Gathering the Facts on Healthcare – an Introduction
In recent months, much of my day-job has dealt with analyzing a fairly specific problem in the healthcare field. Doing this research has led me to become more interested in the far more politicized debate about healthcare reform in this country – particularly those aspects having to do with cost management and the national budget deficit.
As an agnostic on the topic of healthcare reform, it occurred to me that I could perform a useful service by simply trying to gather relevant facts about this debate. I doubt any facts are going to make me a believer, one way or another, at this point; I’ve seen too much already to think that there’s a simple or even a complex solution to this very intractable problem.
Nonetheless, over the coming weeks I’ll be posting bits and pieces of what I see, in what should mostly be bite-sized amounts. For starters, I’d like to recommend recent blog posts by two people who have demonstrated a strong commitment to facts over ideology when it comes to this debate:
Dave Schuler on the recent trade organization proposal to decrease price increases.
Tyler Cowen on direct payments for autism treatments.
~ Maxwell
One ($5 Billion) Promise Too Late
Nearly lost in yesterday’s hubbub over swine flu and pork traders was the most recent update on the auto industry’s flailing. Apparently Chrysler, in one more last-ditch effort to avoid bankruptcy, will now be 55% owned by the UAW in exchange for renegotiation of workers’ pension funds. I find this decision rather sad.
It’s not widely known, but for a brief period in the early 1980’s Chrysler actually had an employee stock ownership plan (as did the other members of the Big Three, IIRC). Corey Rosen, head of the National Center for Employee Ownership, tells the story of its arrival and demise. Basically, the union never really got behind the concept, and demanded the company buy the stock back in 1985. The size of the plan was $162 million at its inception in 1981 – then 16 percent of the company’s value at the time- and each employee received $8200 when it was ended, roughly $16,000 in today’s dollars.
Now, look at the numbers today. 26,000 employees get 55 percent of the company in exchange for relinquishing $5 billion in retirement benefits. But Chrysler isn’t worth $5 billion right now – in fact, it probably isn’t worth $1 billion (hard to say, since the company is majority owned by a private equity firm, but its peer GM has a market cap of $1.12 B right now, and is a larger company).
So at the very best, that 55 percent equity stake is worth $500 million or so – basically as much as what they sold their 16 percent for over two decades ago. And that’s without looking at the lost retirement benefits. By any standard, this is not a very good deal for the automotive workers, and its chances of saving the company at this point are slim.
It’s pointless to gripe about what might have been, but it’s hard not to wonder whether things might be different now had Chrysler’s ESOP not been dissolved. As this article points out regarding GM, the right employee ownership plan could have offered one way of proactively bridging the gap between management and labor with regard to retirement benefits and salaries. There is also a small but growing body of research demonstrating a positive correlation between corporate performance and employee ownership, especially when paired with open management practices.
I believe that the future of the labor movement – and it does have a future – will be based on fostering employee ownership and workforce development. But this particular example has probably come far too late.
~ Maxwell
This is going nowhere good
“Without intimating a view on the ickiness of what Mr. Wolf had described, Chief Justice John G. Roberts Jr. suggested that the law might treat different undergarments differently. ‘The issue here covers the brassiere as well,” he said, “which doesn’t seem as outlandish as the underpants.'”
A modest proposal
Resolved: a top marginal tax rate of 90% on all income to elected representatives, including of course campaign financing and “gifts” to friends and family.
We then use the proceeds of that tax to bail out the legacy media companies on a perpetual basis.
Motion to approve?
Foolish Games
In the news today: PepsiCo has apparently offered to purchase two of its largest bottlers for a cool $6 billion, 17% above their market price.
Those of you who haven’t religiously followed the financial markets for the past fifteen years may be wondering: “Why doesn’t Pepsi actually own its bottlers already?” Good question! The answer is that over a decade ago, Pepsi followed its rival Coca-Cola in selling off all most of its bottling operations, while keeping enough equity shares to maintain control over these companies.
The reason? Thanks to a number of factors including agricultural subsidies, fructose water with bubbles is a much more profitable product than glass or plastic bottles with said product in them. By “outsourcing” bottling, the soda companies could post extraordinary profits (for a number of years, Coke’s return on assets averaged 18%), thereby attracting increased investment and vigorously expanding their marketing and R&D efforts. All the while keeping the massive bottling plants – whose annual depreciation costs would otherwise constitute a massive sinkhole in the corporate profits – off the books. The continuing equity stake minimized the impact of these losses, while still giving Coke and Pepsi’s corporate headquarters a high level of control over the actual decision-making at these operations.
At the time, this was actually something of a financial scandal – you can read more about it here for the gritty details. It never really amounted to much: everything they were doing was legal if not exactly kosher, though it tied more than a few investors’ brains into knots. But it made for an excellent Harvard Business School case study, and was a primo example of the late 90’s craze for outsourcing everything that’s not essential – even if it is, in fact, essential.
So Pepsi’s announcement today may very well signify the end of that particular era, and one form of financial shenanigans that characterized it. It’s not surprising that Pepsi rather than Coke would be the first to move on this – their corporation is far more diversified in terms of products and revenue streams. And while both companies remain profitable, legal threats suggest that the writing may be on the wall for overly-sweetened fizzy beverages.
~Maxwell
Riddle Me This
Everything I’ve read about caps on executive pay suggests that such measures are at best a bad joke. Not only do such measures impinge on the freedom of the marketplace*, but they are also impossible to enforce. Salaries can become bonuses, bonuses can become salaries. Executives can be compensated $1 on payroll, along with $9,999,999 in “consulting services.” And so forth.
So given this theory: why is the management of Goldman Sachs claiming that they are going to pay off their TARP financing as soon as possible? As this fellow points out, they have other obligations that constitute a greater burden on shareholder returns. Surely the executive compensation limits imposed by this financing are no burden for them to work around, right**?
* Presuming, of course, that the pay of finance industry CEO’s is presently determined by an actual market, rather than through cronyism laden with conflicts of interest.
** Never minding, of course, that as responsible agents under effective corporate governance they would NEVER put their own needs above those of their principals.
~ Maxwell
A Grammarian’s Cri de Coeur
The nation’s collective groan over yesterday’s tax deadline, along with the protests that attended it, may have overwhelmed the more cultish significance of today’s date – the 50th anniversary of the publication of The Elements of Style by William Strunk and E.B. White. But if this little book’s birthday does fail to make the news tonight, there’s at least one vital constituency who won’t be disappointed. In a memorable rant, grammarian Geoffrey K. Pullum dishes the dirt:
The Elements of Style does not deserve the enormous esteem in which it is held by American college graduates. Its advice ranges from limp platitudes to inconsistent nonsense. Its enormous influence has not improved American students’ grasp of English grammar; it has significantly degraded it.
Pullum’s article is far more than your typical ad libris, because he seeks to restore some respect for a venerable institution, one much damaged by Strunk and White’s best-seller – the passive voice:
We are told that the active clause “I will always remember my first trip to Boston” sounds much better than the corresponding passive “My first visit to Boston will always be remembered by me.” It sure does. But that’s because a passive is always a stylistic train wreck when the subject refers to something newer and less established in the discourse than the agent (the noun phrase that follows “by”).
For me to report that I paid my bill by saying “The bill was paid by me,” with no stress on “me,” would sound inane. (I’m the utterer, and the utterer always counts as familiar and well established in the discourse.) But that is no argument against passives generally. “The bill was paid by an anonymous benefactor” sounds perfectly natural. Strunk and White are denigrating the passive by presenting an invented example of it deliberately designed to sound inept.
Moreover, he damningly points out that The Elements of Style demonstrates a miserable understanding of the passive voice, offering four examples of its use of which three are actually in the active voice. They also fail spectacularly to take their own advice:
“Put statements in positive form,” they stipulate, in a section that seeks to prevent “not” from being used as “a means of evasion.”
“Write with nouns and verbs, not with adjectives and adverbs,” they insist. (The motivation of this mysterious decree remains unclear to me.)
And then, in the very next sentence, comes a negative passive clause containing three adjectives: “The adjective hasn’t been built that can pull a weak or inaccurate noun out of a tight place.”
That’s actually not just three strikes, it’s four, because in addition to contravening “positive form” and “active voice” and “nouns and verbs,” it has a relative clause (“that can pull”) removed from what it belongs with (the adjective), which violates another edict: “Keep related words together.”
The most striking aspect of Pullum’s critique is the extent to which its echoes reverberate into the present day. As he points out, Microsoft Word’s grammar checker automatically underlines every passive construction in a document, even if it is gramatically correct. But beyond that, Strunk and White’s “overopinionated and underinformed little book” eerily fortells the bloviating world of blogs, text messages, and Twitter, where factual (and needless to say, grammatical) accuracy frequently matters less than the frequency and forcefulness of assertion.
– Maxwell James
Ambiance 