It's Still The Economy, Stupid

Friday, July 16, 2004  

Retail Sales and Inflation
Retail sales declined 1.1% in June, reversing a revised (downward) 1.4% gain in May.  The trend of retail sales growth is downward, which started well before any effect of the Fed's recent interest rate hike.  The LA times attributed the decline to energy costs
The current official savings rate is around 2%. Not counting "imputed rent", that figure is around -5%.  The nonfinancial sector added $2.2 trillion in debt between the 1st quarter of 2003 and 2004, which means that around 20% of GDP is being generated by borrowing.  Plugging in the numbers, mortgage debt of $7 trillion, an average interest rate of 6%, 2/3 of Americans owning their own homes, and wage income of $5.3 trillion implies that on average, 12% of wage income go to mortgage payments each month.  Add in property taxes and principal, and that figure rises to about 20%.  Factor out a large chunk of older Americans who own their homes free and clear and the number rises higher still.  There is very little room in family budgets to absorb higher consumer prices.  At this point, rising prices in one area immediately digs into retail sales elsewhere.
Consumer prices rose 0.3% in June.  The bond market is rising solely because this number is less than the 0.6% rise in May, but the year-over-year rise in consumer prices increased to 3.3% in June from 3.0% in May, 2.3% in April, and 1.5% in March. That doesn't look like an inflation threat that is diminishing to me.  I suspect the bond market reaction is more speculative in nature (lots of short covering, perhaps) than any fundamental reaction to inflation.  (And you can take your "core index" cookie and stick it up your, hey!  I don't fill up my gas tank with Pentium IVs)
In any case, the yield curve is flattening and this is not good in the short, medium or long term for those playing the curve.  In any case, the dollar is down significantly today against most currencies, which doesn't indicate any foreign central bank buying.  Gold, another inflationary barometer, is up $3.30 today.  If we use the CPI to deflate retail sales, growth is shrinking even faster than the nominal figure.

posted by Teddy | 9:03 AM |

Tuesday, July 13, 2004  

I'm sick of this and I'm sick of you.

Village Voice on the health-care crisis effects on young workers, who often either aren't offered coverage or can't afford care.

America's approach to paying for medical care stretches back to World War II, when regulations made accident and health insurance for employees tax-exempt. Meanwhile, a simultaneous wage freeze and worker shortage encouraged employers to offer insurance as a perk to attract labor, explained Ken McDonnell, a research analyst with the Employee Benefit Research Institute.

During the same period, England instituted universal coverage. The reasons we didn't are a complex knot of social and political influences now nearly impossible to untangle. "I think part of it is who's being served here. In more homogeneous societies, like in Scandinavian countries, [universal health care] came as a no-brainer," said David Jones, the president of the Community Services Society, a New York nonprofit. "But we're not homogeneous. There's a sense that 'We've got ours, I'm not sure I want to give it to those guys.' "

As employer-sponsored insurance took hold, the number of uninsured dropped steadily, reaching an all-time low of 23 million in 1976. But the very availability of good care quickly drove premiums up. In the 1980s, health care costs exploded, with annual increases peaking at 18 percent in 1989, before slowing briefly in the 1990s. Increases hit the double digits again in 2001, and reached 13.9 percent last year.

Perhaps not surprising, companies began to balk at providing benefits, leading individuals—the self-employed, the unemployed, the employed but not covered—to go it alone. Reforms designed to help the older and sicker buy private insurance served to further squeeze the able-bodied but vulnerable. Prices today are all over the map. A young, healthy adult in California can find basic catastrophic coverage for under $100 a month, but the same person would have to pay $280 for a similar plan in New York, largely due to differing state regulations.

I'm not sure what policy they refer to, but sign me up! My crappy basic coverage is $150 a month, but that's my 25% contribution. The total bill is $600 a month, and that's for a pretty big company which (I assume) has some leverage on price. Meanwhile...

For Lars Russell, in his early twenties, the cost of health insurance came as a shock. He graduated last year from the University of Michigan and moved to New York. "It's not really anything I can afford," he said in November. "I don't even have car insurance right now."

Russell would get little sympathy from McDonnell, the benefits research analyst. "That's life," he said, when asked about the huge number of uninsured young adults. "If you're young and healthy, you're going to take risks. It's life everywhere."

McDonnell cited an unwillingness to pay for insurance as a big reason young adults go without coverage.

It's a fine line, however, between being unwilling to pay even $100 a month and being unable to. And it's significant that when offered health insurance by an employer in exchange for a deduction from each paycheck, 74 percent of young adults take it, just a hair less than the 79 percent of older adults who do the same. "The argument is that if it's that important to you, then get a job that offers health insurance," said McDonnell, who, like so many experts on health care issues, is over 35 and has long had jobs with good benefits.

I've got a cuppa STFU ready for you, Ms. Russell. Who's gonna pay when Lars ends up in the emergency room for an appendectomy? Yep. It's coming out of your wallet. And the more people that bail out of the system because of cost raises the bill for you too. If, as the logic goes, healthy young people don't buy insurance, that means there's a much older and sicker risk pool that the industry still has to make a profit on. Does that make it clear why more people are uninsured and rates are going up 20% a year? Maybe if this principle is clear, you could explain it to those running the DC metro system.

There's a reason why single payer works in every developed nation but our own. No country pays more than 11% of their GDP on health care. We pay 15% of our GDP. There will always be complaints about their systems, but you won't be able to convince anyone in Canada, England, Germany, etc to dump their system for ours.

posted by Teddy | 12:53 PM |