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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Tuesday, April 22, 2014

On Earth Day 2014: Energy and Fracking

Occasionally on a main street in my neighborhood, groups appear with petitions asking the New York State government to ban fracking, the process of oil companies’ drilling wells deep into rock formations to release natural gas or crude oil.  I have always declined to sign because I have thought that New York State is losing out on the rural economic development that would result from the fracking operations and that the United States would be more secure in this troubled world if it used more of its own energy resources and relied less on imports.

These opinions are well grounded.  However, the anti-frackers have valid points as well.  We can list some, and we will.

First, though, in this Earth Day commentary, let me give one disclaimer and one general conclusion.  The disclaimer is that what follows here is a collection of thoughts and ideas, not a clean, well-conceived analysis that leads to a neat conclusion.  Partly, this is because there is not a neat conclusion, or all this would in fact be settled.  In addition, my own conclusions have lately become more fluid – no wordplay intended.

Use Less Energy!
There is the one general conclusion.  The best answer to these debates and their associated turmoil is for all of us to use less energy.  Turn out more lights.  Put the air-conditioner on a higher temperature and the heat on a lower temperature.  Combine errands you run in your car so you don’t waste gas.  All this feels like environmental kindergarten, but it’s really the best way to deal with pollution and the depletion of natural resources.

What About Renewables?
“But there are also alternative sources of energy, Carol!”  Right.  Solar, say.  That has sounded attractive, especially as solar panels become less expensive.  But we learned not long ago that if there’s a fire in a house with panels on the roof, firefighters who might have to be on the roof can be badly injured by the electricity in the panels.  Oh, dear.  Wind?  By its very nature, wind is intermittent and cannot be counted on to deliver specified amounts of power at any specified time.  Birds fly into the blades of the windmills.  For wind, the timing issue can be at least partially dealt with by installing storage devices.

These alternative sources are thus not perfect.  Obviously they have the great advantage of being “renewable” and also not carrying the burden of carbon emissions.  But delivery is not perfect.  Also, they account for very little of the world’s energy consumption, providing only 1.8% of the world’s total in 2011 and 2.2% in the US[1].  There is also hydroelectric, which certainly yields high quality energy, but long ago reached its generating capacity.

So we are sent back to our look at fracking as a source of meaningful energy growth to – literally – fuel the world’s population and economic growth.

If you are particularly interested in the issues about fracking, go right away to a brand new book, The Boom: How Fracking Ignited the American Energy Revolution and Changed the World, by Russell Gold.  It was published just a couple of weeks ago by Simon & Schuster[2].  Gold is a senior energy writer for the Wall Street Journal.  Despite the impression one might get from his affiliation and the book’s title, the discussion is balanced.  Is fracking good, or is it bad?  His answer would be, “Yes”.

Positive Views on Fracking
Why is fracking good?  In particular, the fracking that brings out natural gas has several benefits.  While it’s still a fossil fuel, natural gas has the least carbon emissions of the three, crude oil, coal and gas, by a sizable margin.  Its CO2 emissions per BTU of energy are about 45% less than coal and 25% less than gasoline.  So it’s clearly the fuel of choice for heating and numerous other uses.  According to Russell Gold, backers of wind and solar believe energy production facilities using a mix of natural gas and the renewable source will work very well together; when the wind is still or clouds cover the sky, an associated natural gas plant can operate intermittently, while coal plants must be on consistently.  Gold also argues that the availability of ample supplies of natural gas gives developers of the renewable sources time to build their own production plants.  Finally, as we mentioned above, in this time of world turmoil that particularly involves many oil producing regions, the US can substantially reduce its fuel imports.  It can even export some fuels.

Fracking Negatives: the Environmental Ones
Fracking has drawbacks.  These are of two kinds, we realized, in reading Gold’s book.  First, the environmental issues, besides the fact that natural gas is still a fossil fuel.  We became uneasy reading the description of how fracking is done: a hole is drilled down about a mile into dirt and rock and then turns horizontal for another several thousand feet.  Cement is poured into the hole to make a pipe.  Water, lots of water, mixed with chemicals, is poured down the pipe.  The water coming out at the end of the pipe exerts such enormous pressure on the surrounding rocks, that they crack – they fracture – and natural gas comes out of the cracks and flows to the surface.  There are thousands of these wells in any given shale deposit.  It is water pressure, not any explosive, that is used to make the cracks, so the process is “hydraulic fracturing”.  Much of the water can be recycled in the fracking of other nearby wells, but the water is a brine and if it spills, it makes a huge mess.  The drilling goes down to what is known as “source rock”; on rare occasions, people at the surface can feel modest earthquakes.  This doesn’t sound good to us, although writers in a New York Times piece have argued that the quakes are so small that hardly anything is felt and certainly no damage is done.[3]  Hmmm.

One problem that really does seem to be less than many people believe is water supply contamination.  Fresh water sources generally lie several hundred feet below the surface.  Fracking wells are far deeper.  The NY Times writers point to a study in Pennsylvania in which only one water well in 200 showed any evidence of contamination.  Many complaints turn out to involve water that was already contaminated, but not complained about until the disruption from the fracking.  Over time, however, gas may leak into water sources if the fracking wells themselves are not carefully constructed.

Fracking Negatives: the Personnel Ones
This last point  brings us to the other kind of drawback to fracking.  Apparently, judging from the stories in Gold’s book, oil companies have not been particularly cordial or careful in many of their fracking operations.  We won’t outline the details here, but it seems that on many occasions, speed overtook manners as the oil company operators moved into a community in a huge hurry to dig as many wells as fast as they could.  The point can be made by highlighting the contrasting story of one town in north Texas, Bartonville, that finally got a grip on the situation and gathered citizens and oil company employees together to make some simple rules: don’t trundle truckloads of water through people’s backyards at midnight, erect sound barriers around drilling pads to limit the noise, whatever the time of day the drilling took place.  This has helped this community tremendously.  In addition, though, some of the haste has made waste too in the quality of materials used, especially the cement.  Efforts are now in process to develop tools for testing that before bad cement lets gas out of the pipe and into a water aquifer.

Should There Be Fracking in New York and Germany?
So we’re left with a hard question.  There are shale deposits in New York State – an extension of the Marcellus Shale that is in Pennsylvania.  Fracking brings good paying jobs as well as income to the owners of the land where it takes place, factors that are huge helps to local economies.  But the topic is so controversial in New York that the state energy commission has postponed promulgating rules until April 2015 – after the next state-wide elections this November.  There are shale deposits all across Europe, especially in France.  But France has already banned fracking.  And 40% of its energy needs are met by nuclear power plants; is that safer?  In Germany, solar and wind provide a much larger portion of energy needs than in other countries, but they still only made 8% of the total in 2011.  Fracking hasn’t been banned there, but there is an indefinite “moratorium”.  At the same time, of course, Russia threatens Ukraine with huge hikes in the cost of its natural gas or a complete embargo.  So the political advantages of being able to produce natural gas locally become more evident – and more urgent.

As we said, there is no neat conclusion.  Russell Gold suggests that oil companies are starting to get more careful, to realize that headlong rushes into people’s backyards with half-baked cement won’t really do anyone any good.  Indeed, he just wrote in yesterday’s Wall Street Journal[4] that investors now appear to want the companies to conduct operations more prudently from a financial point of view and with more focus on quality.  The wildcatters and the wildcatters’ backers are perhaps growing up.  As they mature and balance their approach, perhaps the gas can flow more easily and more safely.

In the meantime, turn off the lights when you’re not in the room and buy a hybrid car!

[1]Data on fuel use in various countries all come from the U.S. Department of Energy, Energy Information Administration.  “International Energy Statistics”: Accessed April 19, 2014.

[2]Russell Gold.  The Boom:  How Fracking Ignited the American Energy Revolution and Changed the World.  New York: Simon & Schuster.  April 2014.  Available from Amazon, Barnes & Noble and independent booksellers.

[3]Susan L. Brantley and Anna Meyendorff.  “The Facts on Fracking”.  The New York Times,   March 13, 2013.  Accessed April 18, 2014.

[4]Russell Gold.  “The New Winners and Losers in America’s Shale Boom”.  The Wall Street Journal.  April 21, 2014.  Page B1.

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Friday, March 28, 2014

Eating, Smoking and Health

Two weeks ago, March 15-16, the Culinary Institute of America hosted its tenth annual “Healthy Kitchens, Healthy Lives” conference in California, a meeting of some 450 medical and dietician professionals and chefs.  Some of the chefs are pretty prominent ones, including, for example, David Bouley of the New York restaurants bearing his name.  The conference seeks to help chefs and doctors learn from each other about cooking great dishes that are healthy too.

Our attention was called to this event by an article in the March 15 Wall Street Journal “A Delicious Prescription”.  We passed the link to Debbie Loeb at the Geranium Farm’s Hodgepodge page, and she ran a feature from it on fruits and vegetables that are not only full of nutrition but good to eat and colorful.  See that here:  There is fine information in all this for Ways of the World readers as well, aside from their desire to eat as well as anyone else.

In our commentary that follows, we omit footnotes, since nearly every sentence would carry one.  See our list of sources at the end of the article.

Our emphasis is on healthcare costs and the economics of medical care.  We want people to be healthy and we want achieving better health to cost less and be less burdensome than has seemed to be case in recent years.  Two important trends in our own behavior can help achieve this without resort to medical treatment: maintaining reasonable weight and not smoking.

Fewer Smokers, Stronger Cigarettes
Coincidentally, last Monday, Debbie over at Hodgepodge ran a wonderful picture from the Australian government of the ways not smoking can improve several aspects of our bodies and health, including general breathing and the extent to which we taste and smell our food.  Go see this Hodgepodge feature:

In the U.S., fortunately, we’re doing pretty well reducing smoking.  In 2012, only 18.2% of adults were current cigarette smokers, according to the Centers for Disease Control (CDC), compared to 22.3% ten years before and fully one-third of adults in 1979.  A recent Surgeon General’s report indicates that carcinogens in cigarettes have actually become more potent, making them more dangerous, but at least the numbers of smokers are decreasing consistently.

Overweight, Though, Affects 2/3 of the U.S. Population . . .
Overweight is on a different path, however.  Maybe we all know this, but we found these numbers to be quite striking.  In the mid-1960s about 46% of the U.S. population over age 20 was “overweight”, according to the CDC.  By 1990, the share overweight had grown to about 56%, and in 2007-2010, it was 68.5%, that is, more than two-thirds!  Fully 35% of the population was “obese” in 2007-2010, compared to just 14% in the mid-1960s.  These measures use the “body mass index” or BMI, a commonly used ratio of weight to height developed in Europe in the mid-19th Century.  U.S. standards deem overweight to occur above a BMI of 25, which corresponds to about 145 pounds for someone 5’4” or 184 pounds for someone 6’0”.  Obesity is defined as a BMI of more than 30, equivalent to 174 pounds for someone 5’4” or 221 pounds for someone 6’0”.

. . . Contributing to Higher Patient Numbers and Higher Healthcare Spending
Tobacco surely generates health problems, beginning with lung cancer and COPD.  But we look more instead right here at the laundry list of issues associated with obesity:
Heart disease
Type 2 diabetes
High blood pressure
High cholesterol levels
Liver and gallbladder disease
Sleep apnea and respiratory problems
Abnormal menstrual periods and infertility in women
Certain cancers

Not surprisingly, survey data from the Department of Health and Human Services show that five of these conditions have the highest growth rates in the numbers of people treated since 2000 and six of these are among the top ten conditions for total treatment expenditures in 2011 out of 55 conditions covered.  Clearly, there are many causes for heart disease, diabetes, high blood pressure, cholesterol problems and arthritis.  But obesity is one cause we have some role in.  We can help our own health by eating more thoughtfully, and that will take a further edge off healthcare spending pressures as well.

Many Low-Income Neighborhoods Need Supermarkets
In a separate application of the “right-eating” strategy to improve health and cut health spending, there’s been interest lately in the ability of people in low-income neighborhoods to buy fruits and vegetables and other healthy products at supermarkets.  This seems like a simple issue, but has turned out to carry some controversy.

In our own recent article about inequality and economic mobility, we learned that “segregation” of races and income classes in neighborhoods hurts people’s chances to move up in the world.  An obvious point, yes, but an important consideration in trying to design helpful policies.  Now, even more fundamentally, this segregation limits opportunities to acquire proper food because low-income neighborhoods tend not to have many supermarkets, health-food stores and similar outlets.  Recent studies document this shortage for a number of cities around the country.  Some of you may be ahead of us in knowledge of these “food deserts” and programs in several cities and states aimed at turning around this situation.  Ironically, it is widely reported that fast-food and liquor are far easier to come by in inner-city districts than reasonably priced fresh vegetables.  Some reports say that produce in the branches of chain stores in inner cities can sometimes be found in worse condition than it is in other branches of the same chain.

Fixing Food Deserts Also Creates Jobs
Our article on mobility highlighted the cultural and social barriers that exacerbate economic conditions.  The same is true here; local residents need education and information about the benefits of good eating and the cultural habits of at least a couple of generations need shifting.  Clearly, people need to eat right to have the energy to start their climb up an economic ladder.  We’re not sure what we can do ourselves toward this end, except to highlight these issues for you so you can encourage government officials and stores you like to invest in those needy locales.  As a recent discussion also emphasized, putting new supermarkets in new neighborhoods adds jobs in the very locations where they are needed most.  So it works on two problems at once.  Government policies might grant property tax exemptions and expedite zoning rulings to speed store construction.

Whatever people’s initial status in life, the punch-line here is that proper eating has all kinds of positive ramifications for health and economic welfare, for both individuals and society more broadly.
Data on portions of the population who smoke and who are overweight or obese: Health, United States 2012.  Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics.  Tables 54 (smoking) and 68 (weight conditions).

Surgeon General’s report on smoking: U.S. Department of Health and Human Services. The Health Consequences of Smoking—50 Years of Progress: A Report of the Surgeon General. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2014.  Our comment on more dangerous cigarettes comes from the discussion of lung cancer on page 8.

BMI weight and height information taken from Department of Health and Human Services, National Heart, Lung and Blood Institute, BMI Tables:

Data on the number of people treated for various conditions and the expenditures for those treatments come from the Medical Expenditure Panel Survey (MEPS), the Department of Health and Human Services Agency for Healthcare Research and Quality.  Household Component Summary Tables:  Number of People with Care for Selected Conditions by Type of Service: United States, 2011 and  Total Expenses and Percent Distribution for Selected Conditions by Type of Service: United States, 2011 with comparable tables for the year 2000 and our own calculations.

Food deserts:  Yael Lehmann, “Neighborhood Grocery Stores Combat Obesity, Improve Food Perceptions”.  Health Affairs blog: March 12, 2014.

Judy Bell, et. al. “Access to Healthy Food and Why It Matters: A Review of the Research”. and The Food Trust.  November 2013.  This paper is an extensive overview of numerous studies of food deserts and the multiple benefits of fixing them.  Some statistical evidence yields mixed conclusions about the severity of the food desert problem, but these writers argue that access to good food is an obvious prerequisite to better quality diets.

Note that food deserts are also a problem in rural areas, where some residents may have to travel 10 miles or more to reach a supermarket.  It is especially ironic that some agricultural regions where fruits and vegetables are grown are actually “food deserts” due to a lack of quality food retailers near the laborers who live and work in them. 

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Friday, February 28, 2014

Ways of the World "Briefs"

A Follow-Up on the Economic Mobility Article
We gave last week's article on income mobility a descriptive title: ". . . Steady Through Time, But Different by City".  Perhaps we should have said it differently: "Economic Mobility Is a Social Issue".  Our friend and faithful reader Carolyn cut to the chase for us in a concise comment: "some of the conclusions are great: keep kids in school, help them get work, keep commutes short, and encourage people to have a life in their church's community.  How terrific that such basics work so well!"  There you have it.  In cities where those practices and features are active, people move up in the world more easily.

The inclusion of religion as a "significant" input into the analysis we discuss in the article worked its way into my own psyche, and last Sunday at church, I found myself marveling during the service over the added meaning it was all having for me.  Much of the time, I see my role here at Ways of the World as trying to explain and illuminate how economics and business impact people in the church.  But in this instance, the causation is going the other way around:  churches – and synagogues and other religious institutions – are seen as playing an active role in the economy by facilitating people's community interactions.  This holds a positive and favorable role in people's economic well-being as well as their spiritual and psychic well-being.  What do you know?

Documents You Need for Late Medical Care and Estate Planning
Debbie Loeb over at the Geranium Farm's Hodgepodge page has posted a wonderful graphic on the kinds of important personal documents we all need to compile and file neatly away for our families.  When we might be seriously ill or actually on the verge of passing away, our families need to know how to handle our affairs.  The documents would be stored in a specific file-drawer or box and include such things as marriage certificates, birth certificates, living wills, powers of attorney, a will itself and so on.  Go see the "file-drawer" graphic, and if you don't have such a collection, start to put one together.  This is a great exercise for Lent.  And goes right along with – ahem – doing our annual tax return exercise.

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Friday, February 21, 2014

Economic Mobility: Steady Through Time, But Different by City

Income inequality is in the news again these days, in particular as President Obama has made it one of his policy concerns for this year and as New York City's new mayor ran on a platform that included actions to correct it.  The gap between rich and poor has indeed widened, and pretty consistently so, extending back as far as 35 years.  In the US income distribution in 2012 (latest available information), the average household income of those at the 90% level, $146,000, was almost 12 times the income of those at the 10% level, $12,236;  back in 1975, this multiple had been "just" 8-1/2.  Too, these income measures – both low and high – have  decreased since a peak in 2006, adding to concerns.[1]  Does the US still offer hope for gains, especially for low income people?  Are we still a "land of opportunity"?

Indeed, taken at face value, developments like the increase in the rich/poor income ratio might suggest that something is fundamentally wrong and requires any number of redistribution tactics to be taken as correctives.

Ah, well.  As with many issues we meet here at Ways of the World, the "face value" of this trend in a set of numbers turns out to tell only part of the story.  Two brand new reports from well-known economist scholars of the inequality situation bring out two very significant aspects that cast all this in a different light for the United States.

People's Probabilities for Moving Up Have Been Remarkably Steady
These reports are produced by The Equality of Opportunity Project, headquartered at Harvard University and including scholars from there and the University of California at Berkeley; see its website here:  The scholars, Raj Chetty of Harvard, Emmanuel Saez of Cal Berkeley, three other senior scholars and a research staff[2], have conducted massive analyses of IRS income tax data, using millions of individual returns, which have been "de-identified".  They are coded in such a way that a specific person's history can be followed through a lengthy span of years, beginning as a child-dependent of their parents and extending through their ultimate career situation at, say, age 30 or 40.  These authors can thus make the statement that if someone grew up during the 1970s as a child in a family in the lowest 20% of income earners, that person has an 8.4% chance of reaching the top 20% in their own adulthood.

The point Chetty, Saez and associates make in the first of their studies is that this probability did not change noticeably for kids born in the 1980s who are now in their late 20s.  Moreover, other writers who've analyzed earlier periods, covering kids born back as far as 1950, also find the same general probability relationship.  People's chances of moving up in the world have not measurably changed despite the fact that the top has gotten higher.  Here's are two pictures from the Equality of Opportunity website: the rungs of the ladder are now farther apart, but the analytical work shows that our ability to climb the ladder is just as strong as when the ladder was shorter.

So, in one sense, this is a great statement about opportunity in America.  We have farther to move to catch up to the high-income group, but Chetty, Saez and their associates show that we still have as much expectation of being able to do that as older people did, and other authors carry this back even to our own parents' generation.

Other Countries Do Better at Lifting People Upward
Some argue – perhaps some of you – that other countries do a better job of lifting people up than the US does.  In international comparisons compiled by the OECD, the correlation of income brackets between generations is closer in the US than in most western European countries, Canada and Australia:  that is, whatever level your parents are in, you are more likely to be stuck there in the US than in nine of 11 other countries.  The correlation measures are in fact about three times lower in Denmark, Norway, Australia and Finland.  So children seem to have far better chances of moving ahead of their parents' economic position there than in the United States.[3]

But Some US Cities Are as Effective as Denmark
Chetty and Saez have a response to this seeming indictment of the US in their second study, "Where Is the Land of Opportunity?  The Geography of Intergenerational Mobility in the US".[4]  The US is, of course, a huge country with widely varying climates and cultures in its regions.  Because Chetty and Saez have examined millions of tax returns, they can break out their information by cities as well as for the nation as a whole.  In some pioneering work on these topics, they find great differences in mobility for people who grew up in the different cities: Salt Lake City and San Jose have populations as economically mobile as those of Denmark and its neighbors, while mobility is far lower in other places, including some in the South and the upper Midwest, lower even than in any developed nation for which such figures have been published.  New York and Boston rank sixth in rankings of the 50 largest metropolitan areas while Charlotte, NC, ranks 50th.

These differences immediately beg the question: what on earth accounts for these positions?  Aren't New York and Boston places where classes are really well defined? and the opposite for Midwest and Southern locales?  So Chetty and Saez and their associates looked at some characteristics of the cities that might help explain.

Social Structures, Not Economic Ones Make the Main Differences
Surprisingly, at least to us, a city's economy has had little to do with the economic mobility of its residents.  The mix of industries and the concentration of managerial and professional occupations had such weak relationships with mobility measures that the authors didn't even bother listing any numbers about them.  There are just loose correlations with overall labor force participation and the role of manufacturing.  Two economic items do have noticeable effects, existing income inequality and the teen-age labor force.  The existing income distribution seems logical as a force for or against mobility.  We'll comment further below on the teen-age workforce.

Otherwise, the really significant forces pushing on mobility are social ones.  And they come into play early in people's lives, not just when they are graduating school and doing entry-level career planning.

1.  Race.  Areas with large shares of African-Americans have weaker mobility.  Please note that this is a numerical fact, not a subjective comment.  Also, it reflects more than skin color, since whites in those regions also have weaker mobility than in other areas.  Greater degrees of segregation of races and of groupings of affluent and impoverished populations also exacerbate mobility. 

2.  K-12 school systems.  Elementary school test scores and the high school drop-out rate are highly significant.  Teacher-student ratios and spending per student in a city have only a mild impact.  The point this suggests is that it's the results of primary education, not just inputs to education that are important.  Also, while college attendance has an obvious and structural influence, the presence of colleges right in a given city doesn't noticeably help or hinder mobility in that city.

3.  Social capital.  This jargony term calls attention to people's participation in society besides their jobs.  Do they vote?  Do they return Census forms?  Do they belong to local civic associations?  These items constitute a social capital index.  Important separately in its own right, do people belong to religious groups?

4.  Family structure.  The factor with the closest relationship to economic mobility is family structure.  Specifically, children born to single mothers face the biggest odds against moving ahead later in their own lives.  In general, on the contrasting side, cities with the largest proportions of parents who are married and with the lowest divorce rates provide more support to children moving ahead.

These social factors, education, socialization and family structure, all impact young people.  Again, that's "young" people, in childhood and the teen years.  As we noted above, teen-age labor force participation is also important in helping set people up to move ahead into and through adulthood.  Learning work skills, routines and disciplines gives a measurable boost toward a better future as well as an introduction to financial responsibility.  There is an additional aspect to the segregation issue, and that is commuting distance to work.  Cities with a preponderance of short commutes are more supportive of mobility.  A concentration of corporate parks in suburbs or the need to take a train and a bus to work put added barriers in the way of lower income families.

Ideas about Policies That Might Help
The factors that show as most closely related to mobility point to some public policies that might be more supportive.  Working with single mothers and encouragement of marriage would help.  The need for strong public education comes up time and time again, and the statistical results we cite here add to that emphasis; in particular, "teaching to the test" would seem to be effective as well as encouraging teen-agers to stay in school and also to get jobs.  Perhaps many city governments have policies that might shorten commutes by encouraging businesses to install facilities in low-income neighborhoods, but more could clearly be done.  Making commuting easier also argues for upgrading transportation systems and city infrastructure.

We knew there was no simple answer to inequality issues, but some of the inputs we learned about here are not necessarily the ones we'd have thought of first.  Supposedly simple approaches, such as raising taxes on the rich may help on the surface, but those funds shouldn't automatically just be distributed through low-income family welfare programs.   Instead, more structural qualitative policies and attitudes are needed for the long-run changes and real shifts in inequality relationships that are desired.  Not all of this comes from governments.  Even, we see, churches have an identifiable role as they support the dignity of every human being, promote community participation by low-income people and mix low, middle and upper income people in common settings and organizations.

[1] Household income data and ranking from US Census Bureau, Income, Poverty, and Health Insurance Coverage: 2012.  September 2013.

[2] Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez and Nicholas Turner.  "Is the United States Still a Land of Opportunity?  Recent Trends in Intergenerational Mobility".  National Bureau of Economic Research Working Paper 19844, January 2014.  Available without cost on

[3] Organization for Economic Cooperation and Development (OECD).  Economic Policy Reforms 2010: Going for Growth. Page 185.

[4] Raj Chetty, Nathaniel Hendren, Patrick Kline and Emmanuel Saez.  "Where Is the Land of Opportunity?  The Geography of Intergenerational Mobility in the US".  National Bureau of Economic Research Working Paper 19843, January 2014.  Available without cost on  Ratios and numerical factors for the cities covered in this study are available for download without charge from the website, as the authors encourage further analysis by anyone interested in these issues.

Other recent discussions of this material:
Damian Paletta.  "New Data Muddle Debate on Economic Mobility".  The Wall Street Journal. January 23, 2014.


Emily Badger.  "The U.S. Has a Social Mobility Problem, But Not the One You Think."  The Atlantic Cities.  January 23, 2014.

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Sunday, January 26, 2014

Health Care Costs Might Be Slowing Down

As the Affordable Care Act insurance plans make their faltering debut, our interest is caught up in new health care spending numbers for 2012 reported earlier this month by the Centers for Medicare and Medicaid Services (CMS).  The Affordable Care Act (ACA), as we noted here a month ago, was intended in large part to foster more affordable health care by giving greater access to health insurance and trying to require its use by younger, healthier people.  Other aspects of the law seek to restrain some costs, such as Medicare payment rates.

But interestingly, health care costs seem to have already been slowing, before the main insurance features of the Affordable Care Act have come into force.  We'll describe some of this slowdown for you and then try to highlight why it might be that you're not sure how health care costs could possibly be slowing down.

Health Care Spending Growth Cut in Half
In 2012, the total of health-care-related outlays in the country grew by 3.7%, making a fourth straight year of less than 4% growth.  By contrast, from 2000 to 2008, this spending grew 7.3% a year.  Also for 2012, the health-care sector expanded less than total gross domestic product (GDP) for a second year, so it absorbed 17.2% of the total economy, down from a peak of 17.4% in 2009 and 2010.[1]

The spending moderation is evident in most segments of health care delivery.  On average over the last four years, expenditures on hospital care have grown at 4.9% compared to 7.3% from 2000 to 2008.  Outlays for physicians' services rose at just a 3.3% average from 2008 to 2012, down from 6.8% from 2000 to 2008; physicians' compensation reflects this, increasing at a 2.0% rate in the latter four-year period after a 4.6% pace from 2000 to 2008.[2]  Prescription medications and other medical supplies expenditures have grown at just a 2.1% pace recently, from 8.5% before.

The last, more extreme move on drug outlays partially relates to a number of brand-name drugs whose patents expired, so they are now sold in generic form at much lower prices.  Other, more general slowing forces have been at work.  The recession is the prime factor named by many experts, as the associated declines in employment meant many people lost their employer-based health insurance, perhaps forcing them to postpone elective medical treatment.  If this is the weightiest factor, then it may result, these experts opine, that as soon as the economy picks back up, health care costs will surge anew.  Clearly as well, if costs have slowed because fewer people have access to care, that's hardly advantageous.

Fortunately there are some other, more favorable factors at work.  As we mentioned in our introductory paragraph, the ACA has some cost-cutting features that are already in place, including the limits on Medicare payment rates.   The law also penalizes hospitals with above-average readmission rates; this last has apparently already shown some identifiable effect in reducing readmissions, according to a Wall Street Journal op-ed by Jason Furman, the chair of the President's Council of Economic Advisers.[3] Other analysts note that the reduction in readmissions actually started ahead of the enactment of the ACA, so hospitals had clearly been working on the causes beforehand.[4]  We read occasionally about hospital-acquired infections, and there are, in fact, efforts in place to reduce those.[5]

Electronic Records, More Efficient Clinical Set-ups
There are some other structural forces helping to slow costs.  Does your doctor use electronic medical records (EMRs)?  We had thought of that as helping coordinate care, but it's also a restraint on costs as it improves the efficiency of the office's operations.  For hospitals, having doctors' orders in type-written electronic form is reducing medication errors measurably.  Adoption of EMRs has lately been quite rapid: in 2009, 48% of doctors' offices used them, and by 2012 the share had risen to 72%.  Among hospitals, 44% were running them in 2012, nearly three times as many as just two years earlier.  Use of these even reduces the number of necessary lab tests, since patients' histories and records are more organized.[6]

Have you noticed all the "store-front" clinics popping up in shopping malls and, in one local example for us, the streets of downtown Brooklyn, where one is replacing a KFC-Tim Horton Coffee franchise?  These "urgent care centers" are more than doctor's offices but less than full-fledged hospital emergency rooms.  These "retail" medical centers are staffed by doctors, nurse practitioners and physician's assistants; they can handle flu, other infections, simple wounds and fractures.  They can save money by taking more routine health issues out of expensive emergency room settings.[7]

The ACA is fostering experiments with other kinds of delivery systems, notably the Accountable Care Organization and patient care medical homes.  These clinical centers manage patients' overall care and are encouraged to limit hospital admissions and many other costly kinds of treatment when at all possible.  Physicians are generally salaried, so they are not paid on a per-service or per-appointment basis as most have been traditionally.  It's not known yet whether all this will really work to the benefit of the patients and the payers in the long run, but such organizations as CalPERS, the enormous California state employees health plan, have found marked cost reductions right away.[8]

But Some Consumers Pay More of the Bill
Now, you may well be saying, "how can health care costs be slowing down?  MY health care costs just keep going up and up!"  Ah, yes.  Consumers' total healthcare outlays have been increasing more than their incomes: data from an annual Labor Department survey show that healthcare expenses – insurance, doctor bills and drugs and supplies – have risen from 4.8% of people's incomes in 2008 to 5.4% in 2012, with every broad income bracket showing a similar magnitude increase.

A main factor in this is the so-called "consumer-directed health plan" or CDHP, which mainly consists of insurance plans with bigger deductibles and higher co-pays.  If consumers have "more skin in the game", it is thought, they will take a more active role in their own health care decision-making and a more cautious role in utilization.  Some parts of this are quite positive: people do have more  information about healthcare choices and treatments.  There is even more information these days on costs for specific treatments and specific providers.  We've started to see the word "shop" applied: that is, we might "shop" for a doctor and/or treatment based on their cost-effectiveness.  Indeed, next time you need something more than routine care, ask about the cost.  Ask your doctor if that new med she is prescribing is the cheapest one that will do the job.

In all probability, as the process of cost moderation evolves, with all the various innovations we've described here, healthcare should become less financially burdensome for people, companies and governments.  Hospitals and doctors should be able to figure out how to conduct their practices more economically and efficiently to save on their own costs without imposing undue anxiety on their patients.  But for consumer patients themselves, the intervening transition period may not be much fun.  In fact, even among people who had private health insurance throughout the last recession, another government survey shows that, in 2011, a larger portion, 7.4%, did not get or delayed getting medical care due to cost, more than the 5.9% in 2005.[9]  This was clearly not a sign of progress.  It's a bumpy road.  But at least, the latest spending data show that we've started down the right road.

[1]Centers for Medicare and Medicaid Services.  National Health Expenditure Data. January 6, 2014. and Martin, Hartman, Whittle, Catlin and the National Health Expenditure Accounts Team. "Nation Health Spending in 2012: Rate of Health Spending Growth Remained Low for the Fourth Consecutive Year". Health Affairs. Volume 33, Number 1: January 2014.  Pp 67 – 77.

[2]Physicians compensation data from U.S. Bureau of Labor Statistics.

[3]Jason Furman.  "ObamaCare Is Slowing Health Inflation". The Wall Street Journal.  January 6, 2014.  Accessed January 25, 2014.

[4]Kenneth Kaufman and Mark Grube.  "The Slowing of Health Care Spending: Have We Turned a Corner?"  Health Affairs blog.  August 9, 2013.  Accessed January 25, 2014.

[5]Kaufman and Grube.

[6]Kaufman and Grube.

[7]Tracy Yee, et. al. "The Surge in Urgent Care Centers: Emergency Department Alternative or Costly Convenience?" Center for Studying Health System Change: Research Brief.  July 2013.  Note that the authors do express some ambivalence about current cost effects, but they expect the growing need for primary care facilities will increase the importance of urgent care centers.

[8]Kaufman and Grube.

[9]Centers for Disease Control. National Health Interview Survey.  Summarized in Health: United States 2012

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Tuesday, December 24, 2013

The Ways of the World at Christmastime

The Ways of the World: often, the ways of the world come across as wrong-headed, such as a news anchor seeming to make a racial comment about Santa Claus, or as totally inept, such as the implementation of a new Government-designed health insurance program that so far has resulted in more people losing their current insurance than being granted easy access to better coverage.

So, when the ways of the world yield good things, we can rejoice specially.  The Spirit of Good indeed does come to dwell among us.  Here are three current examples:

First, Time Magazine's editors picked Pope Francis as their designated Person of the Year.  If we may say so ourselves, isn't he a breath of fresh air as a religious leader?  Warm-hearted and welcoming.  So of all the people who made news in 2013, isn't it lovely that the Time editors picked the nicest one?!

Here are some sentences from Managing Editor Nancy Gibbs' tribute in the December 23rd issue (page 45):
". . . . he is . . . saying what Popes before him have said, that Jesus calls us to care for the least among us – only he's saying it in a way that people seem to be hearing differently.  And that may be especially important coming from the first Pope from the New World.  A century ago, two-thirds of Catholics lived in Europe; now fewer than a quarter do, and how he is heard in countries where being gay is a crime and educating women for leadership roles is a heresy may have the power to transform cultures in which Catholicism is a growing, even potentially liberating force. . . .
 "The heart is a strong muscle; he's proposing a vigorous exercise plan.  And in a very short time, a vast global, ecumenical audience has shown a hunger to follow him.  For pulling the papacy out of the palace and into the streets, for committing the world's largest church to confronting its deepest needs and for balancing judgment with mercy, Pope Francis is Time's 2013 Person of the Year."

Second, a real miracle.  Last Tuesday, December 17, a blind man felt faint on the A-train subway platform at 125th Street in upper Manhattan.  His guide dog, named Orlando, tried to keep him from falling, but couldn't, so as Cecil Williams fell, Orlando jumped down onto the tracks with him.  Then he licked Cecil's face to try to keep him alert.  Bystanders, who all too often are known for just doing that, standing by, instead got the attention of MTA personnel who knew a train was bearing down on the station.  They got man and dog to lie flat in a trough between the rails, and they radioed the engineer to come in as slowly as he could.  A car-and-a-half rolled over Cecil and Orlando.  But they were safe and crews were able to pull them out from under the train; they did send Cecil to a hospital to have a cut stitched and for some badly needed rest.

There a part two to the story that's also sweet.  Orlando is 11 years old and due to retire.  Cecil will be getting a new, younger dog soon and doesn't have the money to support Orlando in his retirement.  But as soon as this story got around, money poured in from well-wishers more than enough to make it possible for Cecil to have two dogs.  Or if he chooses, the funds can go to the guide dog agency to assist with Orlando's comfortable old age.

Here's a simple man and his dog ready for a very merry Christmas.

Finally, a sports story.  Indeed.  But a bittersweet one.  We casually glanced over the list of memorable sports events of the year as compiled by Jason Gay, a lead sportswriter for the Wall Street Journal.  The last one in his list is the Boston Marathon.  But how could such a tragedy be in anybody's Christmas list?  Ahh, listen to what Gay says:
The 2013 Boston Marathon: It might seem strange to include a terror attack on a list of sports moments mostly filled with superlatives and happy memories. (Sports Illustrated put this atop their list of 2013, and I believe this is correct.) What happened on April 15 was a tragedy, impacting many lives. And yet in the minutes and months afterward, the heroism, resilience and generosity showed by Boston and beyond was representative of the very best of what sports is about. A race is about finishing, and in elite cases finishing first, but the best athletic events reveal the heart of a community. Next year there's a Winter Olympics and a World Cup, but the next Boston Marathon will be among the biggest sports moments of 2014. Count on it.

And a footnote:  the recent modest brouhaha over the Fox News anchor and the race of Santa Claus gleaned us this fascinating bit of information from a priest-friend.  We knew that St. Nicholas was Greek and lived in Myra, in Turkey, in the first half of the 4th Century.  Our friend explained that not only was he a nice local bishop who helped his people by giving well-chosen gifts, but he was also a leader of the Church at large and a signer of the Nicene Creed.  So there's a lot to Santa's story besides the North Pole and the chimney of Clement Moore fame.

A Very Merry Christmas to all of our readers from Ways of the World!

Wednesday, December 18, 2013

Health Uninsurance

We have promised and promised that we would write about health insurance and the Affordable Care Act, but every day that comes seems to crowd and cloud the scene with more confusing information.  We hardly know where to begin and where to expect that all this information might take us.  But we can try to do something.

Let's start at one of the beginning places:  according to a summary of the "Affordable Care Act" by the Kaiser Family Foundation, the main object of the law is to require everyone to have health insurance[1].  A tabulation by the Census Bureau shows that during 2012, just over 47 million Americans under age 65 had no health insurance.   These people represent almost 18% of the "nonelderly", the population under age 65.[2]  This sounds like a simple enough connection.  A lot of people have no health insurance, which causes all kinds of extra distress and added cost when those people become ill.  So we'll devise a law that provides ways to try to correct that: an expansion of Medicaid for those with low incomes and a standardized collection of insurance policies sold through online exchanges for everyone else.  For those in the latter group with somewhat limited incomes, we'll subsidize their premiums with refundable tax credits.  This is what the ACA tried to do.

But so far, it hasn't turned out that to be simple at all.  A couple of major complicating conditions exist before we even get to the badly designed websites and payment systems.  Maybe it will help to be aware of some of this complexity.

Varying Periods of Uninsurance
First, people are not simply "insured" or "uninsured".  They move in and out of insurance status perhaps more than we think.  One of the surveys the Census Bureau takes follows income and welfare trends across several years among groups of specific individuals, called "waves"; the same people are interviewed repeatedly for a span of four years.  Professors at Penn State and Harvard School of Public Health analyzed the individual responses from the 2004-2007 wave, that is, the wave that concluded just before the financial crisis and the Great Recession.  In an article published in the journal Medical Care Research and Review in December 2012[3], they report that a survey number equivalent to 89 million nonelderly people experienced some period of "uninsurance", that is, twice as many as were seen in a separate poll to be without insurance at one particular point in time.  The 89 million amounts to 36% of the nonelderly population, well over one-third of them.

About 20% of those were without insurance for a span of 1 to 4 months, another 20% for 5 to 12 months, 20% for 13 to 24 months and 40% for more than 24 months, that is, two years of the four-year duration of the survey wave.  There were several patterns of uninsurance; 13.5% of the people were uninsured throughout and almost 26% had repeated spells of uninsurance.  Other people started with insurance and lost it once and for all; some picked up insurance and still had it at the conclusion of the survey.  Some had a temporary gap in coverage; others had a single period of coverage which then lapsed.  Another transition involved shifts from private insurance to public, especially shifts into and out of Medicaid.  Children often had different patterns of coverage than adults.

So right at the moment, many people are trying for an initial enrollment in an ACA-designed policy, and it is important to note that this will hardly be their only encounter with the system.  It wasn't clear to Professor Short and her colleagues, the authors of this time-lapse study, whether the ACA system was designed to facilitate such changes seamlessly and to facilitate the movement of the premium subsidies up and down with falls and rises in incomes.  Perhaps it is, but since we haven't gotten through the first step, it's hard to know how affairs will carry on in the future.

Differences in Uninsurance Among the States
The other major complication of "uninsurance" concerns geography. Apart from the Medicare program, health care is generally financed and administered at the state level.  So there are as many as 50 different insurance systems in existence which must be taken into account.  As an example of how complex this can become, we cite Edie Sundby, a cancer patient who wrote an essay in the Wall Street Journal at the beginning of November.  Her existing plan was being cancelled, but her coverage could not be duplicated because the new ACA-conforming plans would not cover her in a different part of her own state, California, from where she lived: in her former plan, she had been receiving some of her treatment in the north, Berkeley, even as she lives in the south, San Diego.  Further, the coverage she had for treatment at a specialized hospital in Houston, Texas, was also eliminated.[4]

With the state-focused coverages, it's obviously important to be aware of the patterns of uninsurance that characterize each state.  Writers from Vanderbilt and Harvard used separate data on health care in the states together with the "wave" data from the Census Bureau to produce localized estimates of insurance and uninsurance.[5]  The populations of the various states differ greatly in age mix, race, professions and rural vs. urban locations.  So people in different states experience very different trends as they move into and out of coverage and, obviously, as they also move from state to state.  In Colorado, if you had insurance at the beginning of this study period, you had a 15.8% chance of experiencing a break in your coverage at least once during the following two years.  But in neighboring New Mexico, the chance of a break was noticeably greater, at 25.8%.  If you were already uninsured at the beginning of the study, the variation was wider still:  in Pennsylvania, the chances you might remain uninsured were 14.4%, but in Florida, they were more than twice as much, 30.1%.

These writers, John Graves and Katherine Swartz, point out that differences in uninsurance may occur because some people have simply chosen not to buy insurance while others may have lost a job.  The variety of reasons for being without insurance mean "the uninsured" can have very differing incomes.  Strategies states need to use to arrange and encourage use of various insurance programs thus also differ.   We're seeing TV commercials now aimed at young adults, who might be convinced to sign up for at least the bronze plans, while getting the word out to low-income people about the availability of Medicaid requires a different kind of outreach.  As Grave and Swartz explain, such outreaches are important and will bring long-run cost-saving to each group as they could be encouraged to visit primary care physicians more regularly and as they might take other preventive actions.  More, use of differing approaches in different locations is significant.

A Decentralized System Is Natural in the U.S., A Badly Designed Website Is Not
When we first wrote about health care in 2009, one of the points we made is that, unlike most countries, the U.S. population is highly diverse.  It's no wonder to us that a fragmentary health care system emerged from our spread-out and historically decentralized society.  Health care is seen as highly personalized.  Imposing standardization on such a structure is really hard.  Central planners can't possibly think of everything, as we see with Mrs. Sundby.  It is all the more complicated then when the underlying website technology was badly designed and organized.  Just this week as we have been writing this article, we see that the Obama Administration is doing something for that they should have done at the outset: an overall manager has been named, Kurt DelBene, recently president of Microsoft's Office Division.  Thus, finally, a senior official with significant experience building software and, in its most recent version, developing it into a "cloud" version, will oversee the internet connections in the new insurance exchanges.  Issues like security and the payments system, which are incomplete, can be given greatly needed and rigorous attention.

All of this is very complicated.  We hope we have gotten a start here.  We will continue after the Holidays with at least two other articles, one on innovations in delivering health care and one on health itself.  Toward the latter, the growth of health care costs slowed over the three years through 2011 and we think one of the reasons might have something to do with the drastic reduction in smoking, along with numerous other factors.  There's also some interest in employer insurance plans and we'll have to figure out how to talk about those too.  Stay tuned!

[1]Kaiser Family Foundation.  "Summary of the Affordable Care Act".  April 2013. .  Go to for a whole passel of good information on many facets of the act and the system it is fostering.

[2]U.S. Census Bureau.  "Income, Poverty, and Health Insurance Coverage in the United States: 2012".  Issued September 2013.  Page 22ff.

[3]Pamela Farley Short, Deborah R. Graefe, Katherine Swartz and Namrata Uberoi.  "New Estimates of Gaps and Transitions in Health Insurance",  Medical Care Research and Review, Vol. 69, No. 6, December 2012. Pp 721-736.

[4]Edie Littlefield Sundby.  "You Also Can't Keep Your Doctor."  The Wall Street Journal. November 3, 2013.

[5]John A. Graves & Katherine Swartz.  "Understanding State Variation in Health Insurance Dynamics Can Help Tailor Enrollment Strategies for ACA Expansion", Health Affairs.  Vol. 32, No. 10, October 2013.  Pp. 1832-1840 plus online Appendix:

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