains me to see you folks convulse and wrestle within the boundaries of government created scarcities and try to maintain a semblance of rationality whilst seeking solutions to problems.

It is not an 'Ism' nor an ideology that motivates my thoughts; rather a knowledge of human nature and the efficacy of freedom and free trade that I know will provide ever so much better than the use of force from a central authority.

Give freedom a chance!

Amicus....

BlackShanglan said:

Hmmm. But wouldn't you be punishing everyone who owned stock as well as the people running the company? Wouldn't the stockholders lose more money than the execs? I'm all in favor of holding people accountable for their job performance, but that seems to get tricky if you have to go through a lot of other people to get to them.

Click to expand...

Damn right I want to punish the stockholders! They were one or more of: indolent, incurious, ignorant or deluded when they bought stock in a company that I can demonstrate (at least to an underpaid business editor's satisfaction) is being run as a "toys for the boys" playground. They deserve to lose (at least temporarily) the money I'm making for taking such a bad decision.

Plus, their anger is enormously useful to (almost) everyone involved. It's useful to me because it will tempt the really dumb ones to sell, further depressing the stock price and adding to my profits. It's useful to them because object lessons about doing your homework tend to stick better than the other kind. It's useful to anyone interested in seeing companies run well because at least some of that shareholder anger is going to be blasted down the phone at the Chairman, CEO and head of the compensation committee. (These chaps are surprisingly sensitive little souls: they don't like to think they're being sniggered at in the locker room at the Harvard Club. Their wives cry when someone calls them "Mrs Trump." And they really, really get upset when people whose money they covet go on television and lambast them as wallet-stuffing fat cats. They don't mind so much when do-gooders and union types make those claims but it's a different thing altogether when it's the head analyst at Fidelity speaking...)

I do have real pity for the silent, forgotten victims of such callous market forces at work: the mistresses, whose mink/yacht/implants will now, regrettably, have to be sacrificed for the greater good. That said, many of them understand market forces at a more primal level than I ever will...

Smart(ish) shareholders - the ones who missed the red flags in the quarterly reports and are now mostly pissed at themselves for the mis-step - can elect to buy more shares at the new, low price I've created, then start squeezing the balls of the above-mentioned executives in any handy vise. These investors will insist, loudly, personally, and in the form of writs, that the corporate house be put in order so that the real - and presumably higher than before I came along to expose why net profits were so low - value of the company can be reflected in the share price. They'll make back their losses and to spare, creating a better, healthier, more shareholder-friendly company in the process.

BlackShanglan said:

Possibly I'm missing something. If I'm understanding you, it seems that I could make the same argument about a government's budget. Every program in it has a chance of working, and so could be described in the same way: There are good, strong, likely programs, and for others, "Their odds of ever becoming profitable lie somewhere between 'not good' and 'no chance' but the money invested in them is by no means wasted: it's an honest and (hopefully) well-priced effort to find a new and different way of adding value to something, somewhere." There will always be failures (EU Common Agriculture Policy, if you like - I'm happy to cede wholly unknown territory), but then there will also be successes (medical research, if you like, since if I read your post correctly you seemed to feel that that worked).

Click to expand...

You can make the same argument for government efforts, in my view: that they are honest and (hopefully) well-priced efforts etc. I don't think you can make it with same confidence, though, as you usually can in the private sector for two reasons: scrutiny and complexity.

Scrutiny: There aren't tens of thousands of (relatively) neutral analysts giving word-by-word attention to every government report and statement, hoping to uncover an unseen problem or opportunity. There's no money in doing that. There is, of course, a lot of money in doing that if you're a lobbyist but neutrality doesn't appear to employ lobbyists. You can make a little bit of money doing that as a (relatively, hopefully?) neutral journalist but... Let's just say that real insights which lead to changes in governmental behaviour are more likely to come from other sources.

Complexity: One of the great attributes of Enron is that it's such a good example of so many weird things at once. 999 out of 1000 companies are punished - heavily - by investors if they put out a set of accounts no-one can understand. "Almost no-one" is ok: God knows reinsurance analysts deserve every penny they make. "No-one at all" is, in the markets, a total disaster. I've seen a copy of America's 1950 Uniform Tax Code. It's about the size of a modest anthology of Lithuanian poetry. I've also seen the reinforced steel bookcase its current descendant sits on. Companies with budgets and employee numbers the size of, say, HUD's spend incredible amounts of time and effort making reports of their activities and structures as transparent as possible for anyone who shows an interest. They have the best of all possible motivations to do so: it might attract investors. HUD doesn't do this and I can't think what would motivate it to be equally clear.

BlackShanglan said:

I've often heard government projects lambasted for their paperwork and bureaucracy. Given that in the one very small sector I worked in, the majority of the bureaucratic paper-shufflage landing on my personal desk had to do with accounting for the expenditure of resources and eliminating waste and theft (with the rest dedicated to me attempting to spell "bureaucracy" the same way twice running), I was wondering if that was the thing that slowed down governmental projects and if the private world ran any differently. It seems to me that you're saying that a well-run private company would have similar quantities of checking-up.

Click to expand...

Probably not similar. Probably a lot in the private sector, but noticeably less. One of the first few lines in a profit and loss statement is always something called "Selling, General and Administrative Expenses." It's the amount of money the company spend on - basically - bureaucracy. If you divide the GSA figure by earnings, you get a percentage informally known as "the fat ratio." Financial hipsters also call it the Body Mass Index. If you've got a high fat ratio, chances are I'm not going to keep reading your P&L - you're not lean, mean and focused on delivering value (there are exceptions but they are very rare). Tolerance for GSA expense increases (somewhat) with company size: bigger companies need more building inspectors, planners, project coordinators, etc. But tolerance doesn't increase much and low fat ratios are one of the qualities most prized in smaller businesses. I don't think (or see how) any such measure could be taken in public service in a way that allows meaningful inter-departmental comparisons. As a result, with no obvious exterior antagonist to bureaucracy, I'd expect to find more of it.

BlackShanglan said:

Ahhh. It's been a good day. Thirteen hours of writing in a delightful blur. Talk about non-dollar-priced commodities of stunning value. Hope yours has been equally pleasant.

Click to expand...

I'll trade: no sleep because of a howling typhoon and a splitting headache. Thank God I'll be knocking off by 19:30 tonight.

Regards,
H

amicus said:

Roxanne, Shanglan...love ya both...and this is no doubt 'off the wall', if even I can recall the thought...

A major portion of health care services are directed at women and children and will soon be of a geriatric nature as the 'baby boomers' begin to retire in about 2010. Looking inward, as this post war generation has done in all other things, they seek security and guarantee's; they want the government pension, they want the guaranteed infrastructure to support them and as they retire, they want the healthcare to sustain them and their larvae.

Supposing the 'mindset' about medical insurance and examples of socialized medecine had been replaced with the vitality that provided the scenaria in energy and space travel that I portrayed above.

Supposing we, as a nation, had turned to the medical experts, taken the government and politics out of health care and insurance, no medicare, no welfare, how would the medical professionals have responded?

Give freedom a chance!

Amicus....

Click to expand...

Well, here's my extremely European take on the subject. I've not really any idea about the moon, Mars and nukes, although I'm in that minority of people who think of themselves as green that are also heartily pro-nuclear power.

Had there been absolutely no government involvement in US healthcare since 1900, I predict:

There would be 10-15% as many doctors as there are now (that's about double the percentage of total population that there were in 1900.)
There would be 10-15% as many health researchers as there are now (that's roughly the proportion of wholly-private health research funding in the US.)
America would be somewhere around 80th on the table of international infant mortality, rather than 28th (every single country above you enjoys a system of socialised medicine.)
Feminism wouldn't have had much traction (if never does until most babies survive - it's hard to bring down The Man when you're whale-sized.)
You'd have gone very Red, very fast in the 50s, as America's workers began to wonder why Europe's were living 10-20 years longer than them.
Canada and Mexico would derive significant chunks of their GDP by providing medical services to Americans.
America would have a really, really low dependency ratio: at least there's one bright side...

How's that for a start?

Regards,
H

"...I do have real pity for the silent, forgotten victims of such callous market forces at work: the mistresses, whose mink/yacht/implants will now, regrettably, have to be sacrificed for the greater good. That said, many of them understand market forces at a more primal level than I ever will..."

Click to expand...

~~~

Chuckles...somehow I am reminded of the fellow who financed Jody Foster in the Carl Sagan saga, "Contact", and his manipulative abilities.

I wish to advise you that I have contracted to have my facilities enlarged to include another cynic in my midst should you so choose.

Complete with dark leather reclined, inclined accoutrement's provided, with voice recognition software awaiting your input, a dozen, (with another dozen on call) video monitors and satellite inputs, state of the art speed and capacity for research and download, with complete insider's, insider's, accommodated, headsets and virtual reality research portrayals, maid service and a full liquor cabinet and a wide choice of background sounds.

So wired for total access and invasive interrogation that there may even be moments free for pleasant bantering.

Please have your people contact my people as to your personal preferences in all things.

But then what would two cynical hedonist's talk about except to compare notes?

(Please ignore the above as an exercise in fiction writing)



Amicus...

Handprints said:

Damn right I want to punish the stockholders! They were one or more of: indolent, incurious, ignorant or deluded when they bought stock in a company that I can demonstrate (at least to an underpaid business editor's satisfaction) is being run as a "toys for the boys" playground. They deserve to lose (at least temporarily) the money I'm making for taking such a bad decision.

Click to expand...

Hmmm. So would you say that stocks in general (including or excluding, as you like, mutual funds and similar things designed for people whose financial knowledge is nearly as non-existent as mine) are something that the average person should not invest in at all? What's the best thing for somehorse to do with its money if it either can't research individual companies thoroughly or would rather just give its life's savings to that nice Nigerian general with the cash flow problem than spend a month doing that? Sometimes it seems like I might be better off looking into the Accelerated Mattress Stuffing Plan.

... neutrality doesn't appear to employ lobbyists.

Click to expand...

I just quite liked that.

Complexity: One of the great attributes of Enron is that it's such a good example of so many weird things at once. 999 out of 1000 companies are punished - heavily - by investors if they put out a set of accounts no-one can understand. "Almost no-one" is ok: God knows reinsurance analysts deserve every penny they make. "No-one at all" is, in the markets, a total disaster. I've seen a copy of America's 1950 Uniform Tax Code. It's about the size of a modest anthology of Lithuanian poetry. I've also seen the reinforced steel bookcase its current descendant sits on. Companies with budgets and employee numbers the size of, say, HUD's spend incredible amounts of time and effort making reports of their activities and structures as transparent as possible for anyone who shows an interest. They have the best of all possible motivations to do so: it might attract investors. HUD doesn't do this and I can't think what would motivate it to be equally clear.

Click to expand...

Hmmm. The Enron example does bring one other question to mind, however. Enron execs clearly thought that they had something to gain through obfuscation. It might very well have taken down the company and rield shareholders, but if they personally made a few hundred million in the meantime, that wouldn't be much of a concern (unless they were caught at it). Government entities have no drive toward clarity, but might they have a bit less drive toward deliberate obscurity?

Wait a minute. What am I saying? I think feel the icy hand of Orwell reaching forth for me from the grave. But seriously?

All the best,

Shanglan

Handprints...European, yeah, perhaps...

Had there been absolutely no government involvement in US healthcare since 1900, I predict:

There would be 10-15% as many doctors as there are now (that's about double the percentage of total population that there were in 1900.)

Click to expand...

I conclude you do not include 'healthcare' as a commodity, as I qualified my assertions with. Why not?

Since the market, without government involvement, does seem to meet the demand for all other consumer products and services, why not healthcare?

Were market forces unleashed, I predict there would be double the number of Doctor's practicing today.

Quite the same with R&D percentages, the market will provide supply for the demand.

Perhaps you have a metaphysical concept of why Medicine and perhaps Education do not belong in the market place within which you function so well?

This may devolve into a philosophical disagreement which I did not wish with you, and I hasten to assert it is not an ideological mantra for me, but a continuing inquiry, but why do you imagine that a bureaucracy can function better in any area other than the military, the courts and the police, which is about all our Constitution permits?

I have read and remember your posts concerning medical care and facilities you have utilized and your comparisons; is it for the greater good, those unable to purchase as you can that concerns you?

Just asking...


Amicus...

Roxanne Appleby said:

They are also very often the guinea pigs on whom expensive new therapies and drugs are tested.

Click to expand...

Quite true. It's part of the same phenomenon--I just forgot about it because, thank God, I use electronic gizmos far more often than I get sick, and have been spared catastrophic illnesses.

BlackShanglan said:

Hmmm. So would you say that stocks in general (including or excluding, as you like, mutual funds and similar things designed for people whose financial knowledge is nearly as non-existent as mine) are something that the average person should not invest in at all? What's the best thing for somehorse to do with its money if it either can't research individual companies thoroughly or would rather just give its life's savings to that nice Nigerian general with the cash flow problem than spend a month doing that? Sometimes it seems like I might be better off looking into the Accelerated Mattress Stuffing Plan.

Click to expand...

When I see individual investors buying stocks directly, who lack any or all of: the ability to read a company report, cover to cover, and explain why they formed the opinion they formed from the contents thereof; a reasonable grasp of portfolio construction and the sources of risk; or specialist knowledge gained from years of working in a given industry, I start hoping for the best without expecting to find it. What should a horse who dreams of his own stable do?

Up-front warnings/disclaimers: I am almost certainly not registered to give financial advice in your jurisdiction. What follows is not an offer to sell yadda, yadda ya. These are general principles intended to help any investor, anywhere avoid the most common problems. There is no guarantee of investing success. Finally, if you can't do high-school senior math, you need to find someone who can to help you. Things will go horribly wrong if you don't. If all this sounds over-dramatic, please remember that almost everything I write in real life comes to the reader with a 1500-word disclaimer attached and that's after they've signed a 12-page waiver. I'm not kidding.

And please, please don't anyone PM me looking for specific advice or questions: my firm would be to delighted to charge you an obscene sum for the privilege of listening to the answers I'll get a 22 year old trainee to write up. I'll answer what I can answer, if anything, on the board.

Count up what you've got on hand to invest and what you're likely to contribute to the pot each month. Go online and start looking at the websites of independent financial advisors and brokers in your area who appear to want customers like you. If the tone and content of their websites strikes you as even a little bit optimistic or salesy - move on. If they sound like nervous churchmice who won't promise that the sun will rise tomorrow and spend more space on their site describing risks and limitations than potential benefits, they're probably worth a closer look.

Let's go back to your current pot. How much of it could you see disappear overnight without losing a moment's composure? Write that figure down and sleep on it for a few days. Imagine that you lost that percentage of your savings on the day you had your worst personal financial crisis of the past decade. Still ok with it?

Take another look at final dollar value of your "sleepless night" loss: is it more or less than 10% of your total savings? If it's higher, that's the amount you're going to take to the bank and put into a certificate of deposit or any other fully government-backed savings instrument that rolls over every 60 days or so. If it's lower, take 10% of the money to the bank anyway, you daredevil. (If you're under 30, you can get away with 5% most of the time except it's awfully painful when you can't. You were warned!) You will be insulted by the low interest rate on offer at the bank. Don't worry about it - this part of your portfolio is the one that buys you peace of mind: it is the most riskless investment you'll ever make.

Take a piece of paper and write on it the amount now in the bank, the amount left over for investment and how much you want to contribute to your investments every month. Rule of thumb: if this monthly contribution is less than 20% of your post-tax income, you might very well be short of cash at 75. Take this piece of paper to the churchmice. You will be greeted by some kind of advisor. If the advisor looks to be younger than 30, tell him/her you'd rather deal with someone closer to your own age. If you're under 60 and they can't find anyone within five minutes, run! Let the kids learn their lessons by bankrupting the next guy.

Tell the nice piece of grey hair they turn up that you have decided you want professional help managing your retirement savings. Tell him, upfront, that you're shopping for the right firm. Tell him that you have general idea of how you'd like to invest your money and you're going to base your decision on who to use on how well they help you turn your general idea into a concrete plan.

Here's your general idea. (Note, if you've got more than about USD300,000 to invest, see the additional paragraph at bottom) You've already got a cash savings plan that meets your needs at the local bank. You want to split the rest of the money between three types of mutual fund: a municipal bond fund, a broad stock index fund (these can sometimes be called ETFs or trackers), and a broad property fund. Tell him that you'd prefer to keep your fees as low as you can and that you won't invest in anything that carries an exit charge. Tell him you want a a mix of funds that, based on historical returns, won't likely lose more than 10% of its total value more than once every 20 years (hey, it happens to everyone.) Tell him you'd prefer funds which have at least a 10-year track record. Tell him you'd like his firm to show you what they think is the best mix of funds for you, with detailed explanations of costs and fees. Now tell him how much money you have and how much you're going to add every month. Tell him you'd like to get a copy of the plan on paper so you can compare it with the plans you'll be asking other companies for.

Go to the next advisory company and repeat until you can take no more.

Within a week, you'll have a nice stack of papers arriving at your door, each of them containing a plan. Does the math look possible? You ought to see something called risk or volatility (a percentage, although the sign is frequently left off) or a dollar figure of estimated max loss. Both of these estimates are made, by normal industry standards, at 95% confidence - remember high school math? That means things will be worse than that once every 20 years or so. Do these figures correspond to the 10% comfort level you explained to the advisor? Do they offer some estimate of your portfolio's future performance, based on the past performance of the funds? Don't worry that the funds aren't each getting an equal amount of your savings but do worry if one of them's getting more than, say, 70%. If one of them is, call the advisor to ask for an explanation.

Can you find each of the funds they recommend on the internet and get instant access to their performance histories and information about their current market view and plans? If any of the plans looks in any way odd, includes math a high school algebra student can't understand, includes any class of funds you didn't specifically ask for or, for whatever reason, does something to annoy you, throw it away. That'll teach them not to listen. If anyone is asking for fees much higher than the average, throw their plan away too.

Now arrange the plans from left to right in ascending order of total fees. Take a pen and write the number 3 on the leftmost one, two on the next, one of the third, zeros on the rest. Now, rearrange the plans in ascending order of volatility, risk or max loss (if you have to convert between the three, call the advisors and ask for the directly comparable number - volatility is usually the easiest to get.) Add a second set of ranking numbers on each plan under the first. Finally, lay them out in descending order of predicted return and write one more line of ranking numbers. Sum the ranking numbers all up. Higher is better. Did you get a clear winner? Was there a tie? If you got a tie, go with the plan that shows the lowest fees.

If you've got an accountant, bookkeeper or financial type in the family, show the plans to him/her for a backup opinion. Chances are, they'll tell you that all of the plans you got are more or less interchangeable and, if they're good at their jobs, tell you not to worry about anything except low fees. (We're all fairly ruthless with each others' earnings...)

You're almost done. If you're still a bit nervous, call the winner and ask if you could see what a monthly statement from them would look like. Make sure you can understand all of it. Then go back to the winning advisor with a cheque in your hand, pay it in, sign the forms and make an appointment for six months in the future. At that appointment, you'll consider taking some money out of the best-performing fund to put it into the worst-performing fund, so that they return to the proportions they were in on the first day - but only if the proportions are really starting to look skewed (one has gone from 40% to 45% of your total pot, say. Less than that probably isn't worth the bother unless it's absolutely free from transfer charges and there are no tax consequences of any kind.) This six-monthly regular appointment (best to do them in March and September for a variety of really dull reasons) is the only time you will ever fiddle with the money no matter how terrifying the headlines are. On this day, you'll also have a look at your cash savings to see if they need topping up. You will never, under any circumstances, take money out of the cash account to top up the investment funds.

That's really, really it. Put 20% of your post-tax earnings into the plan every month, split between the three asset classes you own - bonds, shares, property - and you have a better chance of enjoying a well-funded retirement than almost anyone else in the working world.

NOTE: If you have more than USD300,000 in savings and you're under 60, you want to split your investment five ways: bond, share, and property funds, as above, but also commodity funds and something called "funds of hedge funds." Do everything else the same way, be ready for slightly higher overall fees, and ask for an explanation if any of the plans puts less than 5% of your money into any of those five categories. If you have more than USD1m and no idea at all what to do with it, you need to stop whatever you're doing with your life and go spend a couple of months getting your ass wised up, even if it's just a community college night class in financial planning. There are a lot of Colonel Toms out there looking for the next Elvis.

I cannot - because I know nothing about the subject - offer you any tax advice in any jurisdiction. You should ask about the best and cheapest ways to shelter your investment from tax and you should ask about tax at any six-monthly meeting where you decide it might be a good idea to move money from fund to fund.

BlackShanglan said:

Hmmm. The Enron example does bring one other question to mind, however. Enron execs clearly thought that they had something to gain through obfuscation. It might very well have taken down the company and rield shareholders, but if they personally made a few hundred million in the meantime, that wouldn't be much of a concern (unless they were caught at it). Government entities have no drive toward clarity, but might they have a bit less drive toward deliberate obscurity?

Wait a minute. What am I saying? I think feel the icy hand of Orwell reaching forth for me from the grave. But seriously?

Click to expand...

You really, really had me worried for a moment there. Nice save!

Best,
H

Handprints, that was a wonderful post! I really must apologize, however, for not thinking through where my request might logically lead. One forgets that every profession has its Dreaded Topics of Conversation that lead to wholesale and gleeful requests to do one's job for free; it's easy to remember what mine are, but I forgot to stop and think about what yours were. You were awfully gracious about it, and you gave far more of your time and expertise than I ever expected. Honestly, I wasn't fishing for that (but am extremely grateful for it); I was asking which lake I ought to go jump in, and here I have swimming lessons. Damned decent of you.

It's good reading. Some of it's reassuring, and some of it's an undoubtedly needed touch of the spurs. Thank you very much.

Shanglan

BlackShanglan said:

I am, of course, delighted that your girlfriend survived to enjoy using this as a great cocktail-party story. However, just think of the savings the entire health-care system could have enjoyed from a, erm, slightly different personal outcome - provided, of course, that she'd signed a waiver stating that she wanted to be treated for a tummy ache and released her physicians from any need to inquire into whether that was the entire problem.

Click to expand...

Unfortunately, I too would be dead as I've been in the situation myself.

"So what can you give me for my cold, doctor? Pneumonia!!! People die from that shit, yoh!"

elsol said:

Unfortunately, I too would be dead as I've been in the situation myself.

"So what can you give me for my cold, doctor? Pneumonia!!! People die from that shit, yoh!"

Click to expand...

*laugh* I had a wonderful nurse-practitioner / doctor where we used to live - she was Russian, with a delightful accent, and was actually a doctor there, but was in a nurse practitioner role here because her credentials didn't line up neatly. I can remember going to her with a bad case of the flu - one that actually put me motionless in bed for 2 -3 days - and hearing her thick, rolling accent: "Influenza. You take this seriously. People die from this, you know." She somehow made me laugh and then take her quite seriously as well.

I miss her, now that I think of it. She's a wonderful mix of doctorly and motherly. Very reassuring, and with a voice that I could listen to all day. It's strange how much fondness one can feel for a person one meets only rarely.