We Lose Money on Every Car We Sell But Make It Up In Volume or The Accountant Ascendant

April 30, 2009

I was flabbergasted when I reread the following piece originally published in 1997. It outlines our current economic plan. I had no idea that our future president read Lubbock Magazine 12 years ago. But don’t impute any bitterness to my remarks. I’m perfectly willing to let him take all the credit for the plan I outlined.
NK

Losing money on every car but making it up with volume was the marketing strategy mockingly attributed to General Motors a generation ago. Surprisingly it turns out to contain the key to the closest universal truth yet promulgated by our fallible species; i.e. if you control the numbers you control the world. You can make people retroactively happy. You can do anything.

Consider Social Security. It appears to be growing broke. The realities of American life seem to preclude discussion of this problem by anyone in authority; so federal commissions are threatened. Whenever the government sets up a commission to deal with something important they are embracing the white feather. Yet the accountants are quietly rushing to the rescue with a fix breathtaking in its simplicity and implications. They propose, as you may have heard, that the government which annually adjusts Social Security payments for inflation has been systematically overestimating the inflation rate and thus the cost of living increases given Social Security recipients for decades. Reducing the annual cost of living increase by 1.1%, which is what the accountants believe the inflationary overestimate to be (actually they picked 1.1 arbitrarily from a range of 0.6 to 1.8%), eliminates three quarters of the Social Security shortfall projected to occur when the baby boomers retire (baby boomers has the same resonance as a murmuration of marsupials). No pain, lots of gain. But think about the implications of this adjustment.

Readjusting inflation downwards over the past few decades requires rewriting a lot of history. If inflation has been less than stated by more than 1% a year, the wages of American workers have gained ground over the past 20 years, rather than the reverse. In other words, their real wages have been much more than they thought. All those workers who have been unhappy with their economic lot will have to become retrospectively happy. Alternatively, they could sue someone for making them unhappy when they should have been delirious with delight. No wonder Bob Dole lost; he was telling us we should feel worse than we do when the truth is that we really should feel better. Bill Clinton will have to renounce the pain he felt four years ago even though it got him elected.

Alan Greenspan and the Federal Reserve will also have to redo the past. They have been fixated on the inflationary effects of too rapid economic growth. They threaten to raise interest rates any time the gross domestic product seems to be growing faster than a coral reef. Well it turns out that the economy has been speeding along like a runaway race horse without any impact on inflation and without the Fed knowing what was happening ever since Jimmy Carter decided to make being an ex-president his life’s work. The truth seems that we can safely lower interest rates without penalty until the banks are almost paying us to take their money.

Having shown that the accountant is omnipotent, I will now use the magic and romance of double entry bookkeeping to show how we can spend ourselves rich, which is the so far unrealized goal of every liberal democracy. Not too long ago Time or Newsweek, they’re indistinguishable to me, was carrying on about depression at such length that I was getting depressed until a dollar sign caught my eye. Depression (the disease not the economy) was said to be costing the country around 100 billion dollars annually. I was very impressed; that amount is more than 10% of the national medical care bill. I decided to see what other diseases were costing us. Of course I couldn’t consider diseases as obscure as acute intermittent porphyria, but I did tally the cost of every disorder that had at least one special interest group devoted to it.

Imagine my surprise when I discovered that the direct and indirect costs of disease in America come to three times the gross domestic product, (GDP is currently about 7.5 trillion dollars). Here was a real investment opportunity. Most experts have been worried about the high cost of American medicine, about 15% of GDP. They want us to spend less. It should be obvious that we should spend much more. If we triple or quadruple what we spend on medical research and health care we should eliminate human disease, or at least vastly reduce it. Let’s think positively and assume we’ll cure or prevent everything. This would raise our national income from about seven and a half trillion dollars to about 30 trillion. All this for a measly cost of three to four trillion.

Medical care is, of course, just the start. Everything we do costs something. I’m sure that when these costs are calculated they will also exceed what we spend on them, though I admit some of them might not exceed GDP. Biggies like pollution and occupational injury will likely amount to a multiplier of national income, however. Thus, we must increase spending on the environment until we are blue from cleanliness and eliminate every hazard from life until accidents are impossible. Another gigantic economic benefit that also needs to be factored in is that this spending on medical care, pollution, occupational safety, etc will create new businesses and jobs. More entrepreneurs will become billionaires, most of us can become as rich as Bill Gates. Unemployment will be a mystic memory.

I hope you see how the conservatives have gotten everything backwards. Rather than reducing spending and taxes we should increase them. Taxing and spending can only make us rich because the more we spend the more we make, just like GM.

By spending more and more we can only increase our net income. Accurate accounting holds the solution to everything; the more something costs the more profit there is in it if only we will invest in America. Dr Pangloss didn’t quite get it right. I envision a future that is better than the best of all possible worlds. Future columns will discuss investment opportunities in the Brooklyn Bridge, the Philosopher’s Stone, and perpetual motion.

Originally published in Lubbock Magazine (February): 22-23, 1997. (Also posted under “Commentary”)

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A Tax on Reason

April 28, 2009

The New England Journal of Medicine continues its move towards less personal liberty and more paternalism. Ounces of Prevention — The Public Policy Case for Taxes on Sugared Beverages serves as a text on how academia and government government are certain that they know how the rest of mankind should behave. It’s up to the enlightened and informed to force the public to act properly regardless of whether they want to or not.

The piece can be summarized thus: Americans are too fat. Part of the reason they’re overweight is they drink too many sugared beverages. We’ve told them to drink less of them but they don’t listen. Therefore we (possessed of superior knowledge) must force the witless public to consume less by taxing these wicked drinks.

There’s so much wrong with this short article that I’d have to write a rebuttal longer than the original to cover all its demerits so I’ll just hit the highlights. I’m not a fan of ad hominem attacks but the background of the authors is pertinent. Kelly Brownell, PhD is is a professor and director of the Rudd Center for Food Policy and Obesity at Yale University while Thomas Frieden MD, MPH is the health commissioner for the City of New York. Thus both are concerned with man in the aggregate. People who view the big picture seem typically to lack sympathy for man as an individual. They naturally favor top down solutions to herd problems. This is fine when you’re dealing with an outbreak of typhoid fever or the swine flu, but such an approach to complicated human behavior like overeating almost invariably leads them to mischief.

They see obesity and a lot of other human behavior in terms of an epidemic. They go from the narrow confines of epidemiology’s approach to infectious diseases to using the same tools to “solve” behaviors they see as undesirable. They discern no difference in the approach to a polio epidemic and an “epidemic” of obesity. They almost uncontrollably turns to coercion as the solution to unhealthy behavior.

The coercion advocated by Brownell and Frieden is the tax code. They view taxes not just as the means to raise revenue for the government, but as an instrument to force people to act as they deem best. Such a use of the tax code is hardly unique. Every social democracy of the West uses it this way. It’s one of the reasons that the tax code is such a monstrosity. But its commonality does not render its impact less onerous.

Their initial justification for a tax on soda is that it makes you fat and obesity leads to illness which then raises the cost of publicly funded medical insurance. If this is sufficient reason to tax behavior unapproved by B & F we’re in for a lot of taxes. Make rounds on any busy teaching hospital, something they either have never done or have not done for a long time, and you’ll find that most of the patients there are largely responsible for their own ailments. Using their logic we should tax not taking your medicine as prescribed, missing clinic appointments, not getting inoculations. Then raise the gasoline tax, not just to protect the environment or reduce oil imports, but to discourage driving; there are so many reckless drivers who cause accidents that cost Medicare and Medicaid money that reducing driving would inevitably decrease the 40,000 deaths from auto accidents that happen every year, ie fight the epidemic of traffic deaths.

Tax salt as too much of it may raise your blood pressure and exacerbate a slew of cardiovascular diseases. The obesity epidemic is small beer compared to the hypertension epidemic. Upwards of 50% of the adult population is at risk for high blood pressure. Tax salt like alcohol or cigarettes and we can fund Medicare until General Motors returns to profitability, ie forever.

B & F propose that the the revenue generated by taxing Coke and Pepsi be used to subsidize the purchase of “healthful” foods. What are “healthful” foods? Well assuming you’re getting all the vitamins and minerals needed to prevent deficiencies of the same there is no such thing or everything is. Under these conditions a calorie is a calorie. If you want thinner people they need to take in less calories irrespective of source. Thus don’t limit the tax to soda; tax all food. Make a trip to the supermarket really painful. It’s for our own good. The government needs to make us eat less, even if they have to cram it (taxes) down our throats. Food is too important to be left to the unregulated whims of the public.

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The New Flu

April 26, 2009

Medicine and microbes are engaged in a constant arms race. We develop a new treatment they counter with a mutation that defeats the treatment. The war never seems to end. Whether at some distant date human ingenuity will triumph over blind dumb natural selection is problematic. Of course we may lose.

The latest outbreak is a new variant of swine flu (A H1N1) which combines elements of swine virus with those from human and avian viruses. Strictly speaking a virus is not a living organism; rather it’s a piece of genetic material that closely resembles computer code. It gains entry to a cell and alters the workings of that cell such that the cell makes more copies of the virus which in turn spreads and may harm or kill other cells.

The current flu infestation seems to have started in Mexico, but is now showing up in the US. I’m not aware of any American fatalities thus far, but a number of Mexicans have succumbed to the disease. Worrisome is that prior contact with pigs does not seem to have occurred in some of these cases. Person to person spread seems the vector.

What can we do to prevent spread of the disease? In all honesty, not much. What’s recommended is not coughing in other peoples faces, hand washing, and staying home when you seem to have the flu. This will give people a certain sense of control and purpose, but is unlikely to have any real effect on a flu epidemic or pandemic. I was walking through a teaching hospital a few years ago with one of the country’s best infectious disease specialists and we both observed one of the myriad signs in all hospitals urging doctors and nurses to wash their hands. He smiled, shrugged his shoulders and said, “We live in an ocean of microbes.” Regardless, the current recommendations can’t hurt so you might as well follow them. Also, sneezing or coughing  in someone’s face is never a good idea.

What will be dispositive is the virulence of the virus, the ease with which it spreads, whether the current flu vaccination given to millions of Americans has any preventative effect on this strain of virus, and the effect of treatment.

There are flu outbreaks every year and many people die from the disease. Typically they are the very young, the very old, and the already sick. Some of the deaths in Mexico have been in young apparently healthy people. This is what has alarmed many. The fear is a recurrence of the disastrous flu pandemic of 1918 which killed millions of people, many of them young and previously healthy. I suspect such a pandemic will not happen again; but this is just an educated guess. Most of the deaths in the 1918 pandemic were likely due to secondary infection; ie a bacterial infection superimposed on the viral infection. Antibiotic treatment was not available in 1918.

Also not available were antiviral drugs. Zanamivir and oseltamivir, on the basis of very preliminary data, seem to work against this strain of the disease. To be effective they must be given early. Whether such treatment will be needed for this outbreak is not clear at present, also murky is the availability of the these drugs should it be necessary to give them to millions of patients.

It’s too early to panic and go crazy over this disease. It’s probable that it wont be a great problem, but should it turn out to be more serious than I think I’ll alert you. Then panic and go crazy; doing so at the right time has a cathartic effect.

Here’s an informative podcast about the new flu from the CDC.

Addendum: Despite all warnings to the contrary it seems the world is determined to lose its collective head about the swine flu outbreak. To put this epidemic in perspective the CDC guesses that about 36,000 Americans die from the flu or its complications every flu season. Nobody much cares because it happens every year just like the 40,000 deaths from auto accidents that are also an annual event. If the swine flu causes 360 deaths, 1% of deaths from the closely related seasonal flu, there will be riot in the streets, on Capital Hill, and on Wall Street. Brace yourself for a period of madness similar to the Dancing Mania of the 14th century. Who’s to blame. The press of course who can’t get enough of an epidemic and are too lazy or ill informed to put this disease in perspective. Besides sobriety never sells.

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Statins and Venous Thromboembolic Disease

April 23, 2009

The New England Journal of Medicine just published a paper examining whether the cholesterol lowering drug rosuvastatin (brand name Crestor) prevented venous thromboembolic disease. The study concludes that statin therapy does reduce the likelihood of this disorder. But like so much in medicine there’s less here than meets first glance. To begin with all the patients studied had CRPs (C-reactive protein) of 2 mg/L or more. CRP is a nonspecific marker of inflammation. The higher it is, all other things being equal which they never are, the greater the likelihood of developing heart disease. A value of 2 or more is elevated compared to a completely healthy person. In health the protein is usually so low that it’s virtually undetectable. Subjects with LDL cholesterols greater than 130 mg/dl were also excluded. 17,802 “healthy” men and women were followed for a median duration of 1.9 years. Half received 20 mg/day of the statin while the remaining half were given a placebo.

This study is a good example of what happens when you combine statistically significant data with those that are not and come up with an overall statistical significant result. Most people stop at the conclusion; the press certainly does. But if you subject the data to analysis they break down to something close to incoherence. The essential data from the study are presented below.

statin-data

If any of the error bars straddle one the results for that group are not statistically significant. Thus the data show no effect (effect here is meant to be synonymous with a statistically significant effect) of statin treatment compared to a placebo in women. No effect in subjects less than 60 or more than 70 years of age. No benefit in nonwhites. No effect in subjects with BMIs less than 25 or more than 30. No effect in smokers. No effect in subjects with LDLs less than 100. No effect in subjects with CRPs less than 5 mg/L. Yet when you look at all participants the protective effect of statin treatment is highly significant.

Is this study likely to change the way physicians prescribe statins? Not if they read the study carefully. Would I add statin treatment to the regimen of someone who lacked risk factors for cardiovascular disease? No. Would I give it to someone who was at increased risk for venous thrombosis, but who had no other indication for statin treatment? Again no, especially as the study showed no reduction in the rate of the main serious consequence of venous thrombosis – pulmonary emboli. This paper falls under the category of interesting but useless – at least for now.

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Musings on the Extraordinary

April 18, 2009
Ramanujan

Ramanujan

I’ve been reading a biography of the transcendental Indian mathematical genius Ramanujan and thinking about the current economic crisis. What does the one have to do with the other? They are both extraordinary and we are helpless when confronted by the unique. Many commentators in the wake of our immediate economic duress fault the government for not preventing it. Similarly many Indians criticize their educational system specifically and government generally for not treating Ramanujan and his once in a century genius better than they did.

I think both a unique crisis and a magical genius can be treated no other way than the government is now messing up our economy and the desultory way Ramanujan was largely ignored by his compatriots. No one hits a home run who has never seen a baseball before.

Start with Ramanujan. Showing a genius for mathematics beyond the ken of anyone around him as a teenager, he flunked important exams twice because he wouldn’t study anything except mathematics. He lost his scholarship and didn’t receive a degree. He was so far ahead of everyone else that at first (or second or third…) glance no one could tell if he was a quack or a genius. Even England’s greatest mathematician, GH Hardy – Ramanujan’s mentor at Cambridge, took a while to realize what he was dealing with.

How can any system be prepared to do justice to a student who appears once in a century and who appearance might just as well be in Montana or Madrid as easily as Madras? There’s no way to prepare the soil for the seed of magical genius. One can only hope it drops on fertile ground. How many other Ramanujans withered before harvest in India? Probably none. Because a genius of his magnitude is likely to appear no more than once every few thousand years in any one country. The list of intellectual magicians is very short. Indian pedagogues and bureaucrats should not be too hard on themselves. They did the best that could be done under the circumstances.

Governments, democratic or autocratic, fail to respond to an economic crisis at their peril. If the crisis is unprecedented they will get their response wrong. Governments like generals are always prepared for the last war. When fiscal disaster strikes they will always be accused of failure to regulate properly. It couldn’t be otherwise. If they had regulated correctly there wouldn’t be a crisis. And if the crisis is truly new they would have had to anticipated it. If they were anticipating this crisis they would have had to prevent the infinite number of other crises that didn’t happen. Some one is always screaming that the sky is falling. But it actually does fall only once every generation or two. To prevent all the false sky fallings government would have to regulate society past paralysis.

The current catastrophe seems to have occurred because the government encouraged (or forced) lenders to loan money to people who were poor credit risks. This with good intentions, convinced that all should own homes beyond their means. Banks have always sold their mortgages to larger third parties to free up money on their books so they can make more loans.

This time the third parties realizing they had some potentially bad loans in their portfolios securitized them with other less risky loans. The principle here was similar to that of insurance portfolios. The failure of some will be made up by the success of others. The long term increase in real estate values made these kinds of bets look good. So why not add a few more marginal (or worse) loans to the basket. Eventually the loans got repackaged and sold so many times that no body knew what was in what. It was a perfect example of one of life’s basic problems. Going from A to B is logical, so is B to C. Keep going until you get to Z. Then look only at A and Z. What you see is totally illogical. You’ve gone crazy by a series of logical steps. It happens all the time because the actors can’t see where they’re ultimately going – which is off the cliff; not even when the last fatal step is taken.

Then finally the cliff is breached. Government reacts the way it always does. It proclaims that unless extraordinary action transpires the world will end. Who wants to prevent government from forestalling Armageddon? So the government acts. The problem is that what it does is not extraordinary. It’s exactly what it should have done at the last crisis, but didn’t. Appropriate for then, but dead wrong for now. What should the government do? Who knows? We’ll figure that out several decades from now in time to do the wrong thing the next time around. In the meanwhile the public gets scared to death and looses all confidence in anything to do with money. This failure of confidence induced by the government’s prompt action secures the coffin’s lid. The government had to act but in doing so it ensured the catastrophe it had to pretend to prevent.

In the meantime we’ll enact regulatory schemes that will prevent this disaster from happening again, but which will be inapposite for the next new way of going wrong. Those who remember the lessons of history are doomed to make new mistakes. History is fun to read, but is almost useless as a guide for the future.

As an aside, you’ll often hear (usually by people who want the government to spend more money) that we didn’t get out of the great depression of the thirties until we entered World War II and really started to spend big bucks. I suppose that could be true. But there’s another possible explanation. We had the only large economy left intact by the war. Economically we couldn’t have gone wrong. We were not only number one, we were all the other numbers between one and 100.

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The Recordings of Enrico Caruso 1916 – 1918

April 16, 2009

Caruso singing
In 1916 Caruso again recorded Je crois entendre encore from the first act of The Pearl Fishers – this time in French. This version compared to that of 1904 is a great improvement though still not up to Gigli’s standard. It’s transposed down a half tone. The final high note is full voiced rather than the poorly done falsetto of the first recording.

Caruso first sang Saint-Saëns Samson on the opening night of the 1915 season. At this point in his career his dark voice was perfect for the role. He recorded Vois ma misere, helas the following year. At the beginning of 1917 he recorded the Rigoletto quartet for the fourth time. The reason for this redundancy was the appearance Amelita Galli-Curci.

Caruso's caricature of Amelita Galli-Curci

Caruso's caricature of Amelita Galli-Curci

Her presence seems to have inspired Caruso to go beyond what he had done previously with this music. He sounds like Orpheus and Apollo combined. It’s hard to listen to any of the other singers. For the record, the remaining two were Flora Perini and Giuseppe De Luca.

Stanislao Gastaldon’s aria, Musica proibita, from his opera Mala Pasqua! was also recorded in 1917. Based on the same story by Giovanni Verga that Mascagni used for Cavalleria Rusticana it’s popularity as a concert piece and on recordings has made almost everyone forget it’s from an opera. If Mascagni is a one opera composer poor Gastaldon is a one aria composer. Caruso again shows his uncanny ability to go from loud to soft not only with full vocal support, but with no effort or change in vocal production save for the change in volume.

Having recorded almost everything in his repertoire he turned to Anton Rubinstein’s forgotten opera Néron. Ah! lumiere du jou is interesting enough to make one wonder what the rest of the opera is like. Caruso’s baritone like timbre is particularly well shown off in this recording.

Caruso's caricature of Giuseppe de Luca

Caruso's caricature of Giuseppe de Luca

Caruso first portrayed Don Alvaro in Verdi’s La Forza Del Destino an the Met’s opening night in 1918. The night was also notable for Rosa Ponselle’s first appearance at the Met or indeed at any opera house. It was also the first time the opera ever had been staged at the Met. The baritone that evening was Giuseppe De Luca. A few months before their first performance together in the opera they recorded the Sleale duet. This duet is usually cut in Italian performances of Forza. Why, I’ve never understood. It’s exciting and has a great solo high note for the tenor – Caruso aspirates it here losing a little of it’s effectiveness. Richard Tucker did it better.

Caught up in the war effort as was everyone else in the US, Caruso recorded George M Cohan’s Over there four months before the war ended. It’s Italianate English adds to its charm. In a nod to our French allies he sang the second stanza in French.

Now 45 years old and a long time two pack a day smoker he was still at his vocal peak. which is to say he was better than any other tenor.

One more to come.

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Why the Newspaper Business is Dying

April 13, 2009

In a world beset with event both catastrophic and tumultuous, momentous and turbulent the less than mundane should be far in the background. So what’s the main story in our local newspaper? This is: Does Obama’s puppy qualify as a rescued dog? Okay human interest and all the rest. But a thousand words on this grave matter? Anybody who cares whether the pooch is a rescue dog or not is in need of serious meditation. The Lubbock Avalanche Journal and the AP obviously think this is a serious subject.

Our local paper who’s motto is “If it happens in Lubbock it’s news to us” – I’m not making this up – is like so many other papers, about to go under for the big dive. The paper’s editor-in-chief recently explained to a lunch group that the paper was devoting virtually all its coverage to topics which in one way or another had a local connection. This because national and international issues were so well covered on the internet. I’m still trying to get the connection between whether the Obama’s Portuguese Water Dog is a rescue dog or not and the drought on the South Plains. Perhaps it will come to me.

Any newspaper that has “Avalanche” as part of its name in a part of the country so flat that you can see Chicago if you stand on a tuna fish can is apt to be confused. The paper does no investigative reporting because it says it can’t afford to. So it exerts no control of local misbehavior by private or public miscreants. Devoid of purpose like virtually all of its fellows it withers and eventually will blow away.

Woof!

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