“Defensive Medicine” And Sky High Medical Malpractice Insurance Premiums Contribute To Out Of Control US Health Care Costs

By Paolo von Schirach

April 19, 2013

WASHINGTON – In the crazy stew of the US health care system, a system in which a progressively more unhealthy population supports a medical profession in which doctors have a personal incentive to over prescribe, we also find “defensive medicine” a powerful ingredient whose net effect is to inflate costs even more, without adding any health care value.

Litigious America

We know that America is a very litigious society. However, at times suing for damages may be legitimate. There are companies that make and sell dangerous products. There are crooks who cheat and steal. There are negligent professionals, include doctors, who provide poor services, sometimes causing real damage. And therefore there are, as there should be, avenues to seek restitution or compensation through the legal system. This is fine. Corporations as well as individuals should be held accountable. They should be aware that wrong doing may carry heavy consequences. Negligence or willful misconduct are not permissible.

Malpractice law suits

That said, suing doctors, hospitals and others for medical malpractice has become a sport, so much so that major law firms these days routinely advertise their services on TV ads in which they tell people that, if they used this medication or underwent that treatment and became subsequently ill, they are entitled to financial compensation.

Now, if you were a doctor watching these TV ads what would be your reaction? Most likely, you would get worried, possibly very scared. And what would do you do? Either you stop practicing for fear of getting dragged into court by an unhappy patient or you try to protect yourself through a combination of a solid malpractice insurance policy and lavish use of “defensive medicine”.

Both “remedies” add nothing to the health of most Americans, while they contribute to jack up the overall cost of health care. Malpractice insurance can become very expensive, depending on where a doctor is practicing and his/her specialty. Quite clearly the cost of expensive insurance is passed on to the patients (and/or their insurance) via inflated costs of medical procedures.

Defensive medicine

“Defensive medicine” is a perverse remedy aimed at deflecting malpractice lawsuit. The doctor will prescribe every possible diagnostic test, no matter how expensive or unrelated to the symptoms, in order to build a record that he/she did everything imaginable to properly diagnose the ailment afflicting the patient. This way, should anything go wrong, it would be much harder to sue for malpractice a very diligent doctor who did “absolutely everything” to take good care of his patient.

Highest health care costs in the world

And then you wonder why America has the highest health care costs in the world? At least 1/3 higher than the average among rich countries? Yes, health care in America absorbs about 17% of GDP, while the average among developed nations is 9 to 10%. How so? Because here we have organized chaos in which waste piles up on waste. Doctors routinely over prescribe, this way jacking up overall costs. Hungry lawyers exploit unhappy patients to sue doctors. Insurance companies offer (expensive) malpractice packages to protect the doctors from the lawyers. The doctors charge these additional costs of doing business to the patients, and therefore to their insurance companies that will raise premiums to all. In all this doctors over-prescribe even more, in part to make more money, so that they can pay for their malpractice insurance, and in part to shield themselves against malpractice suits.

In this circus, US health statistics, especially if looked at in the light of these truly astronomic costs, are at best mediocre, and really bad in some categories. In other words all this extravagant health care related spending does not make the average American very healthy, especially if compared with citizens of other rich countries that in the aggregate spend much less.

And we thought that America had invented and perfected sound principles of cost effectiveness that would guide the organization of all economic activities. Well, certainly not medicine.

Customer Satisfaction? Major Retailers May Give You Your Money Back, But They Do Not Bother To Ask You What The Issue Is – This Way The Learn Nothing And Fail To Fix Problems

By Paolo von Schirach

April 18, 2013

WASHINGTON – It is generally accepted that “quality” is critical in all service sectors. And for this simple reason customers are routinely asked to state whether or not they have received good service. Besides, they are often asked to respond to surveys. One would think that all this information gathered is then used to fix problems and improve service. Well, I am not so sure.

Customer satisfaction?

In many cases, the “pro-customer” approach stops at the now standard “money back guarantee”. This is fine, in as much as  customers can return something they are unhappy with. Still, unless the reasons for the unhappiness are explored and fully understood, the service provider will have no clue as to what the problem may be. And therefore he will have no chance to examine the issue and take appropriate corrective actions. In other words, the real remedy is not in refunding the unhappy customer; but in solving the issue that caused the refund request in the first place.

What’s wrong with this fruit?

Here is an example that illustrates this critical point. After repeated occasions in which I purchased really bad tasting fresh fruit from a supermarket, I decided to return it and ask for a refund. And so I did. I brought the produce back with my receipt.

And the routine followed by the staff was instructive. Obviously it is standard procedure for this national chain to take the goods back and give a refund. But I also noticed that no one asked me what the problem was. They saw their job confined to giving money back. When I said that I wanted to discuss the reasons why I brought the produce back, I found zero interest. I was told in a rather mechanical way that this would be a matter to be brought to the attention of the produce department. Yet no attempt to call him. I had to ask where I could find the person in charge.

So I went and spoke to the person. I showed him the bad quality fruit. He looked surprised. Then he picked one up from the shelf, opened it and found that the inside was brown instead of yellow. And so he thanked me and proceeded to remove the entire batch from the shelf.

Real feedback

And so here we have the entire feedback process, with a positive outcome: the bad stuff is taken out. Still, it is obvious that asking people what is wrong with the product they are returning is not part of the “standard protocol”. And this is astonishing for a major retailer that can thrive mostly on the basis of the quality of the goods it sells. The service sector needs real feedback in order to eliminate errors and thus improve quality and customer satisfaction.

If it all stops at a refund, it would appear that there is a calculation whereby, irrespective of satisfaction, most people will not bother to come back and ask for refunds. The very few who do will get their money back. But the problem is not fixed and therefore the quality of service does not improve. In my case of the bad fruit, I would have got my refund, but the bad stuff would have stayed on the shelf, because nobody bothered to ask a simple question: “What is the matter with this fruit“?

Elementary truth still unknown

And here is the problem. If there is no established system to get real feedback, major firms become complacent and are eventually displaced by better competitors. It is truly amazing that here in America, supposedly the gold standard of the super efficient service economy, this elementary yet critical understanding of the reasons why real feedback is essential apparently has yet to be embraced by major retailers.

China’s Debt Is Getting A Bad Grade – No Crisis, But Slow Fiscal Erosion Caused By Too Much Local Governments’ Borrowing

Paolo von Schirach

April 17, 2013

WASHINGTON – Is China in trouble? The current  7.7% growth rate, while very high by world standards, is not what it used to be. Migrant laborers are becoming more expensive. The export-led formula that worked so well for decades is no longer a sure thing. Foreign markets are saturated; and if Chinese goods over time get to be more expensive where is the advantage in buying them? On a different note, pollution in China has reached horrible levels, requiring new drastic and very expensive environmental protection measures that cannot be implemented within a reasonable time frame. 

China’s debt

And now China’s debt has been downgraded. But how is this possible? China is not perennially semi-broke Southern Europe. It sits on trillions of dollars of reserves. It is certainly not going bankrupt. 

True enough, there is no major crisis on the horizon. But there is slow erosion.  And the erosion has been caused by a prolonged easy money and easy credit policy aimed at countering the impact of the global financial crisis. At the local level, provinces and municipalities while prevented by law to issue bonds have figured a way around the obstacle and created instruments aimed at raising funds to finance public works and other needed infrastructure.

Local governments borrow too much

But now even Chinese analysts are expressing concern, in a very public way, that all this has gone too far. Local governments are now deeply in debt. Various estimates indicate that the total exposure of all local governments may be somewhere between $ 1.6 and $ 3.2 trillion. If we take the larger estimate, this is almost 40% of the Chinese economy, as a recent FT front page story noted. There is no way that all these local governments will be able to raise the revenue necessary to pay back these bonds.

So, do we have a huge default in the works? No, not that. It is obvious that China’s central government will intervene, in a massive way if necessary, to avoid any disruption. And it has plenty of resources available.

Make believe economic growth

Still, the creation of a large amount of debt that cannot possibly be paid back is a bad sign. It is a sign of a semi-desperate attempt to make the economy appear much better than it is. Local governments want to show growth. Construction, shopping malls and new infrastructure are ways to keep contractors in business and people employed. But when there is no money to pay the bills then we all realize that in order to avoid a stagnation problem we created a bigger one.

Political troubles ahead?

Sure enough, China can pay its bills. But the price will be less future borrowing and less economic activity. And this will result into an even smaller rate of growth. And less growth may well translate into political trouble for a national leadership whose only source of legitimacy is good economic stewardship.

New Background Checks Legislation Aimed At Reducing Gun Violence in America Is Almost Meaningless – There Are Just Too Many Guns Already In Circulation, While Criminals Know How To Get Weapons Illegally

By Paolo von Schirach

April 15, 2013

WASHINGTON – The mass killing at the Sandy Hook School in Newtown was viewed by many as a real watershed, a historic game changer. President Obama was in tears, the Nation was in shock. So many children killed by yet another armed psychopath. This time, we were told, the country will respond. Policy makers will finally unite and come up with fresh measures that would reduce the chances of any such massacre to happen again.

No new consensus

Well, these predictions were wrong. Terribly wrong. America’s love affair with fire arms endures. There is absolutely no sign that it will wither away. We know the arguments: it is all about the second amendment. It is a constitutional right. Every American has the right to bear arms, etc.

As the memory of Newtown fades, there is no evidence that there is a new consensus leading to meaningful restrictions on new gun sales. The only legislative proposal under discussion is about background checks. A mildly good idea that,  even if approved, in the end will make very little difference.

Too many guns

Let’s be realistic. In America, there are approximately 300 million guns already in circulation. That’s simply too many guns. And no legislation will change that. Besides, whatever new restrictions on future legal arms sales, there is obviously a thriving illegal fire arms market. Indeed, many states and cities with heavy restrictions on gun sales have a very high murder rate. This means that criminals know how to get weapons illegally. No new laws will change any of this in the near future.

Mostly posturing

And so, if we look at the big picture, it is clear that now the “guns battle” that was prompted by the Newtown massacre is mostly a show, it is all about posturing. Some politicians, depending on who their constituents are, may find it expedient to be for or against new restrictions on gun sales, background checks or whatever, even though they know very well that new legislation will change very little.

Politics and not policy

Sadly, even though prompted by a major tragedy, now the guns debate has almost nothing to do with policy, namely serious attempts to make real changes that will seriously affect behavior. It is all about politics. President Obama, along with some key Democrats, is publicly committed to doing “something” about reducing gun violence, and so he has to go places and say all the right things to hand picked audiences. But he is mostly going through the motions. Whatever the legislative outcome, in the end he has to be able to say to all those who favor gun restrictions that he “did all he could”. He fought the good fight.

In the meantime, nobody should be surprised at the high murder rate in a rather violent country in which getting weapons is and will continue to be very easy.

Margaret Thatcher Won Many Battles, But Thatcherism Lost – The Western Societies She Wanted To Turn Around Believe In State Programs and Most of All Continue To Spend On Unaffordable Entitlement Programs

By Paolo von Schirach

April 14, 2013

WASHINGTON – Margaret Thatcher is on the cover of The Economist with an appropriate title: “Freedom Fighter“. The British moderately conservative news magazine enthusiastically endorsed her politics, her policies and –most of all–  her sincerely held (and fiercely fought over) beliefs in individual freedoms as the cornerstone of any modern, enterprising and ultimately  prosperous society.

There is No Alternative

Yes, leaving aside individual policies and her (often) strident style, Margaret Thatcher was a crusader pushing forward a freedom agenda. And she was mostly right. She was right in pushing as hard as she could, without any compromises, against socialism, against statism, against the trade unions, against the concept that nationalized industries can actually perform. She pushed and pushed and pushed. And to her many critics she said again and again that: “There is No Alternative”, (the TINA principle). Of course there were alternatives; there are always alternatives: via compromise, wishy washy measures, pull back. But she did not relent.

Thatcherism lost

And she won major battles. But these were not personal victories or party victories. Britain as a country gained enormously because of the dramatic policy changes she pushed. Lower inflation, lower taxes, higher productivity and a lot more. Still, while I join The Economist in praising Mrs. Thatcher, I would like to state clearly what the distinguished  magazine vaguely mentions, without stating it properly: Mrs. Thatcher won many battles; but ultimately Thatcherism, while significant and influential in her days, lost. She won many battles; but she lost the war. The Economist tells us that we need more Thatcherism today. But this is mostly because we have hardly any left.

Whatever may bee happening in her own Britain under a mildly conservative coalition, statism and and various form of socialism are triumphant across Europe and most of the West, including once upon a time rugged, capitalistic America. True, we no longer talk about nationalizing this or that as the golden recipe for shared prosperity; but we do talk, loudly, about the need to preserve –at any cost– absurdly unsustainable entitlement programs that have caused the current, unending, fiscal crisis.

Western societies are now entitlement societies

Western societies are now now entitlement societies. The old idea that income support programs were supposed to provide only some additional means for the poor has now been transformed into the almost universally shared  idea that the state has to provide and guarantee income security and a lot more to all its citizens, especially retirees.

Thatcherism was about freedom, But the price of freedom was self-reliance: “We promise no interference. You are free to engage in enterprise without silly limitations. But you take care of yourself. And that would include that you save for your own retirement“. But that’s not where we are today. All Western societies are wedded to the idea that entitlements are essentially birth rights. Entitlement societies are about costly guarantees provided by the state, only partially funded by massive taxation (the rest comes from debt) that diverts scarce resources from productive investments to transfer payments.

Little thought is given to the fiscal and economic impact of these massive transfer payments, funded through high taxes and borrowing. In truth, they are the primary cause of the huge deficits and massive debt accumulated by most Western societies. 

The simple truth is that aging populations (and consequently larger and larger numbers of senior citizens) caused the relentless growth of income support programs that now cost too much. They are essentially unaffordable. In the best case scenarios they severely weaken the economy, (think of the US and Japan). In the worst case scenarios, (think of Italy, Greece and Spain), they bring about financial ruin.


By Adopting The Name Francis The New Pope Wants To Convey That The Church Is About The Poor – But The Name Alone Will Not Do It – St. Francis’ Life Is About Intense Faith – The Modern Church Is Run By Functionaries

By Paolo von Schirach

April 13, 2013

WASHINGTON – There is always symbolism in the name chosen by a new Roman Catholic Pope. The new Pope chose Francesco, Francis, in honor of St. Francis of Assisi. In so doing, Pope Francis would like to convey that the Church will go back to its origins of simplicity, with special focus on helping the poor. St. Francis was indeed the man who gave up a life of material comfort to pursue his own vision of a pure Christian Faith.

Pope Francis

And here is indeed the issue. This name choice by the new Pope, not backed by anything else in terms of demonstrable spiritual renewal within the Church, is essentially a formality, a gesture. The notion that he Church has to redouble its efforts on behalf of the poor is a “policy change” that may have all sorts of motivations, including of course the attempt to shore up the position of a less and less relevant Catholic Church in some developing countries where it still enjoys some measure of respect.

No spiritual renewal

But this Pope adopting the name Francis will not automatically translate into unleashing a spiritual renewal within a tired and demoralized Catholic Church severely weakened by its own scandals. St. Francis of Assisi was an extraordinary man who genuinely embraced the message of the Gospel and tried to make it once again, more than a thousand year after Christ, real and meaningful for the common people of Medieval Italy. He was a lay person moved by intense Faith. He preached with simplicity; but more than anything else with intense Joy. He talked, he sang, he preached. He tried to bring disoriented people back to God in a simple way. His vow of poverty was about simplicity in a corrupt world that had long forgotten that Jesus and his early followers were common people who converted others only on the basis of their ability to appeal to their feelings.

A tired Catholic Church

Pope Francis is only formally a messenger of spiritual renewal. He is mostly another elderly leader of an institution in decline who is trying to reclaim at least some lost territory. St. Francis of Assisi was moved by an intense Faith that made him into a spiritual revolutionary. Pope Francis is the leading functionary of an old institution that looks more and more like a corporation resorting to new gimmicks in order to regain market share. And that is a big difference.

President Obama Created A Solemn Moment During A White House Ceremony In Which The Medal Honor Was Awarded To Army Chaplain Emil Joseph Kapuan

By Paolo von Schirach

April 12, 2013

WASHINGTON – Hard to convey in my own words a beautiful, indeed moving, atmosphere created by an  understated, simple, yet solemn White House ceremony officiated by President Barack Obama. Indeed, America is at its best when it celebrates its values and virtues –with simplicity, without any fanfare or pomposity.

The Medal of Honor

And here it is. On April 11, 2013 President Obama presided over a White House event whose purpose was the posthumous award of the extremely prestigious Medal of Honor to Emil Joseph Kapuan, a US Army Chaplain, a Catholic priest, who died in captivity during the Korean War, after having spent all his energies trying to improve the material and spiritual circumstances of his fellow prisoners. The list of Kapuan’s acts of selfless heroism, saving so many wounded soldiers, tending to them, and a lot more is just incredible and incredibly long.  

President Obama

But in all this what was beautiful and moving was President Barack Obama. He officiated. He greeted Kapuan’s family and the elderly Korean war veterans present. He welcomed all. He read the story of Father Kapuan. And he did so in a simple, unadorned, yet strikingly sincere and respectful way. With his words and most of all with his simple and respectful  manners and delivery President Obama was at his best as President and as an American. 

The civil rite

He was the selfless Minister of a civil rite. With simplicity and humility President Obama celebrated the virtue of a brave and good American. He did so as the good steward who knows and deeply understands that the ceremony is about the  reaffirmation of the moral values that bind the Nation together. The ceremony is not about Obama or about the White House.

The White House is the venue, the President is the instrument. It is up to him to show, with his own humble demenaour that he is aware that this ceremony is about America.  And President Obama did all that, with dignified, noble simplicity. In so doing, the President created a solemn, moving moment that should not be lost.   


Obama’s Budget Includes Only Timid Entitlement Reforms – Dramatically Different Demographics Require Serious Restructuring – But Fear Of Political Backlash Prevents Action

By Paolo von Schirach

April 11, 2013

WASHINGTON – Let’s keep this simple, Obama’s latest budget proposal indicates that this President has essentially given up governing. His focus is instead on hinting at meaningful entitlement reforms, without however putting a real plan on the table, with the goal of creating confusion and hopefully divisions in the Republican camp. Only in this diminished, timid and politically parayzed Washington can one take seriously mild measures aimed at slowing down –by a tiny bit, mind you–  the run away cost growth of Social Security benefits. This is tweaking –at best.

A major problem

Obama has got a big, in fact historic, problem –the systemic and unstoppable growth of major entitlement programs– and no serious plan to deal with. Let’s be clear: Obama did not create this problem. Just like other Presidents, he inherited it. In his case, managing this gigantic and growing fiscal shortfall has been made a lot harder by the impact of the 2008 financial crisis and the consequent recession that he also inherited.


That said, Obama is the CEO. It is up to him to lead. And he will not do it, simply for fear that any “real” –as opposed to cosmetic– plan to solve the entitlement crisis would be too unpopular. In fairness, supposedly fiscally conservative Republican George W. Bush did not nothing on this score, absolutely nothing. If anything, he messed things up quite a bit by engaging in ill advised and extraordinarily costly wars that simply made a bad fiscal picture a lot worse.

Changed demographics

But why are we now in this mess? It is rather simple. Well intentioned entitlement programs aimed at shoring up the finances of low income older Americans, while at the same time paying for most of their medical cost, were designed and approved in a different era, with different demographic trends. In those days, a large pool of active workers paid into funds that would then be used to distribute benefits to a relatively small numbers of retirees who (according to then accurate actuarial projections) would have only a few more years to live.

Well, none of those assumptions are true any more. All major industrial democracies, including the US, have experienced significant (in some cases, like Japan, dramatic) fertility rates declines. In the aggregate, this means that each year there are fewer and fewer active people supporting a lrger and larger number of  retirees. Indeed, owing to medical care improvements, retirees live much longer. To make matters worse, some live longer while suffering from chronic and very costly old age related diseases, like dementia.

Unchanged programs

In the meantime, the structure of major entitlement programs has remained pretty much the same. And so you get the picture. Programs that were supposed to provide a measure of support for a relatively small number of seniors and only for a few years, now have become gigantic and ever growing monsters that dominate federal spending.

The solution? Well, the solution is quite simple: restructure these programs so that full eligibility will be restricted to the truly needy, while raising the eligibility age, taking into account of the fact that people today live much longer. As far as today’ s young people –tomorrow’s retirees– are concerned, change the system. Create private savings accounts that will not require federal programs. The notion that the Federal Government can provide generous income support and medical care benefits to all is just no longer viable. Period.

Who will tell the truth?

As I said, the solution is quite simple. But there is no stomach on the part of any elected leader to level with the American public and finally “tell the truth”. And this is largely because these income support programs over time  morphed into entitlements and are now viewed as birth rights. This is why George W. Bush did not touch them. This is why Barack Obama stayed away from the pragmatic and sensible recommendation of his own “Debt Commission” that included much of what I what sketched above.

If the best that can be done is coasting, with some minor tweaking here and there  –looking at his proposed budget, this is Obama’s preferred course of action–  then the message is that we, as a Nation, are bent on “kicking” the proverbial “can down the road” for a few more years. It is obvious that at some point not even the mighty United States will have the residual credit that will allow endless borrowing at ridiculously low interest rates to fund manifestly unaffordable entitlements.

But, hey, we are not at the end of the road –yet. So, let’s pretend that all is well, and hope that some miracle will deliver us from the impending nightmare. What do you think? A good enough strategy?



Subsidies To The Wind Power Sector Made It Less Efficient – Misguided Economic Policies Introduce Distortions That Undermine The Effective Use Of Scarce Resources – This Is The Triumph Of Politics Over Economics

By Paolo von Schirach

April 6, 2013

WASHINGTON – A former wind power industry executive noted in a recent WSJ op-piece that subsidies provided to the sector made it less efficient. Indeed, set asides, mandates and other policy favors bestowed on this new industry, ostensibly with the goal of making it stronger, in fact made it weaker. Yes, subsidies, however well intended, perversely produce the opposite effect.

 Subsidies are bad for you

In the case of wind power, data shows that subsidies encouraged the development of projects in less than optimal geographical locations, (areas in which there is not that much wind), while the same subsidies also encouraged the use of less than optimal technologies.

You get the pictures. Industries get subsidies, direct or indirect, and they get lazy. Since their success is mandated politically, why bother with too much effort? Indeed, why?

Politics over economics

And yet, even though it is almost intuitive that subsidies make people as well as industries less self-reliant in as much as their survival is almost guaranteed by political protection, why do we keep doing this? Well, because as sociologist Wilfredo Pareto noted a long time ago, economic policy decisions are mostly made on the basis of non economic reasons and pressures.

In truth, economic policy is mostly about politics, not about economics. In the case of wind power, once we have established that wind is good and virtuous, then it follows that subsidies to the industry are also good and virtuous. When it turns out that it is not so, policy makers will say: “Sorry, we were doing the virtuous thing. And we were all in agreement. May be something went wrong in the execution and implementation of an otherwise good idea“. This way of explaining failures away is so common that nobody even pays any attention any more.

Distortions cause a waste of resources

And yet nobody wants to focus on the fundamentally flawed premise: subsidies are distortions. They are not helpful. But if policy makers acknowledged this simple fact they would also have to give up their power to influence the economy through their policies. And in so doing they would make themselves less powerful.

Given all this, chances are they will not change approach. As Pareto said, economic policies are determined by non economic factors. Alas, modern democracies are about wielding power, not about fostering efficiency. Today it is wind power subsidies, tomorrow it will be something else. And so, in the name of the public good, we shall squander more resources that could be used more efficiently, if only markets could operate without the burdens of political distortions.


Bank Of Japan Will Inject Massive Amounts Of Liquidity – Central Bankers Are Trying To Revive Weak Economies All By Themselves – Desperate Attempts Will Do More Harm Than Good

By Paolo von Schirach

April 5, 2013

WASHINGTON – As expected, Haruhiko Kuroda, new Bank of Japan Governor, announced that the BOJ will vastly expand the money in circulation. The only news in all this is that the amount of stimulus that will be injected is even larger than experts predicted.

More and more stimulus

And so Japan now joins the club of once upon a time vibrant economies (Europe and the US having started this) that are now paralyzed by slow or zero growth, and are desperately trying to kick start their systems via a flood of cheap money. Japan wants to fight deflation, the US and Europe want more economic activity that will stimulate investments, growth and jobs.

Good plans; terribly wrong policies. In a nutshell, what’s fundamentally wrong with this Central Banks directed approach is that Central Banks cannot be a substitute for vibrant economies managed and fine tuned by competent policies. Sure enough, if an otherwise healthy person is under shock because of a sudden trauma, an emergency room doctor will apply whatever emergency therapy the circumstances may require. But if you send to the emergency room a chronically ill, debilitated old patient, it would be foolish to assume that the same emergency therapies will heal him.

Old societies cannot be rejuvenated by Central Banks

And this is the problem with the West. We have old societies tied up by unworkable social compacts that over time caused the growth of social spending to a fantastic degree, while the political deals in place, all about subsidies and protection of vested interests, objectively stand in the way of dynamism, new investments and growth.

Japan is a sclerotic, hopelessly immobile geriatric ward. To think that because of Bank of Japan bold new policies there will be a sudden societal rejuvenation, is about as realistic as the dream of medieval alchemists to manufacture gold by mixing this and that in their primitive laboratories. It does not work.

US Stock market bubble?

By the same token, Ben Bernanke of the US Fed is beginning to look like another ill prepared sorcerer apprentice. He wants to create jobs through easy money. What he has manufactured instead is looking more and more like another stock market bubble. How so? Well, because by keeping interest rates artificially low he has forced investors desperately seeking higher returns to put their money into stocks, thereby jacking up their prices. How bad is this? I am not sure. And nobody really knows how bad a bubble is until it bursts.

Fix the fundamentals

Once again, it is a sign of profound political and moral weakness that modern societies are asking Central Bankers to do what civil society and elected leaders should do. Monetary authorities can help growth. But they cannot be a substitute for vibrant economies and effective economic policies. And they cannot, simply cannot make growth happen if the fundamentals (sadly) are not there.

Their desperate attempts to revive sclerotic, if not moribund, societies in the end will do more harm than good. In Disney’s Fantasia, the expert sorcerer comes back just in time to fix the huge mess created by his unwise underling. Alas, in the real world there will be no such saviors.