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Wednesday, June 1, 2011

Italy Feels Alone in African Immigrant Crisis

Latest fishing vessel to be rescued by officials carries more than 900 immigrants from sub-Saharan Africa

Source: http://www.voanews.com/english/news/Italy-Feels-Alone-in-African-Immigrant-Crisis-122869539.html

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An Honest Conversation about Medicare

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House Speaker John Boehner this week called for "honest conversations" about Medicare.

Fair enough. Let's begin this honest discussion by admitting no one knows for sure how to reduce Medicare costs. And that's a problem, because Medicare expenditures are projected to grow almost 6% a year for the rest of the decade.

To understand why program costs are exploding, you just have to look through the annual Medicare Trustees report on the financial condition of the program. The 2011 report comes out on Friday, but it will surely have the same analysis you can find in all the other reports. If you want to engage in this honest discussion, a good place to start is on page 45 of the 2010 report. There you will find the four trends driving Medicare costs:

Growth in the number of beneficiaries
Increases in the prices paid per service, which reflect both higher wages for health care workers and higher prices for the goods and services purchased by health care providers
Increases in the average number of services per beneficiary ("utilization")
Increases in the average complexity of services ("intensity")

Let's take these one at a time. The number of Medicare beneficiaries will soar over the next 25 years, rising from almost 49 million this year to 85 million in 2035. The only way to cut costs here is to kick people out of the program. I don't see that happening.

Wages and prices are the next cost driver. Only two things can be done here. Lower wages for doctors and nurses or make them more productive -- meaning get more work out of doctors and nurses then you get today.

Congress tried to lower wages. It capped payments to physicians using a formula. But when the formula became too tough, forcing deep cuts in wages, Congress relented. Thus the "doc fix" was born. Meaning, Congress voted to pay doctors more. I am not arguing the merits of the formula here, just pointing out that the effort failed.

What about productivity? No surprise, it is harder to measure productivity in a hospital than it is in an auto plant. The hospital's product is good health and an outcome like that is hard to quantify. There is no dispute though that if you could accurately measure health care productivity, it would be low and perhaps even negative!

Some studies found as much as one-third of the spending in our health care system does not improve health, adding up to a staggering waste of more than $700 billion.

What can be done about this? The President has created a panel of experts to study ways to use new payment systems to reward innovation and more efficient treatment of disease.

A worthy goal, but as the Trustees Report points out, efforts to eliminate waste and increase productivity through payment and delivery system reforms:

"These outcomes are far from certain . . . . Many experts doubt the feasibility of such sustained improvements and anticipate that over time the Medicare price constraints would become unworkable and that Congress would likely override them, much as they have done to prevent the reductions in physician payment rates otherwise required by the sustainable growth rate formula in current law."

Republicans want to give consumers more power to choose efficient plans on the theory that this will reward innovation and efficiency. But what happens when the "premium support" payments that Republican propose fail to keep up with the cost of health care? The same thing that happened to physician payments. Congress would likely override them too.

The real problem in Medicare comes when we get to cost drivers three and four. Health care costs are driven by people using more services and more complicated services -- utilization and intensity. In other words, Medicare beneficiaries see health care providers more often and those health care providers are performing more expensive tests and surgeries using new technologies.

Now we are at the heart of the Medicare cost problem. If we're being honest, we must change the way we deliver and consume health care. This is not something that happens overnight or because a bill is written in Washington. It will require constant innovation and reform. We will have to get better at determining which treatments improve health and which do not.

The Brookings Institution's Barry Bosworth put it well in an email: "I think the basic problem is that we cannot say no."

Are we willing to change that? And if not, are we willing to pay for Medicare's rapid growth?

You can having an honest conversation on Medicare means confronting some very difficult questions.

Source: http://www.pbs.org/nbr/blog/2011/05/an_honest_discussion_on_medica.html

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A Good Jobs Report with Some Noise in the Number

Let's start out with this: Economists were expecting a soft jobs number for April. Somewhere between 150,000 and 200,000 jobs. We got 268,000 private sector jobs and hiring for previous months was revised upwards. Hours were up, a good sign that employers might have some incentive to bring on new workers.

But! There are two sides to an employment report. The government surveys employers to figure out how many people are hiring. And then the government surveys people to figure out how many are looking for work, how have given up looking for work, and how many say they have a job. Divide the number of people who say they are unemployed by the number of people in the labor force and you get the unemployment rate.

If the economy is creating jobs, why did the unemployment rate tick up to 9%? Some of this appears to be statistical noise. Here's what I got back from Daiwa Capital Markets' Michael Moran when I asked him about this:

"I view it as just a random shift. To me, the surprise was how fast unemployment was declining given the growth of the economy. The economy grew only moderately in Q4 and Q1, yet the unemployment fell a full percentage point from November. The quick decline was probably an aberration, and now we are coming back to reality."

The Household Survey conducted by the Bureau of Labor Statistics found the number of jobs in the economy fell by 190,000 last month. Unemployment went up by 205,000 jobs. Should we believe it? Well, consider that the Labor Department surveys about 50,000 households, but 400,000 employers.

There is a lot more information in the April employment report from employers. Which is why Mark Zandi at Moody's Analytics is taking this view:

"The Household survey results are very volatile month to month due to the small number of households that participate in the survey. Since the job recovery began at the start of 2010, the job gains in the household and payroll surveys are very similar."

Bottom line: Don't worry, be happy -- a little. We still are in a deep hole and there are still 5.8 million people who have been unemployed for more than six months. We need to dig out faster, but we are digging.

Source: http://www.pbs.org/nbr/blog/2011/05/a_good_jobs_report_with_some_n.html

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Just How Are Those Inflation Expectations Set?

Consumer and investor expectations for inflation are so important that Federal Reserve Chairman
Ben Bernanke mentioned them 17 times at his first-ever news conference. Congress has charged
the Fed with maintaining price stability, so it is understandable that the Fed Chairman would
watch inflation expectations closely.

The problem is that economists are not certain how inflation expectations are formed, which
stymies efforts to influence those expectations.

Research by Harvard Economics Professor Greg Mankiw found that consumers and investors
often have widely different expectations for inflation and often base those expectations on only
narrow aspects of economic news. Even with these limitations, many experts contend that these
expectations cannot be ignored

In an email, Mankiw writes, "[Inflation expectations] matter because they affect behavior, even
if people are not fully rational in forming their expectations. But it is surely a topic about which
reasonable economists can disagree."

One of those disagreeing economists is Wrightson ICAP's Lou Crandall. Crandall says, "One of
the biggest criticisms of the way the Fed talks about its policies is that it seems to have this very
rigid, unrealistic notion of what inflation expectations are and how they operate. I don't think
they are inflation expectations, I think they are only inflation anxieties."

Crandall says Bernanke and others should factor inflation expectations into their decisions in "a
general way," rather than relying on a specific number derived from a survey.

However inflation expectations are set, Chairman Bernanke is determined to see that they
remain "well anchored," even if it is not always clear what they are anchored in.

Source: http://www.pbs.org/nbr/blog/2011/05/just_how_are_those_inflation_e_2.html

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