It's been a while since my January 1 update. So where are we now?
Item Jan 2007 4 Oct 2008 31 Dec 2008 31 July 2009
Unemployment 4.5% 6.1% 6.7% 9.5%
CPI (with energy) 2.0% 5.5% -1.7% 0.7%
Gasoline cost/gal. $2.25 $3.60 $1.66 $2.60
Dow Jones 12,500 10,325 8,776 9,171
S&P 500 1,450 1,099 903 987
Nasdaq 2,500 1,947 1,577 1,978
I suggested Jan 1 that 2009 would not be worse than 2008. So far, it is a decidedly mixed bag. Markets are up, but that can be expected when stocks are oversold and market players cautiously step back in. Markets are still highly volatile and not for the faint of heart. One view is that the markets are up precisely because of dwindling support in congress for the excesses of Health Care and Environmental legislation. Certainly such factors are bullish. Here's one take: See the July 23rd post.
It also has to be said that the TARP program and related Fed intervention in the markets in November last year did in fact easy the liquidity crisis. Large banks are still under pressure but now not likely to go under and bring the whole system crashing down. Equally, not all firms are too big to fail. CIT for example.
As for the rest of the economy, things are definitely worse. Unemployment is not improving, and likely will not for most of the year. Clearly the stimulus is not working in terms of job creation. No surprise there really, as the $787B stimulus program is too slow at getting money into the real economy. Politically-driven pork does not make for good economic policy and we are seeing the results. But wait for the spin. Be skeptical of phrases like "GDP growth slower than expected" or "unemployment increases less than forecast." Any reporting based on the rate of change is simply hiding the facts that are actually "GDP continues to contract" and "unemployment continues to increase."
As an interesting counterpoint, China also embarked on an economic stimulus program. As difficult as it is to know that China economic data is accurate, the results would seem to show that China's economy is back on track. The difference? China got most of the cash into the economy quickly and took on far less debt. Yes, the Chinese Communists are in a position to lecture the US on how to do this!
So how's Obama doing? Sure Obama seems pretty smart alright, but more in a smart-alecky I-know-alot kind of way. The real issue is inexperience. He has never had any real executive experience and it is starting to show. Even worse, he seems to be governing far to the left of his campaign implied.
Where to begin:
Where to begin:
1) Economy itself: See above, and:
-GM and Chrysler bailouts - should have let them fail even before being inaugurated. The sop to unions and strong-arming of secured creditors will result in further damage to those firms. Want to invest? don't trust any firm with large unions. Want a car? buy a Ford. Even Cash for Clunkers, being touted in the press as a success, takes perfectly good cars off the road and perfectly good car parts off the market. This will kill a lot of skilled jobs around the country (think of your local car repair guy).
-Tax increases on the "rich" - the top 1% of taxpayers, less than 1.4M people, pay 40% of US federal income tax. In some states, and with other taxes included the marginal rate will potentially exceed 57%. What do rich people do when faced with high taxes? They either move, make less money, or find ways to make money that doesn't incur such high tax. What happens then? Either more deficits or higher taxes for everyone else. Neither approach increases economic growth.
-Cap and Trade - despite what you might hear, this is not a market mechanism for managing CO2 output. It is just another tax that will hit everyone's energy bill. Whether or not CO2 (or any other human activity) leads to Climate Change is beside the point. Cap and Trade and any other market that cannot be benchmarked against something real that people actually want cannot work. India and China get this and are not going to subject their economies to such economic silliness.
By the way, profits are good: it is after all, how we pay for all this. Without it there are no jobs, taxes, investors to buy debt.
2) Which brings me to Health Care. First of all, this is a big topic, 17% of the US economy, and something that should not be rushed. Any significant national level reform will not be sustainable without broad-based political support of all Americans. The latest polls have significant majorities of Americans opposing the changes being proposed in Congress. Why is that? Short answer: THERE IS NO HEALTH CARE CRISES IN AMERICA!
So what is it exactly that the omnibus legislation making its way through Congress, which few have read and even fewer understand, supposed to achieve? I'd say that the burden of proof is for Congress and Obama to prove that one of the greatest health-care systems in the history of humanity is not made worse. Has anybody heard of "At first do no harm"? Perhaps someone should read Obama the Hippocratic oath.
And what about a few other items that would actually reduce costs but are never discussed?
-Legal Costs: Malpractice insurance, litigation, and tests that aren't medically necessary but given to address the other two are a significant cost burden. How about looking at that? And it's not just that. To share a personal experience, I worked on a project for a Big Pharma recently. The project involved securely moving data as part of shutting down some research labs and centralizing in fewer facilities. This project globally cost $50M just to move data securely that might be needed one day for future regulatory compliance or litigation. Without that overhead the whole thing could have probably been done for $5M. All those costs add up - oh and don't forget the more than 250 lawyers in the company's head office. It's not about Marketing vs. Research. It's about the cost of compliance and litigation vs. delivering life-saving treatments to patients.
-Intellectual Property rights for drugs and therapies and/or streamlined approvals: It takes about 10 years for a drug to be approved. That leaves only about 7 years of patent rights for the inventor to recoup the investment. That leads to lots of good therapies never seeing the light of day. Generics might be cheaper, but a drug with a longer profitable life for its inventors would be cheaper too, and we'd have more of them.
-Not enough free market sense: I've written before how hard it is to pay cash at a clinic. A good counterexample is Lasik, which by the way has also come down dramatically in cost with safety simultaneously improving. Why? Because Lasik follows free-market principles. Most clinics do not.
So how about those last 1/3 uninsured again - about 15M people. Here's a modest proposal: Pay them all $1000/year in insurance each. That's $15B/year, or $150B over 10 years. That's a lot less than what's in front of Congress now and doesn't destroy the system for the rest of us.
3) So how about Foreign Policy? Are US interests in the world being advanced? Is the US a leader in world institutions? Are we loved by all that hated us because of Bush? At best you'd have to say things are off to a rocky start. In the part of the world where I live, the US is basically ignored. China seems to have worked out that there is nothing the US can really say or do that is of any long term consequence, and certainly not under the Obama administration (see above under China lecturing the US on economics). Russia? same story. North Korea - well not making much progress there are we. Iran? Let's see how long it takes before they test a nuclear weapon. Europe? Seems to be moving to the right of Obama on a number of issues. Hmm wonder why. Could Europe be right?
4) Supreme Court Nomimation: Actually this one doesn't look so bad. Don't get me wrong, I'm unlikely to agree with Justice Sotomayor on a number of political issues. Nevertheless, she does seem to be a competent jurist with a proven track record that is available for review, and for the most part (90% of the time) has passed Supreme Court scrutiny when tested there. Is she the best possible candidate for the highest court in the land? Probably not. Is Obama within his rights to nominate here? Most certainly. Should she be confirmed by the Senate? In the absence of any good reason not to, I'd have to say yes. In other words the burden of proof is on the Senate to say no, and nothing of consequence has come up to suggest that confirmation is not warranted. . .and in any case, she's probably not going to be any worse or any better than Justice Souter.
So what's left? How about Beer Diplomacy. Actually I like this one. Of course it was politically inept for Obama to wade into the Gates/Crowley affair without at least having all the facts. Presidents probably shouldn't get into such local matters at all. But it is a time honored tradition for men of goodwill to gather around a table with a few cold ones to hash out difference, agree to disagree if that's the situation, and then move on. I'll raise a glass to that.
So let's end on that note: How about it Mr. President? More Beer Summits and less destroying that which makes America great. It might save your presidency. And we know it's more about you than it is about the rest of us, so what's not to like in that?
