Category: Current Affairs
Brazilian consumer debt
The average rate of interest on consumer lending has jumped from 41 per cent in 2010 to 47 per cent most recently in May 2011. This rise from an already elevated level reflects the cumulative effect of tightening by the Brazilian central bank in order to contain inflation.
The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011.
This compares with 16 per cent for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
In short, the cash flow burden is astronomical and rising.
We calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income…
Read more here. Loan delinquencies, by the way, are rising, and that is in a rapidly growing economy. Is it a good or bad thing that their real interest rates are twelve percentage points higher than in some of the wealthier nations?
Abramowicz on the Constitution and the Debt Limit
Section 4 of the 14th Amendment says “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
“Questioned” is pretty vague but there is certainly an argument (more here) to be made that the president could constitutionally disregard the debt limit. But disregarding the limit is only one way not to question the validity of the debt. Alternatively, one could argue that the way to keep with the constitution and the debt limit law is to cut spending or raise taxes.
Michael Abramowicz who wrote an article on the debt clause (from 1997, recently posted on SSRN) has a good suggestion to split the difference:
…a modest approach for the President to take would be not to conclude that the debt limit is facially unconstitutional, but rather that it would be unconstitutional as applied, to the extent that it would prevent payment of interest on the debt. If the President took that position, the Administration would in effect continue to raise the debt limit as necessary to make payments on the debt. But when other bills came due, if there were insufficient funds to pay them, that would not justify the issuance of additional debt. The consequences of such nonpayment are sufficiently severe that the President and Congress could continue to play their game of chicken, but the worst case scenario would be a government shutdown, rather than a default. Perhaps the President can accomplish this even without invoking the Public Debt Clause, simply by prioritizing payments on the debt over other payments that come due, but his ability to do that depends in part on the timing of revenues and expenditures, and an announcement that the President will make payments on the debt despite the debt limit statute no matter what would calm the markets.
Have a Happy July 4.
Sentences to ponder
“US interest rates are near zero, UK interest rates are near zero, Japanese rates are near zero and Brazilian rates are 12.25 per cent – I would say that’s the crux of the matter,” said Neil Shearing of Capital Economics in London.
Here is more. Is it time to short commodities?
Medicare Cost Control?
Long-time readers will know that I am skeptical of the FDA. Let’s ignore that for the purpose of this post. Now consider the following two quotes.
The FDA recommended unanimously that Avastin no longer be used to treat breast cancer, saying that the risks of the drug far outweighed any benefits.
…”Even though we have anecdotal information, we don’t have evidence that it prolongs survival or improves quality of life,” said Natalie Compagni-Portis, a patient representative and voting member of the FDA panel. In a series of four questions, the six-member panel voted across the board that the clinical trials conducted by Genentech did not provide evidence that Avastin prolonged life for breast cancer patients, nor did it improve their quality of life. The panel also recommended that FDA commissioner Peggy Hamburg should not continue to allow the drug to be used for breast cancer patients.
A strong statement from the FDA. Now compare:
Medicare will continue to cover Avastin for breast cancer treatment even if U.S. Food and Drug Administration Commissioner Peggy Hamburg decides to withdraw Avastin for such use, according to Don McLeod, a spokesman for the Centers for Medicare and Medicaid.
“The FDA decision, when it comes, does not affect CMS,” McLeod told Reuters.
How does this make sense? Does CMS have information that runs counter to the FDA’s information? If so, let’s hear it. Or is this just a turf war? What does this say about the prospects for cost control of Medicare?
A change in regime?
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
Here is more. The normal recovery pattern is more skewed toward capital than you might think, but this particular gradient is unprecedented as far as I know.
Punk’d
Excellent piece in the Village Voice (some ads nsfw) about the Ashton Kutcher-Demi Moore campaign on child prostitution:
“It’s between 100,000 and 300,000 child sex slaves in the United States today,” Ashton Kutcher told CNN‘s Piers Morgan on April 18. That, says Kutcher, is how many kids are lost to prostitution in America every single year.
…”Last month, the New York Times breathlessly confided, “An estimated 100,000 to 300,000 American-born children are sold for sex each year.”…
• USA Today: “Each year, 100,000 to 300,000 American kids, some as young as 12…”
• CNN: “There’s between 100,000 to 300,000 child sex slaves in the United States…”…
• C-SPAN: “Children in our country enslaved sexually…from 100,000 to 300,000…”
But a detailed review of police files across the nation tells another story.
Village Voice Media spent two months researching law enforcement data.
We examined arrests for juvenile prostitution in the nation’s 37 largest cities during a 10-year period.
To the extent that underage prostitution exists, it primarily exists in those large cities.
Law enforcement records show that there were only 8,263 arrests across America for child prostitution during the most recent decade.
That’s 827 arrests per year.
The article has much more detail on how an already bogus figure of 100,000-300,000 children “at risk” of prostitution expanded and then went viral.
Patents out of control
Apple has been granted an incredibly broad patent giving them monopoly rights to gesture recognition on multitouch displays.
“It covers the basic user interface concept of moving touch-screen content with multitouch gestures–not just one particular way to programmatically recognize one particular gesture for this purpose, but any or all ways to do so,” Mueller said. “This patent describes the solution at such a high level that it effectively lays an exclusive claim to the problem itself, and any solutions to it.”
Patents are supposed to increase the progress of the useful arts. But does anyone really believe that gesture technology would have been left undeveloped without the prospects of a 20-year monopoly?
Coasean markets in everything (the culture that was Sydney)
From a distance Sydney may seem like one of the world’s most desirable places to call home: a sparkling harbour, enticing beaches and a climate to die for. It’s regularly rated as one of world’s 10 most liveable cities. But, as of Friday, the state government of New South Wales will pay residents A$7,000 (£4,500) to leave it.
It’s part of a new scheme to boost the population and economy of country areas.
Here is more and for the pointer I thank Bruno Hernan. Of course by global standards Sydney isn’t crowded at all; this also relates to an earlier Megan McArdle post about whether we are willing to let our cities become much more dense.
China estimate of the day
Combined with central government debt and other liabilities such as bad bank loans, analysts estimate China’s overall explicit debt load is about 70 per cent of gross domestic product.
But some analysts believe the contingent liabilities of the government are much higher, once debts on the books of state-owned enterprises and other entities implicitly backed by the state are included.
“If you take a very broad view of the Chinese government’s contingent liabilities rather than explicit debt on the books then the number comes to well over 150 per cent of China’s GDP in 2010,” according to Victor Shih, a political economist at Northwestern University in the US. The US has a debt-to-GDP ratio of 93 per cent, while Japan’s ratio is over 225 per cent.
Here is more.
Sentence of the Day
NPR: The amount the U.S. military spends annually on air conditioning in Iraq and Afghanistan: $20.2 billion.
That’s more than NASA’s budget. It’s more than BP has paid so far for damage during the Gulf oil spill. It’s what the G-8 has pledged to help foster new democracies in Egypt and Tunisia.
Greece fact of the day
Mr. Papandreou’s first task is to persuade his governing Socialist Party to pass a bill that would save or raise about $40 billion by 2015, equivalent to 12 percent of Greece’s gross domestic product, through wage cuts and tax increases, at a time when the economy is shrinking.
To put that in perspective, spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion, considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit. And Greece has promised to generate another $72 billion by selling off prime state assets, which many Greeks consider a fire sale of national patrimony.
Here is more.
Shimon Peres on Foreign Aid
Shimon Peres gave a press conference for a small group of bloggers. He was very impressive. When asked about foreign aid, specifically foreign aid to some Arab regimes he had this to say (again a paraphrase from my notes, the clever lines are his, the order may have changed somewhat and this is incomplete).
Look, the West can’t help everyone and the regimes would be insulted if we tried. But they don’t need our help. The greatest poverty in our time has been in China and India. Did these countries reduce poverty because of our help? No. They did it themselves.
Giving is problematic. We take money from poor people in rich countries and give it to rich people in poor countries. Aid sometimes creates corruption.
And suppose we gave people computers. Would computers help? No. There is no technology without civilization, civilization is the carriage of technology. It is a matter of institutions. If a country discriminates against women, for example, no computers will help. Do you know who are the greatest opponents of democracy in the Middle East? The husbands. As long as husbands discriminate against their wives the husbands will support the dictators.
Now, however, there is a young generation who are realizing that the glory is within. The glory [of civilization] it is within their power to grasp.
Peres was also great on science, a question I asked. More on that later.
In other news Dr. Ruth criticized social media, “I like to touch my friends.”
Random Thoughts from Jerusalem
The first session of the Shimon Peres Presidential conference I am attending began strangely with a session featuring Dan Ariely, Sir Martin Sorrell, Jimmy Wales, Shakira and Sarah Silverman.
Ariely was fine, he gave his usual talk on self-control and temptation, cleverly labelled the “Adam and Eve” problem. Most interesting thing I had not heard. Just like people, rats and pigeons have a hard time resisting a short-term pleasure even at the expense of a much larger future pleasure. The interesting part is that just like people, rats and pigeons seem to know that they are making a mistake so they will pay to have the short-term choice taken away from them (like people locking their refrigerator.) Ariely,however, kept his insights on the “how to lose weight” level and didn’t attempt to address any larger issues.
Sorrell was a total bore.
Wales talked about Wikipedia, the power of voluntarism, and the Wikipedian assumption of good faith.
Shakira told us about the importance of early education. She was earnest and I’d rather hear it from her than Jim Heckman but it was still boring.
An incompetent interviewer tried to make jolly with Sarah Silverman. She was the only, however, to address real issues and was quite clever although she also told us that she really had to pee.
The opening acts over with, we then had Shimon Peres, Tony Blair, Bernard Henri-Levy and Amos Oz.
Peres at 87 is vigorous, optimistic and pro-science (“science cannot be contained by governments and flourishes most with peace.”) Impressive.
Tony Blair gave a very pro-Israel speech, even more than expected (“the model for the region”).
BHL said nothing wrong–indeed, he discussed a topic I would have discussed, democratic peace theory, albeit presented too strongly. He also noted that for decades the Libyans and Syrians have been taught that Israel is the great Satan but now the veil has been lifted and Satan is found closer to home. I find it difficult to take BHL seriously, however. No doubt the fault is mine.
The highlight of the evening was Israeli novelist Amos Oz. Oz gave a hard-hitting speech full of quotable moments (here are paraphrases but look for the speech online for a real sense). Many will disagree with the conclusions but it was still an excellent speech in delivery, allusion, and insight:
The suppression of the Palestinians is immoral and not in Israel’s genuine self-interest. The building of settlements is immoral and not in Israel’s genuine self-interest. The expansion into East Jerusalem is immoral and not in Israel’s genuine self-interest.
I love Israel even when I don’t like it.
I am not a hippy. I say make peace not love.
Why is it that the same Europeans who hate Hollywood treat the Israel/Palestine conflict with the subtlety of a Hollywood movie with bad guys and goods guys?
It’s going to be an amputation for both sides.
Oz’s speech was mostly well received by this audience of Israel’s secular/liberal elite but there was heckling especially when he said that there would have to be a two-state solution along the 67 lines (with modifications) and that Israel would have to give up biblical lands. Oddly Sarah Silverman had hit on this point earlier, “What do you want,” she asked, “acreage or values?”
Today we have Larry Summers, Dr. Ruth, and a course on game theory from Aumann. Strange but interesting.
P.S. The rugelah at the Marzipan bakery was excellent.
Not From the Onion
The headline says it all:
House keeps farm subsidies, cuts food aid
Here are some of the other provisions which seem designed just to be ridiculed by Jon Stewart:
Directs the Agriculture Department to rewrite rules it issued in January meant to make school meals healthier. Republicans say the new rules, the first major overhaul of school lunches in 15 years, are too costly.
Forces USDA to report to Congress every time officials travel to promote the department’s “Know Your Farmer, Know Your Food” program, which supports locally grown food, and discourages the department from giving research grants to support local food systems. Large agribusiness has been critical of the department’s focus on these smaller food producers.
Prevents USDA from moving forward with new rules that would make it easier for smaller farmers and ranchers to sue large livestock companies on antitrust grounds. The proposed rules are meant to address the growing concentration of corporate power in agriculture.
Delays for more than a year new rules for reporting trades in derivatives, the complex financial instruments blamed for helping precipitate the 2008 financial crisis. A Republican amendment adopted Thursday would require the Commodity Futures Trading Commission, which funded in the bill, to first have other rules in place to facilitate its collection of derivatives market data.
Prevents the FDA from approving genetically modified salmon for human consumption, a decision set for later this year.
Questions the scope of Obama administration initiatives to put calories on menus and limit the marketing of unhealthy foods to children.
Don’t get me wrong, I’d probably do away with a number of these rules as well. But anyone who argues against making school meals healthier because it’s too expensive at the same time as they vote for keeping billions of dollars in farm subsidies is not concerned about expenses. What unites the bill is not ideology but protection of agribusiness.
Perhaps the most outrageous provision was one the good guys won:
Critics of farm subsidies did score one victory: The House voted to block a $147 million annual payment to Brazil’s cotton industry. The United States agreed to make that payment last year after Brazil’s industry complained to the World Trade Organization that Washington unfairly was subsidizing U.S. cotton farmers. The United States lost the WTO case and agreed to make the payments to Brazil as a settlement.
So not only have we been subsidizing cotton farmers but we have been paying Brazil to allow us to keep subsidizing cotton farmers. Incredible. I wonder whether this provision will make it into the final bill.
Drug Shortages
WP: Doctors, hospitals and federal regulators are struggling to cope with an unprecedented surge in drug shortages in the United States that is endangering cancer patients, heart attack victims, accident survivors and a host of other ill people.
Currently there are about 246 drugs that are in short supply, a record high. These shortages are not just a result of accident, error or unusual circumstance, the number of drugs in short supply has risen steadily since 2006. The shortages arise from a combination of systematic factors, among them the policies of the FDA. The FDA has inadvertently caused drugs long-used in the United States to be withdrawn from the market and its “Good Manufacturing Practice” rules have gummed up the drug production process and raised costs.
Here, for example, is an analysis from the summary report on drug shortages by the American Society of Health-System Pharmacists (ASHP), the American Society of Anesthesiologists (ASA), the American Society of Clinical Oncology (ASCO), and the Institute for Safe Medication Practices (ISMP).
Several drug shortages (e.g., concentrated morphine sulfate solution, levothyroxine injection) have been precipitated by actual or anticipated action by the FDA as part of the Unapproved Drugs Initiative, which is designed to increase enforcement against drugs that lack FDA approval to be marketed in the United States. (These drugs are commonly called pre-1938 drugs, referring to their availability prior to passage of the Food, Drug, and Cosmetic Act of that year.) Some participants noted that the cost and complexity of completing a New Drug Application (NDA) for those unapproved drugs is a disincentive for entering or maintaining a market presence. Other regulatory barriers include the time for FDA review of Abbreviated New Drug Applications (ANDA) and supplemental applications, which are required for changes to FDA-approved drug products (e.g., change in source for active pharmaceutical ingredients API, change in manufacturer). Manufacturers described this approval process as lengthy and unpredictable, which limits their ability to develop reliable production schedules.
and on GMP:
Manufacturing-related causes that contribute to drug shortages are multifactorial. Inability to fully comply with GMP, which results in production stoppages or recalls, was considered a major cause.
John Goodman at the Health Affairs Blog explains the details:
The Federal Food and Drug Administration (FDA) has been stepping up its quality enforcement efforts — levying fines and forcing manufacturers to retool their facilities both here and abroad. Not only has this more rigorous regulatory oversight slowed down production, the FDA’s “zero tolerance” regime is forcing manufacturers to abide by rules that are rigid, inflexible and unforgiving. For example, a drug manufacturer must get approval for how much of a drug it plans to produce, as well as the timeframe. If a shortage develops (because, say, the FDA shuts down a competitor’s plant), a drug manufacturer cannot increase its output of that drug without another round of approvals. Nor can it alter its timetable production (producing a shortage drug earlier than planned) without FDA approval.
Thus, it’s not any one thing that is causing the shortages but an accumulation of rules and regulations. The system plods along when all is normal, but when a novel situation develops the market can no longer adapt quickly and efficiently. As Michael Mandel puts it:
No single regulation or regulatory activity is going to deter innovation by itself, just like no single pebble is going to affect a stream. But if you throw in enough small pebbles, you can dam up the stream. Similarly, add enough rules, regulations, and requirements, and suddenly innovation begins to look a lot less attractive.
Add to all these pebbles the fact that various price controls have become more binding over time and thus have reduced the profits from being in the business at all and you have a recipe for deadly shortages.