If You Want To Understand America, Go To Mount Vernon, The Home Of George Washington

WASHINGTON – Washington, DC in many ways is America’s Shrine. The main public buildings, the Capitol, the White House and then the Memorials erected to George Washington, Thomas Jefferson and Abraham Lincoln, are solemn reminders of America’s origins and meaning. The first modern republic, a noble experiment created to test this simple proposition: “Are men capable of self-government?”

The first modern republic

At a time in which Europe was led by Kings who governed under the assumption that God gave them the right to do so, the Founding Fathers created institutions based on the assumption that all individuals have “inalienable” God given rights. In order to live together as a society, free people would delegate some of those powers to elected representatives whose primary duty was and is the protection of individual liberties.

Imagine that. At the end of the XVIII century this was truly revolutionary. Well, right now I am not sure of the answer about America’s ability to have a functioning self-government. These days Washington offers a sorry spectacle of a rudderless democracy where the people representing the key institutions seem to have lost any understanding of what public service should be about.

A visit to Mount Vernon

Is there a remedy for this? I am not sure. But I can say that at least for me going to Mount Vernon, the place where George Washington lived and died, (only a short ride from the Nation’s Capital), is a beautiful and inspiring experience.

There one can relive the atmosphere of America’s beginnings.  And what is most striking about Mount Vernon is its simplicity. Sure enough, it was the large estate of a well to do Virginia farmer. But any second rate aristocrat in XVIII century Europe had a much bigger and much more opulent home. Let alone the grandiose palaces of Kings and Emperors.

In Washington’s home, in his experience, I see decency, restraint, tolerance, pragmatism, and superior wisdom. In Washington’s decision to leave public office while he was under no obligation to do so I see humility and a profound understanding that no man should  become overly attached to the powers of public office.

Washington’s armchair

From his days as President Washington brought home only a few objects. Most intriguing for me is the armchair he used while in office, now on display at Mount Vernon. Simple and functional. Nothing fancy. And yet, and yet, think about it. This is where George Washington used to sit and think, and write and deliberate, for years. A simple object, so full of meaning.

The Tomb

But the real meaning of Washington’s life for me is in his tomb. A very simple crypt. There he is: General Washington and his wife Martha at his side. A raised sarcophagus for the President and an almost identical one for his wife. Beautiful; but extremely simple. And I can see all that from behind an equally simple iron gate. Only a terse inscription on a stone tablet above the entrance: “Within this Enclosure Rest the remains of Gen. l George Washington“. Nothing more.

And there he is. There, in that unadorned yet extremely dignified burial place, is the Man who, along with a few others, created America. They created it, they cared for it and nurtured it, and then they left the scene.

George Washington did not want a mausoleum for himself. Just a simple tomb. Much can be learnt by observing how this leading Founding Father lived and by realizing how he still speaks to us, even in death.

 

 




Former Wells Fargo CEO, Warns That America Is losing Small Business

 

WASHINGTON – Much is said about the magic powers of well crafted federal public policy to “create jobs”. Yet, the record is not so good. Plenty of honest attempts; modest results. But how about the opposite? How about a mix of bad policies that tend to depress job creation?

Job killers, according to Richard Kovacevich

Well, you should listen to Richard Kovacevich, former Wells Fargo CEO. In a recent interview on Bloomberg TV Kovacevich pointed out that small businesses, traditionally the true engine of jobs creation in America, are no longer performing their historic role. And why not? According to what business owners tell Wells Fargo, (their banker), for three reasons.

Number 1: Too much regulation makes it difficult and far too onerous to understand and comply with the new rules.

Number 2: Obamacare compliance looks too expensive for small businesses. So, they prefer not to hire and stay small, in order to avoid the legal mandates that will soon hit larger firms on providing insurance to employees.

Number 3: Taxes are too high. And this is not about corporate taxes that may even be cut. The fact is that most small business owners pay taxes as individuals. As individual tax rates go up, small business owners feel the pinch.

Anybody listening?

The Obama administration should listen to people like Richard Kovacevich, people with considerable experience in lending to small enterprises. Contrary to popular belief, America’s economic might is not about General Motors, IBM, or General Electric. It is about small enterprises that energize the whole country. If they cease to be the jobs creators because they see too many public policy obstacles on their way, then you can expect this unprecedented period of American stagnation to last even longer.




The Book “The Great Stagnation” Explains Why The US Economy Is Not Growing

WASHINGTON – If you are a true believer in free enterprise and therefore think that what America needs right now is president Mitt Romney who will get us back on track with sound, tried and tested pro-business policies, implemented via the usual mix of lower taxes and less intrusive regulation, please read The Great Stagnation, by Professor Tyler Cowen of George Mason University, and think again.

The real issue is “no economically significant innovation”

Talk about a “paradigm shift”. The real issue is not, as we are led to believe, about a choice between pro-government Obama whose policies are focused on redistribution and income support for the middle class while penalizing growth and pro-business Romney who will unleash an economic rebirth while cutting entitlements. The real issue is that the great American economic expansion that took place between 1870 and 1960 was due to exceptionally favorable circumstances that, contrary to our beliefs and expectations of never ending abundance, were truly extraordinary and are now gone.

America had plenty of low hanging fruit

America had plenty of low hanging fruit: enormous amounts of arable land available for new settlers, waves of technological revolutions that made its use easier, (think of railways, the telegraph and electricity), while at the same time these technologies unleashed the most extraordinary industrial revolution in human history. And America had also plenty of eager new comers, many of them talented, who had come here willing to do their best. Well, all that low hanging fruit has been eaten, Cowen tells us. Its value has been consumed, and we do not have equally disruptive innovation these days that can cause a comparable increase in our rate of growth.

We have innovation today, but not as much

To be clear, there is still innovation; but not of the same caliber of what we had before. The transformation between the horse and the train or car is huge. The advantage of air travel versus any other modality is enormous. The difference between having a small foundry and a gigantic steel mill is huge. The difference between no electricity and electricity available for all possible industrial, educational, medical and home applications is also huge. The difference between no antibiotics and life saving medications is also fantastic. But today our progress is mostly about making improvements on old technologies.

We still believe we are as rich as we used to be

That said, the problem is that we behave as if we were still living in a high growth society driven forward by incessant innovation. Case in point, we still believe that we can afford a large and expensive state, including ever more expensive entitlement programs, while we no longer have the growing revenue base that made all of this affordable in the decades of ever increasing growth.

Public spending not productive

Besides, we do not really know how to calculate the real value of public investments. When the government spends money, we know what a given project costs. But we have no way to measure value. Which is to say that public expenditures most likely produce less value than we think and therefore add little to the common welfare.

The same applies to health care. We know that in America it costs a monstrous 17.5% of GDP. But the value we get for all this money is modest. If we compare the US with other rich countries that spend a lot less on health care, say 9 or 10% of GDP, their health outcomes in terms of basic statistics, including life expectancy, are better than what we come up with at a much higher cost.

Similar story for public education. More money spent in this sector and mediocre outcomes. In all international comparisons American students do rather poorly. So, more money does not get us more value.

Does any of this matter? Of course it does, because these are trillions of dollars that could be used more efficiently elsewhere.

We are still working with the basic inventions made decades ago

Still, aside from public expenditures, the critical point made by Cowen is that the pace of technological innovation has slowed down significantly. Indeed, with the exception of IT and the Internet, if we compare the life style of the American middle class a couple of generations ago to today, not much has changed. We still live in houses with central heating and air conditioning and drive the same cars. Sure enough, there have been improvements. But you cannot compare the added value of an energy-efficient modern refrigerator versus an older model with the difference between having a refrigerator and not having anything at all to keep food fresh. The first mass-produced refrigerators were game changers, as was the first mass-produced automobile or jetliner. Everything that followed is mostly tinkering.

ICT is the only real innovation

As Cowen points out, the only real contemporary innovations are in ICT, Information and Communication Technologies. Our parents did not have PCs, the Internet or mobile devices that now can work as computers. This is real, and it is big.

But the problem is that this sector, while immensely useful, so far at least, does not add that much to national growth. The ICT sector is capital intensive; but not labor intensive. Not much job creation; and therefore only a small contribution to national income. And paradoxically the impact of ICT on the rest of the economy has been to help companies reduce employment. Improved efficiencies made possible by IT solutions mean that traditional companies can do the same or better with fewer workers. But the problem is that the excess labor is pushed down the income ladder because these workers are not qualified to get the higher value jobs that require sophisticated knowledge. And a larger pool of semi-skilled workers means lower wages for all. Hence income stagnation.

Renewed efforts in science

According to Cowen the only way out of this is to encourage more people to get into science by, among other things, raising the social status of scientists in America. Well, this may be a long shot. But it is not a bad idea. Young people need to feel motivated to get into the only field that can give us hope of new breakthroughs that will trigger once again a very high rate of growth. More lawyers and more MBAs going into finance will not do the trick.

Until we get there, though, we have to adjust down the size of government and the size of entitlement programs designed for an era of ever-growing plenty that is unfortunately gone.

Politicians will not tell the truth

This should be the honest message delivered by honest American politicians: “We are no longer as rich as we used to be and as we (mistakenly) still think we are. So we have to lower our expectations until we shall be able to create better times”.

But this is not what we hear. Barack Obama wants your vote because he will magically calibrate public policies so that we shall have solid growth, fairness for all, reduced national debt and great, fully funded entitlement programs.

Mitt Romney wants you to believe that if we unleash the old American capitalistic spirit, now compressed by too much government interference and too many taxes, all will be well. Unfortunately, neither one is telling it to you the way it is.

Sustained low growth has huge long-term implications

The fact is that the innovation machine that was at the source of the extraordinary growth of our national wealth is and has been in low gear for decades. Because of this, US long-term economic trends, (leaving aside the additional disruption caused by the 2008-2009 financial crisis), show less growth and stagnating incomes.

Long term, the cumulative difference between a national economy growing at 2% a year as opposed to 3% is really huge.

Until we invent something truly disruptive that will cause once again great economic growth, we should be wise and adjust our expectations and life styles to these relatively leaner times.

But nobody seeking elective office would dare say any of this to the voters, assuming, (probably with cause), that they would shoot the messenger.

And so we shall continue to believe that we are richer than we are, this way delaying the inevitable moment of truth.




The Tesla Model S Is A Great Electric Vehicle That Performs Better Than Most Luxury Cars

WASHINGTON – The recently launched Tesla Model S is the first, and most impressive, US made all electric sedan. This Electric Vehicle, (EV), is produced by Tesla Motors, the company that is already producing a smaller roadster. All of them are part of (South African born) entrepreneur Elon Musk’s effort to demonstrate that electric vehicles are commercially viable in America.

Innovators are welcome

I am all in favor of innovation and of all original dreamers who have the courage and the drive to push the envelope trying something new.

For these reasons I admire Elon Musk; who by the way is also behind SpaceX, the company that just managed to send an unmanned space vehicle full of supplies to link up with the International Space Station. A first for any private business.

Great car…

The Tesla Model S just had a glowing review in The Wall Street Journal Off Duty Section, (July 7-8, 2012). A huge, enticing headline, (I Am Silent Hear Me Roar), plus a nice big picture and a long piece. That said, and with full recognition that this is a beautiful piece of engineering, that this is a car that proves that it is possible to have an EV that drives like a Ferrari, minus the engine noise, (yes, electric engines are silent), this is not a game changer.

…But too expensive

This is another fancy, if sophisticated, toy that goes just a bit beyond “proof of concept”. The problem is that the car is too expensive. The model used by the WSJ reviewer costs almost $ 100,000. The rock bottom version of the same Model S goes for $ 50,000 minimum, (after a tax rebate). While not prohibitively expensive, a motor vehicle in the $ 50,000 to 100,000 range has a limited market.

Gas savings not enough

And, most certainly, the people who will buy it are not driven by the desire to save on the cost of gasoline. Somehow I don’t think that anybody who can shell 70,000 for a new car is that concerned about the price of fuel.

And yet the main selling point for even thinking about EVs as an alternative to internal combustion cars is that an electric charge is much cheaper than gasoline.

However, if the EV is too expensive to begin with, all your fuel savings are offset by the higher price of the car, a cost difference that the average EV driver will never recover through lower operating costs, assuming current or even higher gasoline prices.

From “cute” to transformative

I think that it is Bill Gates who said that solar panels are mostly “cute”. Indeed, at this stage of the technology, while they may make the rich people who install them on their roofs feel good about their green credentials, they are not game changers, because they are still too expensive.

By the same token, a souped up, beautiful electric sedan may be a sensation among California millionaires who want to be green and trendy, but it is not a game changer.

Waiting for affordable EVs

This does not mean that Tesla or may be other companies will not come up at some point with an affordable all electric car that costs only $ 20,000 to $25,000.

That would be a game changer.

However, until then, most of us will continue to think that fuel efficient cars are vehicles that have improved internal combustion engines, so that they can give us more miles per gallon of gasoline.

Yes, it sounds so yesterday compared to the futuristic wonders of a high performance EV. But, alas, most of us cannot get one.




America Needs More Innovation – Fort Collins In Colorado Shows How It Can Be Done

WASHINGTON – Whatever will be said and promised in this difficult and already acrimonious 2012 political campaign, America’s long-term future and prosperity rests on its ability to continue producing technological innovation.

America: still competitive?

But on this critical variable the signs are not as good as we would like. Aside from US undisputed leadership in IT –R&D and design only, mind you, as manufacturing is all contracted to China– there are few areas of obvious American world technological leadership.

When all is said and done, there is only one Silicon Valley. And yet, leaving aside this globally recognized icon, there are very hopeful signs elsewhere. They should be noted, and elected officials –Governors and Mayors– nationwide should do their best to put in place the right policies that would encourage more of these to come to life. Here is the basic guiding principle: any public policy measure that makes it easier to translate viable research into commercial applications would help.

Fort Collins, Colorado, is an innovation hub

Take for instance the city Fort Collins in Colorado. There you have a vibrant innovative environment created via a good partnership that includes a pro-active municipality, Colorado State University, and the Rocky Mountain Innosphere, a business incubator and science park facility. As a result of this collaboration, you have the sprouting of a variety of “innovative companies operating in bio-science, software, hardware and clean energy that contribute ideas, inventions and products that positively affect the local economy“, as a document produced by the City of Fort Collins says.

Research areas include clean energy, water and disease prevention. And there are results. The city has one of the highest ratios of patents per number of inhabitants in America (and indeed the world), a remarkable record.

State of the art facilities

Most recently the Colorado State University Engines & Energy Conversion Lab was listed as one of the 25 “most awesome college labs” in the nation by Popular Science magazine. Wired magazine called the Lab one of the “Emerging Epicenters” for innovation and high-tech job growth in green technology.

And this is not just about a good teaching environment. It is also about the ability to conduct state of the art research on new engines and new fuels that may have enormous industrial spin-offs. This facility has become a recognized component of the US automotive industry R&D base. Indeed, the Lab’s ability to rely on high-tech contributions coming from a variety of sectors, all present in the area due to clusters and the Innosphere, fostered  innovation in energy efficiency of existing engines as well as in thinking about new solutions, be it in hybrid vehicles or bio-fuels.

Major grant by Siemens

And all this progress has been noticed. Recently Siemens announced a major $ 44.5 million (in kind) software donation to support research performed by the University within the “EcoCar2″ Project, a program sponsored by Government and the car industry. This way students will learn how to use complex state of the art computerized systems that will help them advance their R&D activities. This is the largest donation of this kind ever received by Colorado State University.

A good eco-system encourages innovation

Indeed, the Fort Collins formula is validated by the commercial success of many of its innovations, including a major redesign of a motor used now by all large pipeline systems. And here we have the evidence that this eco-system created by a good University, the municipal authorities, and the Rocky Mountain Innosphere and other players, (including the Federal Centers for Disease Control, The National Renewable Energy Lab, the Colorado Clean Energy Cluster, and more), really works. Major corporations, including Detroit automakers, are paying attention. They like what they is produced in Fort Collins.

As others will look more closely at what Fort Collins has to offer, this process will attract more talent and more corporate interest.

And there is an additional advantage. Fort Collins is a small town with good living conditions. As locally produced marketing literature proudly proclaims, the city is listed as the 6th best place to live in America. It is featured by Forbes as the 5th best place for business and career, and as one of America’s 20 most economically vibrant college towns.

A success story

All this is good. The passion for research and economically viable innovation is luckily still alive in America. Fort Collins shows what can be done.

But, at the same time, one should be careful. A few success stories –for sure to be recognized and celebrated– do not indicate that this model can be replicated at will. Otherwise we would have hundreds of “Fort Collins-like” places in America. In a word: innovation hubs do not follow a Starbucks model, whereby you find a good formula, and then you scale it up.

In the end, whatever the efforts of well-meaning people, it is all about the creation of the right eco-system, the right blend between passionate academics with a feel for business applications, motivated students, proactive political leaders, appreciative local businesses, keen investors, and a good outreach effort that pitches the locality to relevant new players who can add something good.

How do you create the right environment?

And yet, having the right ingredients is only the beginning. With a bit of humor, a document from the City opens by asking: “What is Fort Collins special sauce“? Whatever they say it is, it is clearly a secret blend that worked well there.

Instead of trying to copy it, it would be good for other localities that already have some of the key ingredients, such as a good university with top-notch researchers, to see how they could create their own distinctive eco-system that will attract keen new players. The good news here is that obviously there is plenty of talent in America, home-grown, or imported.

The real trick is to figure out how you can nurture it. And this is more art than science.




Policy Changes That Would Spur Small Business Creation

WASHINGTON – Not every economic policy change has got to cost money. Entrepreneur Henry Nothhaft in an op-ed piece in The Wall Street Journal, (A Labor Day Message for President Obama, September 3-4, 20110), provided a short but compelling agenda that President Obama could focus on. Acting upon it would have beneficial impact on start-ups, and business in general.

No money 

And this would cost any money. Nothhaft premise is that the real lever to get growth and employment creation moving again in America is to favor start-ups. This is where the real action is, in the US as in most of the world. Dynamic entrepreneurs and risk takers are also job creators. They give life to new businesses that require people in order to grow.

Reduce Sarbanes-Oxley burdens for small business

Well, for starters Sarbanes-Oxley legislation makes it far too onerous and expensive for small businesses to comply with all that is needed in order to keep their books in accordance to the law and particularly expensive to go public. And yet it is proven that start-ups get going and become truly profitable only after a successful IPO. It would be enough –Nothhaft suggests– to exempt firms that have less than $ 500 million in revenue from Sarbanes-Oxley mandates. This would allow many more small firms to go public, thus creating the preconditions for more rapid growth that would bring along more jobs.

Eliminate US patent office backlog

Furthermore, the US needs to overhaul its patent system. Right now America, supposedly the land of that encourages innovators more than any other, has an under resourced US patent office. Amazingly, currently there is a backlog of 1.2 million patent applications. It is obvious that patent protection in many instances is a critical precondition for launching a business based on one or more patents.

Allowing speedy processing and granting of patents would expedite the launching of hundreds, possibly thousands new businesses capable of creating, according to patent office estimates, ”millions of jobs”. Well, may be this an inflated estimate. But it looks intuitive that patent protection may be absolutely crucial to start a variety of new companies. Giving more resources to the US patent office cannot be that complicated. So, why not do it now?

Tax incentives for foreign manufacturers

The final recommendation is about offering tax and other incentives to manufactures willing to establish themselves in the USA. All countries offer incentives to lure new industries. And manufacturing is a force multiplier. For every new job in industry about 15 additional jobs are created up and down the supply chain and with other businesses that benefit from the creation of industrial activities.

Not a Grand Plan, just sound policy

This does not sound like a “Grand Plan”, a silver bullet for Obama bound to create millions of jobs between now and November 2012. So, politically these ideas may not be that hot. But these are sensible policy changes that would simplify and expedite the trajectory to success for enterprises, while encouraging many more would be entrepreneurs to start a new business.

Just think of it: Fast patent processing, diminished administrative burdens for small companies, easier transition to public company at a lower cost, incentives if you come from abroad. All this makes good sense. It would not cost anything and it would improve an investment climate no longer perceived by investors as truly favorable to business.




Paul Ryan, “Path to Prosperity”, And How To Change American Bad Health Habits

WASHINGTON – Here is a riddle for you. What’s the connection between the US looming fiscal crisis, the 2011-2012 budget proposal put forward by Congressman Paul Ryan which includes drastic changes in Medicare payments, and the advice to Americans to change diet and walk at least thirty minutes every day that came from the authoritative podium of the World Health Care Congress?

Believe it or not, the connection is very strong. In a modern society certain individual costs are socialized through centralized welfare programs. So, the overall size and extent of the socialized individual needs matters a great deal. And, as the extent of these costs inevitably become a public policy and public finances issue, when they explode beyond any control –this is the case of the American health crisis– we see how millions of people who do not take care of their health as much as they could, (without major efforts on their part), originate massive medical needs that translate into massive costs, consequently creating a huge political problem.

Individual behavior, political consequences

And this is the issue before us, as different players put forward different welfare spending blueprints aimed, in large measure, at taking care of the consequences of the bad habits of millions of Americans. So, do keep in mind that what is now framed as a “political issue” at its roots has individual behavior, (life style, diet, exercise, addictions). The gigantic national medical needs that policy-makers are trying to address largely largely stem from  from this behavior.

Indeed, systems are put in place to provide health care. And they cost money. How much of these costs are socialized and what the consequences of this socialization are for public finances becomes a matter of political debate. Yet, it all starts with individual needs in large part framed by personal behavior.

How are we dealing with the consequences of personal behavior? Paul Ryan has a plan

But let’s see how this plot unfolds. House Budget Committee Chairman Paul Ryan, Republican of Wisconsin, opened the “Big Budget Debate” by presenting a broad-based plan on April 5 aimed at obtaining substantial savings that will cut the astonishingly high yearly deficits and consequently the total national debt. Compared with Obama’s budget, his “Path to Prosperity” proposal would cut an additional 6.2 trillion dollars over the next ten years.

Ryan’s plan outlines spending cuts that create a path to fiscal sanity. His assumption is also that a combination of lower government spending, plus a streamlined tax system, including lower corporate tax rates only up to 25%, will contribute to higher economic growth. This “Path to Prosperity” may actually work.

In line with an anti-government, Tea Party inspired, mood?

More broadly, one would think that these proposed drastic spending cuts should be in line with what angry voters loudly demanded in the course of the 2010 campaign that led to a stunning Democratic defeat in the House. In fact the entire Tea Party phenomenon was and is largely an “anti tax and spend” grass roots movement.

So, big green light for Ryan and the Republicans from the voters? Well, not so fast. Angry Tea Party activists and many others demanded much lower government spending during the 2010 campaign to renew the Congress and they voted for the Republicans who seemed inclined to cut. But at the time nobody cared to single out in any detail “what should be cut and by how much”.

No. People really want to have their cake and eat it too

And here we get to the real problem, namely the basic immaturity that characterized a debate long on grandstanding and posturing and short on seriousness.

People running for office on a platform that would include –say– “No more federal money for private groups that provide abortions” may have scored big with ideological voters, but these cuts do not get you far. In fact, beyond ideological posturing, from a fiscal point of view, they are meaningless.

And yet, unfortunately, the political reality is that even for the most ferociously anti-government Americans the real, if unspoken, slogan is: ”Cut, cut everything, but do not touch my programs, please“.

Translation: Symbolic cuts are good, cuts in what I get are bad.

The untouchable welfare state

And, as it turns out, all these armies of supposedly self-reliant, “do it yourself” Americans are adamantly opposed to cuts in their favorite welfare programs. And these include Medicare and Social Security.

And very few told them in unequivocal terms that any path to fiscal restoration has to include cuts in all entitlements which alone constitute about 60% of all federal spending. Until this issue is squarely and honestly put on the table, serious spending reform may remain an elusive goal.

House Budget Committee Chairman Ryan means well, and I wish him success; but I sense that America is not yet on board.

Social security reform, a bit easier

Regarding Medicare and Medicaid, both programs are essential pillars of the US welfare state. Tinkering with them without broad popular support is politically explosive, if not suicidal.

Social Security is equally important; but fixing it is likely to be much easier. Repairing Social Security is mostly about moving forward the age of full benefits eligibility, in line with changed demographics and longer life expectancy. As we all live longer, so we should get our benefits a bit later. These program modifications can be done in a gradual way, without harm for future recipients.

Medicare is a mess, as it is part of the broader health care cost explosion

But Medicare is a much bigger mess. Because Medicare is one large component of a monstrous health care system characterized by the highest cost structure in the world; it is therefore negatively affected by its crazy cost dynamics.

As currently conceived, Medicare is a subsidy, whereby enrolled senior citizens pass on to the government their medical bills. The problem is that, as the actual costs of medical care in the US keep growing well ahead of inflation, the overall Medicare financial burden for federal finances will soon be unsustainable.

The Ryan remedy

The Ryan Budget blueprint puts forward a bold reform. The US Government will stop underwriting costs. It will provide a fixed amount of money that will be used by individuals to cover insurance policy premiums that they will select from within a pool of competing insurers. Beyond that, the Government contribution will rise only with inflation.

The rational here is to introduce a system that will incentivize competition among insurers and a more judicious use of health care. This is good. But only up to a point.

If costs keep growing, limited government help will dry up quickly

Indeed, if policy makers assume that medical costs are destined to rise at the current rate indefinitely, then it is clear that a limited premium support program will not do it. Assuming sky rocketing costs, senior citizens, after having quickly utilized whatever money comes from Washington, will be left to fend for themselves, and some for sure will not have enough money to do so.

As soon as this scenario sinks in, and you can bet that the Democrats will make sure to highlight this point, this whole Medicare reform proposal will become a huge political liability.

It will be very hard to convince future recipients that they have nothing to worry about, because the new system will magically contain costs, so that they will be in line with inflation. People are unfortunately used to costs going up, and up, every year.

But why these costs in America?

And this is indeed the real core issue. Why skyrocketing medical costs in America of which Government payments is only one, albeit very large, component? No similar phenomenon is registered in comparable advanced countries. What’s so special about the US?

In truth, say the experts, there is absolutely no objective justification for this ongoing explosion of medical costs in the US.

“Fee for service”, no built-in disincentive to over prescribe, and an unhealthy population contribute to increase demand and cost

There are contributing factors, though:

–One is that medical professionals are paid on “fee for service” basis, with no limitations. Which means that the more they prescribe, the more money they make. There is abundant evidence indicating widespread include way too many unnecessary procedures, redundant tests and over prescription of medications. All this comes with a huge price tag.

–The second is that the medical insurance system places insufficient checks on this practice.

–And, third, we have a very unhealthy US population more and more afflicted by chronic diseases whose treatment creates enormous financial burdens for the whole system. The Medicare program sits in the middle of this mess. In fact, it sits on the most expensive end of the continuum, because it provides for elderly patients, by definition in greater need than the average younger individual.

My point is that, unless the health care fundamentals –mostly “fee for service” and “wellness education”– are not drastically modified, it would be hard to find a permanent and satisfactory solution for Medicare.

Can we change the underlying fundamentals that drive up costs?

But can this be done? Of course it can. But it requires a small revolution –a revolution recommended by health care professionals.

Fate has it that this new Paul Ryan Budget has been unveiled just at the same time of an event held by The World Health Care Congress. One of the speakers was George Halvorson, Chairman and CEO of Kaiser Permanente, one of the largest health care providers in America.

Enter George Halvorson of Kaiser Permanente

And what Halvorson had to say is truly astonishing. With example after example he pointed out the absurd cost disparity between what people are charged in the US and in Germany, France, Canada and other modern countries regarding practically each and every routine medical procedure.

Everything in the US costs double, triple or more. For the same procedure? With the same or comparable effort? This is completely absurd.

No justification for exorbitant US prices

Some price differences may be justified by local economic conditions, prevailing costs, wages, etc. But “everything” costing so much more? And this is not about cost of surgeries in emerging countries’ facilities where we can understand that costs can be even 1/10 of what you would pay in the US. This is not Indian hospitals we are dealing with. We are talking about advanced, wealthy nations with per capita incomes quite comparable to the USA.

Chronic illnesses absorb most of the money

And George Halvorson also pointed out that the real budget busters in the US are not the relatively few, complicated and expensive procedures for rare cancers and what not. The real problem is represented for instance by the explosion of obesity and obesity related chronic diseases, like type two diabetes.

Obesity has created an army of chronically ill patients who need constant treatment. And it is these patients who break the bank.

However, we know that obesity, with very few exceptions, has its roots in something very, very mundane: people eat too much of the wrong stuff and exercise too little. Is it possible that “overeating” has really become a national medical and now public policy problem? You bet.

And the miracle of a 30 minute daily walk

And what else? Well Halvorson talked about nutrition and exercise. (See above about obesity). And, you may find it odd, but he dedicated a fair amount of time within his presentation extolling the benefits of a 30 minute walk –every day. He provided suggestions in how this walk could be split into two 15 minutes installments and so on. He indicated that the body “really needs to move”. And that this walking is a key factor in tuning up all metabolic functions, so that “all systems” are kept in good working conditions.

Walking and the Budget

So, what’s the connection between walking or not, better or poor diet, doctors salivating when they get a new diabetes patient and Ryan’s Medicare reform plan? Well there is a huge connection.

First of all, skyrocketing medical costs do not depend on some sort of law of physics. They are driven by bad incentives that can be modified.

Secondly, aggregate national costs are driven by total demand for services. And this demand can be lowered, significantly, if people overall develop much healthier habits.

Simple changes in diet and exercise (as Halvorson recommends) by millions of people could have a rapid effect in the reduction of demand for services that end up costing hundreds of billions of dollars, becoming in the end a huge component of publicly paid health care.

And so, oddly enough, an issue originating in personal habits, multiplied by millions of individuals, becomes a public policy issue, and inevitably a political issue in the forthcoming budget battle.

Can all this be taken in as we frame the national policy debate on health care?

It would be nice if the unfolding national debate on Medicare reform would take all this into account. If, instead, medical care costs increases are treated as a given, an independent variable that cannot be modified, then the whole debate will be restricted to: “This is what it costs. Now let’s decide who pays what”.

Caricature and emotions will prevail

And the politicians will not be driven by a desire to reform; but by a desire to apportion payments so that their favorite constituents come up on top.

If this is so, then the debate will be portrayed as one between the ”mean spirited Republicans” who want to throw indigent grandma out of the hospital, and the “compassionate Democrats” who want to keep grandma in the hospital, have Uncle Sam absorb the cost and then hope to find a way to the pay the bill; in the meantime jacking up the national debt, praying that China will keep buying it when we issue more of our increasingly dubious Treasury bonds. Not a good way to frame this critical problem affecting tens of millions of citizens.

If we could only learn how to walk……




Can the US promote democracy in the Middle East?

 

WASHINGTON – American military commanders in Iraq have been saying for some time that the insurgency cannot be won by military means alone. The U.S. military knows that there are limits to its capacity to counter, let alone destroy, the asymmetrical capabilities of the insurgents there. The alarming increase in the level of violence over the past month confirms their assessment.

Victory in Iraq will be achieved only when we will have created conditions whereby the incentives to recruit, be recruited and act in the insurgency will disappear. Victory will take place only when the insurgents see that their cause is either hopeless or totally wrong.

This would entail an ideological shift, a true conversion on the part of a critical mass of insurgents to the principles of secular democracy, tolerance and respect for individual liberties. Without such conversion, the ideological incentive to carry on the attacks will continue to brew and there will be no victory, as the United States and its allies clearly lack the means to identify and destroy all the insurgents and their rather large recruiting systems. Victory should be defined as the prevailing of the ideas underlying U.S. efforts and the end of violence.

This should not be confused with the possible successful disengagement of the U.S. military from Iraq, predicated on the build-up of capable Iraqi forces that can somehow fill the void left by departing American troops. Leaving the Iraqi military in charge of an ongoing, potentially endless, fight may be politically beneficial in the U.S. domestic context replete with demands to bring the troops home. But this would not be victory. Instead of becoming a keystone of a new stable Middle East, Iraq would then be a another factor of regional instability, a magnet for radicals. This would be worse than under Saddam Hussein’s regime.

The United States and its allies won the Cold War because America’s ability to resist Soviet military encroachments and propaganda lasted long enough to expose to a sufficient number of people living under Soviet rule the fissures, evil and rot of the system. The United States was also lucky in having at an appropriate time an unaware ally in last Soviet President Mikhail Gorbachev. By trying to improve a police state, he exposed its weaknesses and hastened its demise. In that contest, the West, because of its intellectual and material superiority, prevailed. But the critical factor that condemned those regimes was the open exposure of the disastrous failures of communism to the people living under it. In the end, the inability of the communist leaderships to mount a fight to defend their regimes deprived them of any residual legitimacy.

In the case of Islamic fundamentalism, we do not have on our side the record of half a century of failures of regimes; that is  egregious examples that can give ammunition to moderate Muslims to speak against the ideological insanity of such social and political models. An insanity based on a demonized view of politics that is predicated — among other things — on the destruction of the alleged enemies of the true faith: the Untied States, its allies and its agents, such as Israel.

Since the 1980s, a theocracy has been ruling Iran. But it is a theocracy that can lubricate its otherwise inefficient mechanisms with a massive oil rent, something that shields it from the full political consequences that bad models usually provoke. The Taliban in Afghanistan provided a chilling example of what damage institutionalized fanaticism can bring about. But it was an isolated regime in an impoverished country that did not last long enough to be used as a paradigm of what will go wrong, once radical Islamist factions have a chance to govern.

The U.S. political leadership wants to end the conflict with radical Islam through political means, by pushing forward the democratization agenda, not just in Iraq and Afghanistan, but in the whole Middle East. The underlying rationale for these policies is that extreme ideologies proliferate and find adepts because those societies never had a “normal” political process based on the peaceful, open debate of ideas. Repression, authoritarianism and brutality breed factions and fanatical political movements that contemplate only violence as a means to end existing injustice.

Open up the systems, proclaims the Bush administration, create the infrastructure for viable democracies and, over time, you will create a legitimate, disciplined forum for policy debates. In time, this process should yield the emergence and consolidation of peaceful societies.

Open up the systems, proclaims the Bush administration, create the infrastructure for viable democracies and, over time, you will create a legitimate, disciplined forum for policy debates. In time, this process should yield the emergence and consolidation of peaceful societies. However, there are two major flaws in this reasoning that need to be addressed for this approach to have a fighting chance of ultimate success.

First, there is an inherent danger in trying to force feed this principle to people who may not be ready for it. To justify the global promotion of democracy as a “mission” somehow entrusted to America by the Almighty authorizes any paranoid reaction against this concept on the part of those who want their institutions to be based on their own religiously inspired principles.

To the extent that America, in the words of the president, claims some kind of transcendental justification for its policies, this will run counter to the goal of promoting secular democracies based on tolerance and respect for all beliefs.

Therefore this notion of ‘a mission’ creates an inevitable collision with those who already portray the United States in ideologically distorted form. “Who are these Americans who go around preaching and telling others what they should do”? It is this strong veneer of righteousness at the core of U.S. policies that is the primary cause of such vocal opposition to them on the part of the European allies and world opinion.

Second, we have to understand and deal with the complexities that this process entails. Secretary of State Condoleezza Rice correctly affirms that, even if the outcome of recent elections in the Middle East is disappointing, this should not undermine the validity of the assumption underlying the promotion of democracy.

It may be right to embrace democracy building as the ultimate means to undermine the legitimacy of political violence as the answer to the problems of Islamic societies in transition. However, this also means that the United States for an indefinite period of time will require both the means and the will to deal with the consequences of instability in the countries where we are promoting change; including radical movements elected to power with the blessing of the voters.

Does America have the stomach and the willingness to commit resources to deal effectively with Hamas in Palestine, Hezbollah in Lebanon, the Muslim Brotherhood in Egypt, a Shiite majority government in a violence-torn Iraq and who knows what else? Will the American people have the staying power to help turn radical, non democratic, movements into responsible political forces? This administration has only two-and-a-half years left.

This enormously ambitious and complex policy has value only if the American people as a whole fully understand it and if they are unequivocally committed to it and embrace it for the long term. Thus, no matter who wins the mid-term elections in November and whoever is elected president in 2008 will have to show the world that they really believe in this policy and that they will stay the course.

Otherwise “democracy promotion” will have amounted to an unsustainable, if visionary, grand strategy, discarded by President Bush`s successors because it is too costly and too complicated. The threat of terrorism will continue to be with us, as its root causes will not have been dealt with. At the same time, America’s perceived righteousness will have alienated its prestige and ability to lead. That would be a disappointing prospect to contemplate.

Originally published as an Outside View by UPI on March 29, 2006

American military commanders in Iraq have been saying for some time that the insurgency cannot be won by military means alone. The U.S. military knows that there are limits to its capacity to counter, let alone destroy, the asymmetrical capabilities of the insurgents there. The alarming increase in the level of violence over the past month confirms their assessment.

Victory in Iraq will be achieved only when we will have created conditions whereby the incentives to recruit, be recruited and act in the insurgency will disappear. Victory will take place only when the insurgents see that their cause is either hopeless or totally wrong.

This would entail an ideological shift, a true conversion on the part of a critical mass of insurgents to the principles of secular democracy, tolerance and respect for individual liberties. Without such conversion, the ideological incentive to carry on the attacks will continue to brew and there will be no victory, as the United States and its allies clearly lack the means to identify and destroy all the insurgents and their rather large recruiting systems. Victory should be defined as the prevailing of the ideas underlying U.S. efforts and the end of violence.

This should not be confused with the possible successful disengagement of the U.S. military from Iraq, predicated on the build-up of capable Iraqi forces that can somehow fill the void left by departing American troops. Leaving the Iraqi military in charge of an ongoing, potentially endless, fight may be politically beneficial in the U.S. domestic context replete with demands to bring the troops home. But this would not be victory. Instead of becoming a keystone of a new stable Middle East, Iraq would then be a another factor of regional instability, a magnet for radicals. This would be worse than under Saddam Hussein’s regime.

The United States and its allies won the Cold War because America’s ability to resist Soviet military encroachments and propaganda lasted long enough to expose to a sufficient number of people living under Soviet rule the fissures, evil and rot of the system. The United States was also lucky in having at an appropriate time an unaware ally in last Soviet President Mikhail Gorbachev. By trying to improve a police state, he exposed its weaknesses and hastened its demise. In that contest, the West, because of its intellectual and material superiority, prevailed. But the critical factor that condemned those regimes was the open exposure of the disastrous failures of communism to the people living under it. In the end, the inability of the communist leaderships to mount a fight to defend their regimes deprived them of any residual legitimacy.

In the case of Islamic fundamentalism, we do not have on our side the record of half a century of failures of regimes; that is  egregious examples that can give ammunition to moderate Muslims to speak against the ideological insanity of such social and political models. An insanity based on a demonized view of politics that is predicated — among other things — on the destruction of the alleged enemies of the true faith: the Untied States, its allies and its agents, such as Israel.

Since the 1980s, a theocracy has been ruling Iran. But it is a theocracy that can lubricate its otherwise inefficient mechanisms with a massive oil rent, something that shields it from the full political consequences that bad models usually provoke. The Taliban in Afghanistan provided a chilling example of what damage institutionalized fanaticism can bring about. But it was an isolated regime in an impoverished country that did not last long enough to be used as a paradigm of what will go wrong, once radical Islamist factions have a chance to govern.

The U.S. political leadership wants to end the conflict with radical Islam through political means, by pushing forward the democratization agenda, not just in Iraq and Afghanistan, but in the whole Middle East. The underlying rationale for these policies is that extreme ideologies proliferate and find adepts because those societies never had a “normal” political process based on the peaceful, open debate of ideas. Repression, authoritarianism and brutality breed factions and fanatical political movements that contemplate only violence as a means to end existing injustice.

Open up the systems, proclaims the Bush administration, create the infrastructure for viable democracies and, over time, you will create a legitimate, disciplined forum for policy debates. In time, this process should yield the emergence and consolidation of peaceful societies.

Open up the systems, proclaims the Bush administration, create the infrastructure for viable democracies and, over time, you will create a legitimate, disciplined forum for policy debates. In time, this process should yield the emergence and consolidation of peaceful societies. However, there are two major flaws in this reasoning that need to be addressed for this approach to have a fighting chance of ultimate success.

First, there is an inherent danger in trying to force feed this principle to people who may not be ready for it. To justify the global promotion of democracy as a “mission” somehow entrusted to America by the Almighty authorizes any paranoid reaction against this concept on the part of those who want their institutions to be based on their own religiously inspired principles.

To the extent that America, in the words of the president, claims some kind of transcendental justification for its policies, this will run counter to the goal of promoting secular democracies based on tolerance and respect for all beliefs.

Therefore this notion of ‘a mission’ creates an inevitable collision with those who already portray the United States in ideologically distorted form. “Who are these Americans who go around preaching and telling others what they should do”? It is this strong veneer of righteousness at the core of U.S. policies that is the primary cause of such vocal opposition to them on the part of the European allies and world opinion.

Second, we have to understand and deal with the complexities that this process entails. Secretary of State Condoleezza Rice correctly affirms that, even if the outcome of recent elections in the Middle East is disappointing, this should not undermine the validity of the assumption underlying the promotion of democracy.

It may be right to embrace democracy building as the ultimate means to undermine the legitimacy of political violence as the answer to the problems of Islamic societies in transition. However, this also means that the United States for an indefinite period of time will require both the means and the will to deal with the consequences of instability in the countries where we are promoting change; including radical movements elected to power with the blessing of the voters.

Does America have the stomach and the willingness to commit resources to deal effectively with Hamas in Palestine, Hezbollah in Lebanon, the Muslim Brotherhood in Egypt, a Shiite majority government in a violence-torn Iraq and who knows what else? Will the American people have the staying power to help turn radical, non democratic, movements into responsible political forces? This administration has only two-and-a-half years left.

This enormously ambitious and complex policy has value only if the American people as a whole fully understand it and if they are unequivocally committed to it and embrace it for the long term. Thus, no matter who wins the mid-term elections in November and whoever is elected president in 2008 will have to show the world that they really believe in this policy and that they will stay the course.

Otherwise “democracy promotion” will have amounted to an unsustainable, if visionary, grand strategy, discarded by President Bush`s successors because it is too costly and too complicated. The threat of terrorism will continue to be with us, as its root causes will not have been dealt with. At the same time, America’s perceived righteousness will have alienated its prestige and ability to lead. That would be a disappointing prospect to contemplate.

Originally published as an Outside View by UPI on March 29, 2006