Obama = Bush

Eli,

I'm frequently struck how the policies of President Obama are in many ways a continuation of the the Bush policies. From Ryan Lizza's article on Paul Ryan,

"Ryan was a reliable Republican vote for policies that were key in causing enormous federal budget deficits: sweeping tax cuts, a costly prescription-drug entitlement for Medicare, two wars, the multibillion-dollar bank-bailout legislation known as TARP. In all, five trillion dollars was added to the national debt."

Obama and Bush
Enormous federal budget deficits. Check
Sweeping tax cuts. Check
Costly prescription-drug entitlement for Medicare. Check, substitute Affordable Care Act.
Two wars. Check. Exited Iraq per the Bush agreements. Surge in Afghanistan.
Bail-out legislation. Check. GM, Chrysler, Green Energy.
Five trillion dollars added to the national debt. Check.

The thing is, the argument Obama makes against Romney is he "will take us back to the failed policies of the Bush Administration." But wait, Obama is following the failed policies of the Bush Administration. We should vote for Obama because he's a better George Bush than Romney?

Bill.

Why Germany Thinks "Austerity" Works

From today's NY Times:

Why don't we just let price do its thing?

Eli,

The basics of a computer are CPU (central processing unit, the brains) memory and storage. Imagine there was a shortage of memory and prices increased. What would you think if in response to this shortage, the government mandated a redesign of all computers to meet a corporate average memory economy standard. That is, to mandate how much memory each computer could use? I hope your response is the same as mine, "Well that's just a dumb idea." But we have done the exact same thing with gasoline and automobile mileage standards.

I found the article below on EIA.gov, the Energy Information Administration's web site. CAFE (corporate average fuel economy) standards are one of those government intrusions into our ability to choose the products we want, that create market-distorting incentives, result in unwanted negative consequences and ultimately do little to solve the problem they set out to solve. If you ask yourself why have the last three economic recoveries been the slowest since WWII, maybe we should start with things like CAFE standards, renewable energy mandates, the minimum wage and banning the Big Gulp. Cumulatively those mandates have an impact and those mandates seem to be on an inexorable tear.

How does an automaker meet fuel economy standards? Lighten the vehicle and use material that is more expensive to meet that weight requirement. Prices go up, weight of the vehicle goes down, which makes it less safe (I'd like to see a study that shows how many people have died due to CAFE standards) and GM ties itself in knots trying to meet this standard. GM's issue is it's really good at making big cars and trucks, and not so good at making small cars. Which means it won't meet CAFE standards, which means it puts it in a competitive disadvantage relative to producers like Honda and Toyota, which means when combined with bad management it goes bankrupt. (Obama saved GM by putting it in bankruptcy lest we forget). 

But here's the killer, as the charts below show. The CAFE standards lag the market. Look at passenger car compliance relative to the standard from about 2005 on. The compliance soars above the standard. The reason is simple: gas prices went up, people bought more efficient cars. In fact, compliance has almost always been above the standard. Another way of saying this is the market does a much better job of responding to the price of gasoline than the government. And it does it cheaper. And it doesn't handicap GM. And it lets consumers buy what they want.

Bill

http://www.eia.gov/todayinenergy/detail.cfm?id=7390

Fuel economy standards have affected vehicle efficiency

August 3, 2012

Source: U.S. Energy Information Administration, based on U.S. Department of Transportation, National Highway Traffic Safety Administration (NHTSA), "Summary of Fuel Economy Performance."
Notes: Combined means both foreign and domestic vehicles. Cars and station wagons fall under the category of passenger cars while all pickups, vans and sport-utility vehicles (SUVs) are classified as light-duty trucks. The compliance-tested estimate is an MPG value for all vehicle classes which is sales-weighted and includes earned CAFE trading credits.
*No combined compliance estimate is available for 1978
**Although standards for two-wheel drive and four-wheel drive light-duty trucks were set in 1978, it was not until 1982 that a standard was set for all light-duty trucks.

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Immediately after Corporate Average Fuel Economy (CAFE) standards took effect in the late 1970s, new light-duty vehicle (LDV) fuel economy improved significantly, particularly in the case of passenger cars. This was followed by a long period during which fuel economy ratings (measured in miles per gallon, or mpg) for both cars and light-duty trucks leveled off. Since the early 2000s, the average fuel economy of all vehicles in the United States has again been rising.
The oil embargo of 1973-74 and the rise in oil prices during the early 1970s started a conversation in Congress over the fuel efficiency of U.S. automobiles. The Energy Policy and Conservation Act required an increase in passenger car fuel efficiency from 12.9 mpg in 1974 to 27.5 mpg in 1985 as well as improvements in the fuel economy of light-duty trucks. In the early 1980s, smaller cars were selling well, but by the mid-1980s, gasoline prices had decreased and several car manufacturers lobbied to have the CAFE standards reduced, as allowed under law. Such reductions are relatively rare, though. In 1986, the passenger car standard was reduced to 26 mpg, but either increased or remained flat in all years since. Similarly, the light-duty truck standard was reduced in both 1985 and 1990, but otherwise remained constant or increased.

Source: U.S. Energy Information Administration, based on U.S. Department of Transportation, National Highway Traffic Safety Administration (NHTSA), "Summary of Fuel Economy Performance" (March 2012 Publication).

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As illustrated in the market sales share graphic, there was a substantial increase in the percentage of the LDV market made up by light-duty trucks during the 1990's. Light-duty trucks held a little less than 10% of the market share of light vehicles in 1979, and by 2000 they accounted for nearly 45% of the market, at which point the combined fleet-wide fuel efficiency of cars and trucks was down about one mile per gallon from 1990.
In 2003, CAFE standards were raised for light-duty trucks to 21 mpg by 2005, 21.6 mpg by 2006, and 22.2 mpg by 2007. In 2006, the formula used to establish CAFE standards for light-duty trucks was changed. Manufacturers were given the opportunity to comply with fleet-based standards or standards based on their sales-weighted "footprint" (wheelbase times track width). For Model Year (MY) 2011, a new footprint-based standard was enacted for both passenger cars and light-duty trucks. This new footprint standard required that all vehicle manufacturers improve their fuel economy at a similar rate, regardless of the types and sizes of vehicles sold. The sales-weighted compliance value of passenger cars for MY 2011 is estimated to be 34.4 mpg, while that of light-duty trucks is estimated to be 24.8 mpg.
In the Energy Independence and Security Act (EISA) of 2007, Congress called for the fuel economy of new LDVs to be increased by 40% by MY 2020, which is equivalent to a 35-mpg minimum for the total fleet of passenger and non-passenger automobiles. In 2009, CAFE standards set in 2007 were accelerated with a joint rule by National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) and enforced through EISA and the Clean Air Act. The fleet-wide footprint standard (inclusive of all LDVs) calls for an estimated combined average mpg level of 34.1 by MY 2016, up from 27.3 mpg in MY 2011, an average annual increase of 4.3%. Additionally, the joint ruling establishes a projected greenhouse gas (GHG) emission standard that requires a reduction in fleet-wide CO₂-equivalent emissions from 295 grams per mile traveled in MY 2012 to 250 grams per mile traveled in MY 2016.
The EPA's CO₂-equivalent emissions standard allows manufacturers to generate credits by reducing GHGs through improved air conditioning systems and alternative fuel use capabilities, which NHTSA estimates will facilitate the achievement of the 34.1 mpg benchmark. However, because CO₂-equivalent standards cover all vehicle emissions, if manufacturers do not implement technologies that affect non-fuel-related emissions, they will need to comply with the projected 35.5 mpg standard for MY 2016.
In December 2011, NHTSA and the EPA issued another proposed rule for improved standards for MY 2017-2025 that would require an average industry fleet-wide emission standard of 163 grams of CO₂ per mile traveled. These improvements would come in two phases. The first would be enforced through 2021 and would require manufacturers to meet an average industry fleet-wide fuel economy basis of 40.9 mpg. The second conditional standard (based on current best estimates of maximum levels of stringency) will require an average fuel economy of 49.6 mpg by MY 2025.

On The Way Back From The Car Dealer

Bill

After dropping my car off at the dealer for service, my ride to the hospital was provided by a 69 year old retiree named Dave who works till 10:30 every day (where do we sign up for that?) and then goes off to the range to shoot rifle and pistol. After finding out I was a doctor Dave gave me an earful about how Obamacare is going to provide health care for nothing to all those freeloaders, and got another earful about his own experiences with the greatest health care system in the world. As the result of a minor abnormality on a "routine" electrocardiogram last year (a screening test widely discredited as unnecessary and sometimes harmful) he was sent to a cardiologist for further testing. A $2500 nuclear exercise test was normal. A screening test for prostate specific antigen (also discredited) led to referral to a urologist who did a rectal exam and mercifully told Dave to go home and forget about it. Even though Dave's blood pressure at home averages 125/85, an office measurement of 140/95 led to  a branded prescription which the local Walmart priced out at $53. Dave left the script at the pharmacy counter.

Aside from finding Dave a doctor who will listen to him, I couldn't help but be reminded once again, of your lesson on the power of incentives. Dave's doctor gets about $80 for a 15 minute office visit. Out of her revenue stream she must pay the rent, utilities, cost of supplies and salaries of her office staff. Whatever's left belongs to her, which for most internists averages out to around $185 K a year. If she adds an electocardiogram to every visit, (cost around $100 for the test itself plus her interpretation of it), she more than doubles her income for that visit. She is, as Dave pointed out, a small businesswoman, and as such her goal is to minimize loss and maixmize profit. If I had embraced the business model of medicine by going into practice, I'm sure I would have done the same.

Test by test, pill by pill, this is how we got to 17% of GNP, and rising. It doesn't help, as you have noted previously, that consumer/patients are effectively separated from the experience of paying for the tests that  their doctors order for them

Meanwhile, the trip to the car dealer for an air bag recall has led to a $900 bill for "necessary maintenance"

Its a great country we live in.

Eli

Romney Gaffes? Really?

Eli,

I think I pay more attention to the election than the average person, and I've pretty much ignored the Romney "gaffes." He said security at the Olympics could be an issue. So what.

He said there are cultural differences between the Israelis and Palestinians, America and Mexico, Chile and Ecuador and those difference may contribute to economic performance. So what. Someone is trying to make it an issue that Romney has lost the Palestinian vote? Really?

Look at the video of the Politico reporters shouting out questions to Romney as he visited the Polish Tomb of the Unknown Soldier. Romney ignored them. An aide to Romney told them to have some respect and "kiss my ass." So what.

Read the speech Romney gave in Warsaw. Bill Kristol has it on www.weeklystandard.com It's pretty good. An unabashed paean to liberty.

I read that speech and liked it. He recently indicated he would let wind subsidies expire. I liked that also.

Do some You-tubeing on him. Find the unedited stuff. Then tell me what you think. I think he can win.

Bill

Is He really This Inept?

Bill,

Loyal Republicans must be apoplectic at the dismal performance of their candidate. Week after week of gaffs, boos boos, misstatements and awkward moments have kept the narrative on Romney as poor-little-rich boy and away from where he wants the conversation to go, which is the dismal state of the economy and the President's responsibility for it. In a breathtaking 7 days he managed to piss off almost the all the Brits, all the Palestinians, and half the Poles.

People are not crazy for this President. Even I, who am, as you know, pretty loyal, am not crazy for him. The biggest prize in politics is ripe for taking. Still, Romney can't seem to get out of his own way. As the Chicago boys continue their campaign of painting the challenger as Scrooge reincarnate, his famous caution may come back to haunt him.

Eli  

Walmart And The Creative Destruction of Capitalism

Bill,

Your post on consumers immediately brought Walmart to mind. Its an amazing experience to walk into one, with its bewildering variety and depth of goods.  The place simply has an unbelievable amount of stuff. I have little doubt that the company has played a major role in bringing that stuff to consumers at cheap prices. I occasionally buy my meds there, and I make sure that my clinic patients know about the Walmart $4 prescription list. That's a months worth of perfectly good generics for 4 bucks! Fantastic.

Walmart is also the nation's  largest employer, with nearly 4 times as many workers as its next nearest competitor. Along the way it has become the kind of bette noir for the left that makes you crazy. Browsing through Walmart salaries on the Internet I was impressed to see that managers can make a middle class living. Still, with an average salary of $9.85 an hour, it's hard to imagine that working there will serve as a vehicle for upward mobility. Our capitalist system has richly rewarded the Waltons for their energy, forsight and drive, as the six heirs to the Walton family fortune rank as the richest family in the world. Walmart shareholders also enjoyed a remarkable run through through the 90s, although the stock has been mostly been a disappointment since. Some part of the company's economic success (and its ability to subdue its competitors) might be attributable to its effective resistance to unionization. Other successes appears to be a simple matter of effective corruption.

My home town, (population 24,000), has one. It's out on the highway at the edge of town, on top of an old golf course. The town center, 3 miles south on an estuary at the edge of Buzzards Bay, is peaceful in its empty buildings and dense silence. The donut shop, men's haberdasher, barber, and pharmacy (no 4 buck prescriptions there) that I grew up with are all gone. Only the world famous Concordia Boat works remains along with the real estate offices. With the exception of late summer sunsets, almost everything that was once provided there can be now be had at Walmart.  Next door in New Bedford, the abandoned  storefronts line Acushnet Avenue for miles.

This is the creative destruction of capitalism at work yes? Winners and losers. Consumers and workers. Rich and poor. Lucky and unlucky.

When I think about whether, or how, I might I arrange this differently, the answer is not much, but maybe some. Capitalism at its best works because it acknowledges the elements of our nature that produce success: drive, competitiveness, desire, vanity, ambition. Socialism fails because, absurdly, it denies those elements, valuing only resentment. I don't want to wait on line to buy crummy shoes, and if I can buy the same shirt on Ebay for half the price of  Nordstroms  I'll take that deal every time. But I still think think there ought to be some sort of leavening of the harshness. And I can't let go of the notion that "millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same (1)."

Eli

(1) Barack Obama-State of the Union Address 2012