Tuesday, August 25, 2009

Dear Mr. Collier,

I read about you in the New York Times and I have to say I am truly perplexed.

Your situation as you describe it would seem to position you as one of the fiercest advocates of health reform. Your wife's experience with the system is nothing if not exemplary of everything that is flawed in it: your insurer denied payment for your wife's radiation treatment because they were deemed "experimental" (even thought they are pretty much the standard of care for breast cancer as far as I know), presumably to avoid paying for the $63,000 bill (which you ended up not having to pay only because of the kindness of Emory Healthcare). Your insurance premiums have been going up 15% per year - I would imagine much faster than your income - and your deductibles have quadrupled. More importantly, God forbid the cancer were to recur (and in the best case, there is about a 10% chance it will) and you happened to lose your job, your wife would be uninsurable, due to her pre-existing condition.

And yet, you oppose health reform which aims to control the growth in cost of care, prohibit insurers from discriminating among people based on pre-existing conditions, and would give you a safety net to fall back on in case you lose your job or your employer simply decides to no longer provide health coverage for employees, or their spouses (it's a recession, after all).

What I don't understand at all is your reasons for fearing health reform. You say about Obama "he wants to centralize everything. He wants to take over the car companies. He wants to take over the banks. Now he wants to take over health care." Leaving aside the fact that the government didn't simply decide to take over car companies and banks (they begged for and survived thanks to government intervention), I simply don't get what about any of the current proposals says anything about the government taking over health care. And even if it did, why is that necessarily a bad thing compared to what happened to you? You worry about the government rationing care and skimping on the elderly. Instead, you prefer to be in a system, where your insurance company can simply deny payment for a procedure which, according to medical research lowered recurrence risk of your wife's cancer by more than 50%, because it is considered "experimental", even though your doctors recommended that treatment. If that isn't rationing and intruding into medical care decisions made by your doctor than I don't know what is. But I guess having those life-threatening decisions made by a for-profit entity at least feels more American?

I suppose I can understand one reason why you want to keep the system as it is - that against all odds and thanks to a combination of luck and other people's charity, you got what you need out of it. Your wife is OK now and, however expensive it may be, you have health insurance. In other words, the system sort of works for you, so why mess with it?

All of which is to say, go read James Surowiecki's brilliant article in the New Yorker about why we tend to want to stick with things that suck.

Monday, August 3, 2009

Just Dance.

Eh, not particularly timely but here's another installment of my column in the Slovak journal Zahraničná politika. I have to say, using a night out at Vandam as inspiration and a Lady Gaga reference .. that's a first for me.

Just Dance.

Starting a column with a personal anecdote like “when I went out last Sunday it occurred to me” is probably not particularly professional. And yet, at the risk of diminishing the respectability of this piece, I can't help myself: When I went out last Sunday it occurred to me that for a city in the epicenter of the greatest economic decline since the Great Depression, everyone seems to be having an unusually good time. Granted, this was the night before Memorial Day, one of the few national holidays in the US, also considered an unofficial start of the summer. But it struck me as somewhat representative of the overall mood around me – not just in my social interactions, but also at my work in the financial markets – that could generally be summed up with three statements: the world is not coming to an end; it's going to be ok; just dance. And the skeptic in me has to wonder: is this for real or are people just fooling themselves, diluting their worries with a cocktail of green shoots, only to wake up with a massive hangover of reality the next morning?

The term green shoots in this context was coined by the Federal Reserve chairman Ben Bernanke during an interview in March to describe what he believed were some early signs of economic recovery. Since then, many analysts have been obsessed with identifying these encouraging data points. Suddenly, it mattered less that many data points were still bad or worsening; it became fashionable to point out that as bad as things may seem – or deteriorating even – they are getting worse at a slower rate, the implication being that we are close to hitting a bottom. The market responded accordingly: between early March and the end of May, the S&P500 index has climbed 35%. And this sense of optimism has clearly infected American households: the Conference Board consumer confidence index in May showed a stunning improvement since the previous month to the highest level since last September, when the crisis broke out. Even more telling is the fact that the increase was driven by a pop in future expectations – to the highest level since December 2007, the month when this recession started. In other words, while people's assessment of the current situation is still not particularly rosy, their view of the future is as good as it was before the recession started. Similarly, in the stock market, one earnings report after another, investors have been looking through mediocre near term trends, and propping up prices of stocks in the hopes of an economic recovery.

Now, let me spell out my main source of skepticism clearly: none of the fundamental negative trends that were at the core of the downturn that clearly broke out last fall has reversed. Here's a quick survey of some macroeconomic factors: the housing prices keep going down (15% in April, according to National Association of Realtors, while the inventory of homes climbed 8.8% and mortgage delinquencies hit a record high, said Mortgage Bankers Association), the true health of banks remains unclear, unemployment continues to go up, even if at a slower pace. In other words, there is plenty of negative data pouring out, if one only pays attention.

At this point, you may ask yourself: why insist on highlighting the negative and ignoring the positive signs? Shouldn't we be celebrating the improving sentiment? These questions aren't entirely unfounded. The economic cycle is, after all, a self-feeding mechanism to some extent: if sentiment recovers, businesses will plan for higher output, increase investment, hire workers, and so on and so forth. And yet, while confidence is an essential element of recovery, it doesn't actually pay for much. So while consumers may be feeling more bullish, the real question is how much stuff will they be able to buy when all is said and done. And if you think about the fact that much of the spending in the last decade was driven by a massive expansion of credit – which is unlikely to make a comeback soon, I have to wonder what the true buying power of Americans – and people around the globe – will be when the dust settles. Put bluntly, without credit cards, how many millions of people will find it essential in the future to get the latest iPod every 6 months?

And so, while it would be nice if this jolly spring became the foundation for the next boom, I am finding it difficult to ignore all the signs that tell us otherwise. What's more, the precedents are not very encouraging: even during the Great Depression the economy did not fall apart immediately. After the initial drop, there was a brief period of recovery during which the market rallied 50%, only to start an extended decline during which stocks lost 80% of their value. And while I am nowhere near making that kind of prediction, when I look around today and see everyone dancing again, I fear how surprised everyone will be when the music stops.