Tag Archives: finance

why the U.S. can’t have nice things, like health insurance

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According to this article in Vox, The United Nations has a goal of achieving universal health coverage in all countries by 2030. I doubt they were really thinking of the United States when they came up with that, but here we are.

I tend to blame the the situation on lobbying by the insurance industry, because they see public health insurance as an existential threat, and in this country of legalized corruption, big business gets to write our laws in its favor. I knew the American Medical Association, the special interest lobby for doctors, played a role, but I didn’t realize it was as soaked in disinformation and propaganda as this article makes it sound.

The AMA-WB campaign had two key components. First, they used mass advertising to associate NHI with socialism, while the private (or voluntary) insurance option was described as the “American Way”. These advertising efforts of the AMA were complemented by tie-in advertising from other industries fearing a return to war-time price controls. In addition, the strategy called on AMA doctors to discuss private health insurance with their patients and to distribute pamphlets echoing the individualistic advertising message (see Figure 1). Through local and state medical organizations, physicians looking to defray medical costs had organised their own insurance product, which came to be known as Blue Shield, and they were eager for enrolees. All told, approximately $250 million (in current terms) was spent to sway voters, an unprecedented amount for the time. Doctors were also instructed to use their prestige to urge local civic organisations to pass resolutions against national health insurance.

https://cepr.org/voxeu/columns/why-us-doesnt-have-national-health-insurance-political-role-ama

“WB” is a public relations, aka propaganda firm.

I still like to think that individually, most doctors chose the field because they care about human beings. But somehow, as an organized group, they can add up to something evil. And before I cast the first stone, yes I am also thinking about my own profession of engineering (what could be more wholesome than public infrastructure and public health – yes, water treatment probably saves more lives than all the world’s medicine, but that’s a digression) and our unholy alliance with the highway/auto/sprawl industry.

This article also takes aim at unions. By its telling, they wanted to saddle the private sector with the cost of the health care system so they had something to negotiate on behalf of their members (and therefore get people to want to be members). This is also twisted and evil.

What puzzles me a bit is that if big business is really so powerful, why don’t they want to be freed from the burden of providing health insurance? It would seem only to benefit a fairly narrow slice of the finance industry. But it appears that this slice, along with the organized lobbies of doctors and unions, has been powerful enough to keep the American public from having a real health care system for over half a century now.

what’s up with the U.S. dollar?

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The U.S. dollar has declined sharply against the Euro, a basket of major currencies, and gold since mid-May. What does it mean? I don’t know, you should ask the experts! But I’ll try to figure it out.

First, the actual numbers. The dollar has declined sharply, but the actual exchange rate at the moment is around the middle of a band the dollar has traded in since 2014 or so, and it has declined sharply during that time only to recover. So the fluctuations could be random about some long-term mean, or in response to events, but followed by a reversion to the mean with random fluctuations thrown in.

Second, the textbook answer to whether a strong (or weak) dollar is good or bad. All other things being equal (which they are not), investors would trade other currencies for U.S. dollars if they could get a better interest rate on U.S. dollars than on their home currencies. This might be the case in recent years, as interest rates have been low around the world, and even negative in Europe, but slightly higher in the U.S. All other things (including interest rates) being equal, investors in other countries would trade their currencies for U.S. dollars if they thought this was a safe place to put their long-term savings. Most governments (maybe the Swiss) don’t actually keep enormous vaults full of gold bars hidden under mountain fortresses any more. This has been exactly the case since the 1997 financial crisis, with developing countries and China in particular buying and stashing enormous quantities of U.S. dollars. This might be changing for a few reasons. China may be gaining more confidence in its own currency. Europe has decided to pull together and start backing its currency with EU bonds rather than just bonds from individual countries. Countries also have the option of holding baskets of foreign currency rather than just the U.S. dollar, and also the option of forming sovereign wealth funds with more diversification and potentially much higher returns than currency reserves alone. Finally, the long-term health and stability of the U.S. financial and political systems look shakier than they have in a century or so.

Third, is it good? It’s good for exporters, bad for ordinary people paying higher prices for things that have to be imported, maybe good for home-grown industry which could be more competitive with pricier imports. It’s bad for Americans living and traveling abroad, as I found out from personal experience, but that is a small fraction. So on balance, the main risk domestically seems to be price inflation, and that seems somewhat unlikely in the midst of a historic recession. Exploding debt and low or no growth for an extended period of time could lead to a problem making interest payments down the road, but we need to get through the current crisis before there is a long term to worry about.

@RealObamaCareForecast

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The Congressional Budget Office has a new forecast of the fate of Obama care over the next 10 years. And the verdict is…the system is not in a death spiral. Premiums are forecast to rise faster than inflation, which is bad, and the number of people without insurance is forecast to rise slightly, which is bad unless you believe for some reason that these people are not entitled to the same human rights you are entitled to, for whatever reason, but that system is “stable”, i.e. not in a “death spiral”

The paragraph below caught my eye for a couple reasons. First, Obama care is only 10% of all government health care expenditures. Medicare is also only about 10%, which is amazing and I suspect almost everyone has the wrong idea about that. Medicaid and the Children’s Health Insurance Program are a whopping 40%.  Subsidies for corporate health insurance are the remaining 40%.

Net federal subsidies for insured people in 2018 will total $685 billion.
That amount is projected to reach $1.2 trillion in 2028. Medicaid and the
Children’s Health Insurance Program account for about 40 percent of that
total, as do subsidies in the form of tax benefits for work-related insurance.
Medicare accounts for about 10 percent, as do subsidies for coverage
obtained through the marketplaces established by the Affordable Care Act
or through the Basic Health Program.

So what surprises me is that we are covering the elderly pretty thoroughly and pretty cost-effectively, while coverage for the poor seems to be both inadequate and extremely cost inefficient. And certainly, the system of hidden tax subsidies for corporate workers is grossly inefficient. So why does the public put up with all this? First, old people love to complain but at the end of the day they are reasonably well taken care of at a reasonable price. Upper-middle-class professional workers receive high quality care and don’t realize how heavily-subsidized and cost-inefficient that care is. These two groups make up a lot of the swing voters. The majority of those swing voters have bought into the decades of neo-fascist propaganda that the poor are undeserving for one reason or another, and therefore their sense of natural human empathy is damped down. and the poor themselves are not politically mobilized. Big business in general might be just as happy for government to take the responsibility for health coverage off their shoulders, but they are not really disadvantaged financially by the present system so they don’t fight it. The big exception of course is the insurance/finance industry which benefits directly from the inefficiencies of the current system, and certainly is politically mobilized.

sustainability risk

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HSBC publishes its “sustainability risk policies” (a public version of them anyway). They are fairly general, but what I find interesting is that they follow various international conventions from the UN, World Bank, and others in making lending decisions. Examples include the Paris convention and the Ramsar wetland convention. So even if politicians in certain countries deride these international bodies and conventions as being a lot of hot air, they can in fact have a large impact when adopted widely by public and private actors around the world.

bond ratings and climate change

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Even if the U.S. federal government officially doesn’t believe in climate change, the municipal bond industry officially does believe in climate change.

In a report to its clients Tuesday, Moody’s Investors Service Inc. explained how it incorporates climate change into its credit ratings for state and local bonds. If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default…

In its report, Moody’s lists six indicators it uses “to assess the exposure and overall susceptibility of U.S. states to the physical effects of climate change.” They include the share of economic activity that comes from coastal areas, hurricane and extreme-weather damage as a share of the economy, and the share of homes in a flood plain…

Bloomberg News reported in May that towns and counties were able to secure AAA ratings despite their risks of flooding and other destruction from storms, which are likely to be more frequent and intense because of climate change. If repeated storms and floods are likely to send property values — and tax revenue — sinking while spending on sea walls, storm drains or flood-resistant buildings goes up, investors say bond buyers should be warned.

S&P green rating

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Standard and Poor’s is coming out with a new rating system for the green-ness of bonds.

Our proposed Green Bond Evaluation methodology looks beyond the governance and management of a bond by providing an analysis and estimate of the environmental impact of the projects or initiatives financed by the bond’s proceeds over its lifetime relative to a local baseline. This would be in addition to assessing the governance and transparency surrounding the bond. When evaluating environmental impact, the methodology would consider both climate change mitigation and adaptation projects.

Mitigation projects focus on efforts to reduce or prevent the emission of greenhouse gases, ranging from upgrades to conventional generation projects to new renewable energy and energy efficiency initiatives. Adaptation projects aim to take practical steps toward reducing the exposure to and managing the impact of natural catastrophes, such as building the resilience of communities and critical infrastructure against an increased risk of extreme weather events due to climate change.

The output of the Green Bond Evaluation would include at least three scores (a Transparency score, a Governance score and a Mitigation score and/or Adaptation score, as relevant…

An interesting question is whether the idea is that investors would expect to make more on a green investment, or whether some investors would be willing to settle for less in exchange for the satisfaction of having a positive impact. Borrowers would have a financial incentive to be good if doing so meant a lower interest rate, which kind of supports the latter possibility. Exactly why the rating agency itself is motivated to do this was unclear to me. But after digging into the paper a little, it looks like governments and companies will have an incentive to show that they are complying with the Paris agreement, so that may be part of what is driving this.