Americans Waste One-Third Of All The Money Spent On Health Care

By Paolo von Schirach

March 2, 2014

WASHINGTON – The Obamacare fiasco, or at least semi-fiasco, continues to generate media attention. From a political standpoint, the Republicans intend to make the mess caused by the faulty roll out of this bad legislation a major issue in the upcoming mid-term congressional elections.

Bigger issues

That said, the heated debates about what Obamacare is doing or not doing unfortunately obscures the bigger reality of the structural deficiencies of the entire US health care sector. The Obamacare critics would like you to believe that things were just about OK until President Obama and his leftwing technocrats started messing with it. Just repeal the Affordable Care Act and all will be well. Not so. Not so.

Enormous waste

The US health care system was in deep crisis before this reform effort, and it will continue to be in a crisis, even assuming the (unlikely) repeal of Obamacare.

How bad a crisis? Read this, from a piece by Dr. Martin Makary published in TIME magazine, (The Cost of Chasing Cancer, March 10, 2014):

“A 2012 Institute of Medicine report concludes that Americans spend as much as one-third of their health care dollars on tests, medicine, procedures and administrative burdens that do not improve health outcomes”.

Health care waste up to 5% of US GDP

Got that? Up to one-third of all our national health care spending is wasted. Now, if you consider that health care spending is beyond 17% of GDP, the waste (about 5% of GDP) amounts to more than the entire Pentagon budget. Yes, as bad as that. But nobody wants to discuss this. May be because the problem is too big? Who knows.

Perverse incentives

But why are we in this mess? The health care crisis is largely due to perverse incentives that are not that difficult to understand. For starters, most US doctors are in private practice. And this means that they make money only if you, the patient, come and see them. And you will do so only when you are sick. And here is a key problem.

US doctors have no economic interest in encouraging healthy life style habits –beginning with good nutrition and regular exercise– in the same way as your auto mechanic has no interest in teaching you smart ways to prevent damages to your car engine. Indeed, just as your auto mechanic makes money only when your car breaks down, your doctor makes money only when you are sick. This may sound a bit simplistic, but it is so. If everybody is healthy, doctors make no money.

Insurance will pay

And there is more. Unlike your auto mechanic, your doctor knows that you (or at least most people) have medical insurance. This means that you pay only a small portion of his bill. And this creates a powerful (and truly perverse) incentive to make the bill as large as possible.

And in medicine it is hard to determine in a conclusive way “how much is enough” when it comes to testing, diagnostics, treatments and surgeries. Therefore, as there is no real standard, let’s err on the side of caution. Let’s do “more” rather than “less”. In any event, the patient does not pay, and so he or she is not going to resist more treatment. And this explains how we get to wasting so much money: hundreds of thousands if not millions of unnecessary procedures and therapies that add no value.

Administrative costs

Add to this disaster antiquated record keeping and billing systems and you see how we get to wasting one third of all the money we spend on health care. True enough, Obamacare made this mess possibly worse. But repealing it would be no solution.

As difficult as this is, it is time to modernize the entire US health care system.

Putin Loses The Ukraine, But He Gets To Keep The Crimea – Happy Ending?

By Paolo von Schirach

March 1, 2014

WASHINGTON – Let me give you my ultra simplified assessment of what has happened and what will happen regarding the Ukraine.

How the plot unfolded

Act 1: Russian President Putin tried to lure the Ukraine away from a closer association with the EU by promising easy credits.

Act 2: Russia and pro-Russian President Viktor Yanukovych of the Ukraine are surprised by the strong popular resistance against closer tied with Russia.

Act 3: No doubt with Russian support, Yanukovych sends riot police against demonstrators in Kiev, thinking he can just crush them.

Act 4: The rioters prove to be really strong. After weeks of street battles, they topple Yanukovych.

Act 5: Yanukovych flees to Russia. Putin has a nice black eye. His clever strategy gave him a total defeat. The Ukraine is lost.

Act 6 (Being played now): Putin tries to restore Russia’s battered image by occupying the Crimea, an autonomous peninsula situated in the very south of the Ukraine, inhabited mostly by ethnic Russians and (on the basis of a treaty) home of the Russian Black Sea Fleet.

This move amounts to a de facto partition of the Ukraine. No doubt Russia will refrain from any formal unilateral annexation. It will simply “support” a new arrangement between the new government in Kiev and the Russians in the Crimea that will grant them virtual independence in the context of a vaguely defined federation agreement.

President Obama will say that, as long as the wishes of the people in the Ukraine, (and this would include of course the Russians in the Crimea), are respected, all is well.

Grand Finale

The Russians manage to save face by claiming to be the saviors of their brethren in the Crimea. Putin is still “The Man”, (at least for his home audience).

Obama can say that the US helped defuse what might have become a major crisis. (In all this, he does not look that great; but it does not matter. These days Americans do not care much about foreign affairs).

The European Union gets to lead the rescue of the semi-destroyed Ukrainian economy. In other words, they are stuck with the bill.

In conclusion…

As I said, this is an over-simplified narrative. But I believe that this is exactly what is happening. Russia cannot occupy the entire Ukraine, a country the size of Texas with 44 million people. This would be too difficult, too costly and it would look really bad.

But it certainly can occupy and hold on to the Crimea, a part of the Ukraine that is historically Russian and in fact inhabited mostly by Russians. And so it did. Russia’s claim that it had to intervene in order to protect Russians threatened by Ukrainian ultra-nationalists is not terribly outrageous, and so nobody, despite the protests of the new government in Kiev, is going to do much about it.

This way Putin “loses” the Ukraine; but he can still claim “victory”, by showing that he could act swiftly to protect fellow Russians in the Crimea.

And what about America? Well, the world will once more see that America is both unwilling and unable to do much about foreign crises. Pax Americana is a thing of the past.

And Europe? The Europeans now realize that they have to intervene to save the semi-destroyed Ukrainian economy. And this is going to cost –a lot.

Happy ending? What do you think?

Chinese Experts Say That China Needs A Lot More Natural Gas – Not Renewables

By Paolo von Schirach

February 17, 2014

WASHINGTON – In the often schizoid US national debate on energy issues the “good and enlightened people”, (those who would like us to stop using carbon based fuels immediately), frequently point out that China is way ahead of America. China, we are told, is investing massively in renewable energy, most notably solar. You see, the real point is that the wise Chinese technocratic leaders, capable as they are to serenely contemplate “the big picture”, figured out long ago that their vast nation needs to get out of carbon. The conclusion is that the Chinese are wise and smart. We are not.

Bad carbon based energy

Largely because of the evil works of the oil and gas lobby, we keep focusing on the outmoded, wrong formulas –fracking being the latest. Indeed, by developing this (sinister?) source of natural gas contained in shale formations we continue our perverse dependence on carbon, while we pollute our precious water supplies and create untold dislocations across rural America.

What is really happening in China

Well, the real picture is quite different. China’s state TV, CCTV, reports that in order to curb stratospheric levels of pollution, officials in the Hebei Province, (a large area surrounding Beijing and now officially the most polluted province in China), had to resort to the actual closing down or destruction of 8,347 industrial plants producing cement and glass, among other heavy polluters.

An expert from an official research agency, interviewed by CCTV, indicated that reducing horrible levels of smog will be very, very tough.

For one thing, he stated, if the province wants to move to renewable energy, making anything there is going to be much more expensive. This will be very tough for business, he pointed out. Furthermore, the general public will be hit by higher utility bills.  So, there you have it. Renewable energy costs a lot more and makes it harder for industry to stay competitive.

China needs natural gas

And so, what is the way out? Well, the expert said that China needs to increase its supplies of “natural gas” and “nuclear power”.

Got that? “Natural gas” and “nuclear power”. Not a word uttered by this presumably enlightened Chinese expert about solar and wind. And why not? Not because they are bad. It is because, to date, they are still too expensive.

So, here in America our incredible natural gas bonanza is demonized by the “good experts” as more of the same bad stuff, while they invoke the healing power of renewables supposedly pushed forward by the smart Chinese technocrats. But it turns out that in China the experts say that they would love to have access to a lot more natural gas, so that they could reduce their reliance of dirty coal.

Renewable energy has a future

The day of renewable energy no doubt will come. But we are not there yet. The American do gooders should look at China’s environmental disasters and the lack –today– of cost-effective renewable energy solutions. After that, they should look back at America and consider how lucky we are. Thanks to fracking and horizontal drilling –American home-grown technologies– we are now the largest producer of natural gas in the world.

Because of this abundance of domestic, cheap and relatively clean energy we can retire old, high polluting, coal-fired plants without any adverse economic effects.

What do you know: our natural gas is very cheap and it is much cleaner than coal.

And, yes, as a result of this shift from coal to gas for power generation we have cut our greenhouse gases emissions. China is indeed investing heavily in solar energy. But, thanks to a huge number of high polluting coal-fired plants that cannot be shut down, as there is no economically viable alternative, millions of wise Chinese live in cities that are virtual gas chambers.

Certainly, we in America have a long way to go in our quest for affordable, clean energy; but –thanks to our natural gas revolution– we are much farther along.

New York State Run Out Of Ideas, It Does Not Know How To Promote Itself

WASHINGTON – New York, once upon a time the symbol of American economic might and creativity, run out of ideas. Or at least this applies to the people in charge of promoting New York State as a place for doing business.

Tax holiday state

On TV business channels, (Bloomberg, CNBC), these days you are bound to watch an often repeated TV ad supposedly promoting New York State as a great place for corporations. And what is the pitch? A rather poor one.

You learn that New York State is open for business. If you have a good idea and want to develop it, you should go to New York State, because there you will get a nice tax holiday. Yes, if you bring your business to us  –New York promoters tell you– you’ll pay no taxes for 10 ten years, or something like that. Give or take a few embellishments, this is pretty much it: “No taxes or very low taxes for new businesses coming to New York State”. This is really dry, unimaginative and very poor.

New business seeks a vibrant environment

Of course taxes are a big deal. And any business person will listen when you promise an extended tax holiday. But while this is true, it also true that business people, especially young entrepreneurs in tech sectors, are drawn to dynamic, vibrant environments where there is plenty of talent, research facilities, a cultural life, state of the art telecommunications infrastructure, and world-class, competitive logistics.

None of this is mentioned in the TV ad promoting New York State. It is only about low taxes. Nothing about local talent, human capital, innovation, dynamism, discoveries, enterprise. Here is the legendary “Empire State” version 2014: a “tax holiday” spot. That’s it. Not such an interesting place, really.

The allure of Oklahoma

Compare this with TV ads promoting Oklahoma as a tourist destination. The State is described as a unique blend of old and new. Nature and enterprise. The American West. Culture and fine dining. And the greetings are delivered by an attractive Native American woman who says hello in her own native language.

Now, that’s interesting, alluring and  intriguing.

Just By Engaging In Negotiations About Its Nuclear Program Iran Has Won The Public Relations Battle

By Paolo von Schirach

February 6, 2014

WASHINGTON – Whatever the final outcome of the Iran nuclear negotiations, Iran has already won. Just by hinting about a desire to reach a deal, it has received a huge prize: moral rehabilitation. All of a sudden, a more friendly looking president Hassan Rouhani is described as the embodiment of a gigantic –and certainly benign–policy shift. Iran, it is now clear, wants peace with the West –really. You want proof? Well, he says he wants a deal. What more do you want? 

Negotiations are good, give diplomacy a chance

Well, sensible people would want more, a lot more than just generic declarations. And so far it is clear that Iran, at best, is prepared to freeze its advanced nuclear program in place, a totally meaningless gesture because the country would retain all it needs to resume creating weapons grade material at  a moment’s notice. But the world is mostly happy. “Look, there are negotiations.  The Americans and the Iranians are sitting at the same table, and they are talking. There is clearly a thaw in relations. This must be good.”

No real concessions

I doubt it. The Iranians are prepared to make symbolic gestures in exchange for fewer or no sanctions. I believe that they have made a shrewd calculation about how tough the West really is. And they have concluded that through a charm offensive it is possible to break the sanctions front without giving anything up.

They will keep saying that they have no intention to make nuclear weapons. But they want to keep in place a program that is inconsistent with their declared purpose of pursuing only a civilian use of nuclear technology. And so they are adamant about their will to keep in place all their capabilities to easily build nuclear weapons at any point in the future, this way retaining their prestige and influence in the region. In the meantime, all those in the West who are salivating at the prospect of business opportunities with Iran will lobby their governments so that they will accept any deal, including a bad deal.

Cracking the sanctions front

The current Washington official policy stance whereby “if Iran misbehaves we are ready to put in place even tougher sanctions“, may deter the Iranians for a while. But watch out. When we all get used to doing business with a “normal” Iran, it will be very difficult to recreate a strong, pro-sanctions united front. And, without a united front, sanctions are meaningless.

The Iranians know all this and most likely are counting on this outcome. A charm offensive is the best tool to create cracks in what has been until yesterday a strong pro-sanctions front that really damaged the country’s economy. And consider how easy this is. Just by looking a bit more reasonable, they have already won the public relations battle.

Pariah state no more

Think about it. Beyond its nuclear program clearly in contravention with the non proliferation regime, Iran is a state that sponsors terrorism against Israel. It is the principal ally of Assad in Syria, and the main threat to the security of the region. And yet now they get away with all this simply via the election of a new president who smiles and says he wants peace.

Not a bad comeback for a pariah state.

3 D Printers Are Amazing; But They Also Tell Us That Factory Jobs Will Soon Disappear

By Paolo von Schirach

January 29, 2014

WASHINGTON – We know a lot about the dark side of globalization. Information technology, plus improved and low-cost logistics allowed a gigantic shift of most manufacturing activities from high labor cost Europe and America to low labor cost Asia, first and foremost China. And so, thanks to the new opportunities to outsource manufacturing created by globalization, Europe and America lost millions of jobs.

Old jobs are gone

Most of these jobs are gone –for good. And that’s the way it is. Some politicians try to gain points by blaming “evil” corporations that “choose” to export jobs to low-cost countries. This argument assumes that there is indeed a choice. Sure, how would you like to make T-shirts in North Carolina that would retail at $ 10 or 15 a piece when the same T-shirt made in China or Bangladesh retails for $ 5? Which company can stay in business with competitors selling essentially the same product at half the price or less?

More to come

Be that as it may, we have not seen the end of this tale. In fact, today’s Asian winners may be tomorrow’s losers. Picture this. If you are a Chinese migrant worker who left poverty in a rural village seeking a better life as a factory worker, your luck –such as it is, as working conditions in Chinese factories are grim– may end soon. In part it may be because your Chinese employer may want to relocate the factory to another country (Cambodia, Bangladesh) where labor is even cheaper. But most likely you may soon be unemployed because technology will cause your job to simply vanish.

Amazing 3 D printers

This is no exaggeration.  You may have read about 3 D printing. Well, at the moment this futuristic technology that allows you to literally “make” objects at home, without the support of a small factory or workshop, is still in its infancy. But it is getting better every year. Primitive 3 D printers could only make simple plastic parts. Now they can make metal parts. Soon enough they will be able to make fully functioning complex products.

Want a toaster?…

So, imagine this. Today here in the US, if you want to buy a toaster you go on-line and look for a good product at a good price. You find one on Amazon. In just a few minutes, you can place your order and complete your transaction. Your toaster will be delivered to your door by UPS or FedEx in just a few days. Low cost, simple, clean an efficient.

Your toaster was made in China by the migrant worker mentioned above who had left the village seeking a better life. It was shipped to America inside a container that had been loaded onto a mega container ship that landed in Los Angeles. Then the  container was moved by rail or truck to a large warehouse managed by Amazon. When you place your order on-line, the toaster you selected is placed on a plane or truck and delivered to you via UPS, FedEx or US Mail. The chain that begins in a factory in China and ends up at your door is long and complex. But it is lean and efficient.

…Make it at home

OK, fast forward to tomorrow. Tomorrow you will have at home a new generation 3 D printer that can actually “make” the toaster. You want a new toaster? You go on-line and you buy the specs for your toaster that are included in a  software package. You download the specs into your 3 D printer and the printer “makes” your toaster. Sounds far-fetched? Not really. We are not there yet. But we are getting there, probably sooner than we can all think.

No more jobs

If this is indeed the future, imagine all the implications. The implications are that the factory in China that makes the toasters is redundant, and so are all the people employed there: workers, supervisors, managers, janitors, you name it. Furthermore, the complex logistics network necessary to move the toaster from the Chinese factory into a container ship and then to the Amazon warehouse is also redundant. And that means that all the people who support it are redundant: from the shipyard workers who make the container ships to the truck drivers who move the container from port to its final destination. And this is not the end. FedEx and UPS, whose business is mostly about moving all these boxes with toasters, TVs and hair dryers in them, become redundant.

You get the picture. When your home is the factory, all the factory jobs and all the services jobs necessary to move products from A to B will vanish. We are not quite there yet. But this is the future.

Is the future really great?

The techno-enthusiasts claim that all this is great. They confidently predict that, while old jobs vanish, new jobs will be created to support the new amazing technologies of the future. May be. But what happens if there is a 10 year time lag between the vanishing of traditional manufacturing jobs and the opportunity to create new ones? For 10 years former factory workers will be unemployed or under employed. And, later on, many of them, (if not most of them), will lack the skills to work on the new technologies that have replaced the old factories.

The “Luddites” fight back; but they lose

And so a gigantic economic transformation brought about by truly disruptive technologies will become a social and political problem. Long ago, the “Luddites” in England fought against the mechanization of the textile industry by destroying the new machines that were displacing manual workers. But it was a losing proposition. The machines won. They always do.

Who takes care of the losers?

When the new machines will take over, what will happen to all the displaced workers? Who will take care of them? We better have  a plan, because very soon many societies will have to deal with this problem.

The Tea Party Has Become An Ideological, “Anti-Everything” Group – The Republican Party Needs A Strong Message Of Opportunity And Inclusiveness – Chris Christie Could Articulate It

By Paolo von Schirach

November 11, 2013

WASHINGTON – At the very beginning, the Tea Party insurgency had some real merit. But now it has become a motley crew of “anti-everything” libertarians mixed with social conservatives profoundly out of step with the minimum standards of modernity. Anti-abortion, anti-gays, prayers in schools, guns for everybody principles will get you some votes; but not enough to win national elections, or even statewide contests as Virginia has shown. 

A good start

The Tea party Movement had a good start as a grassroots rebellion against ever-growing government and its exploding cost. The Tea Party activists could claim that their advocacy for limited government and low taxes was and is in keeping with basic American principles and traditions. “This is America and not France. We believe in the private sector and in a modest safety net for the truly disadvantaged. The rest is unnecessary welfare paid out to voters, so that they will kep re-electing unprincipled politicians who will keep the gravy train going, even though they know full well that this will cause higher debt and eventually fiscal disaster.”

Now the Tea Party is the anti-everything movement

But now this “small government” platform has become a bad mix of strident politics and ancient conservative values that as a minimum do not resonate with the broader public, while in too many instances (take abortion) they are perceived as deliberately offensive. The worst thing is that the Tea Party adherents seem to be “anti-everything”, while they are unable to rally large constituencies around programs “for something”.

Beyond that, their anti-spending platform is very thin on detail. It is easy to pick examples of stupid, wasteful and poorly conceived public spending. However, the problem is that the bulk of federal spending is about entitlement programs,  and not about funding for –say– “artichoke research in Iowa”. The Tea Party people are really disingenuous when they claim that most of America’s fiscal issues are about eliminating the classic mix of “fraud, waste and abuse”. As for a well thought Tea Party entitlement programs reform plan that would take care of the elderly while bending the spending curve, we have not seen any of that.

Bad tactics

And then we have the additional problem of bad tactics. The attempt to repeal Obamacare “by force”, through a government shutdown is an indication of political stupidity. Most conservatives agreed that it was a bad idea. But the Tea Party people in the House pushed for it anyway, with disastrous political results.

And now, in case we needed more lessons, we have the defeat of Ken Cuccinelli in the Virginia gubernatorial race. While Cuccinelli in the end did much better than expected as he could capitalize on the Obamacare launch debacle, Cuccinelli’ lost in large part because his strident socially conservative themes alienated women, minorities and young voters. How on earth can anybody run against women in today’s America, as they are now more than 50% of the voters? Only die-hard ideologues want to fight again over abortion, contraception, and then prayers in school, gay rights and more.

Of course, if your goal is to fight for your principles, you have every right to do so. But if these principles constitute the platform of the Republican Party, then it may as well forget about winning major elections.

Chris Christie can lead

And this brings us to Chris Christie. He sailed to a triumphant re-election as Governor of New Jersey. In a sense, he is a new and improved, truly  personable Mitt Romney, minus the Mormon faith and the Massachusetts health care reform (too close to Obamacare) issues. In a word, he is a non ideological reformist who promotes pro-growth policies. Christie combines in a nice way a combative spirit, charisma and pragmatism.

That said, it would help him immensely if his “style” (and this is not to deny that there is real substance  in Christie)  could be enshrined in a new, principled, easy to understand policy framework that would outline the goal of making America into an “Opportunity and Inclusiveness Society”. The Republican Party would gain a great deal by having a convincing national leader convincingly reasserting its credentials as the political force championing a modern Opportunity Society. Not a Welfare Society; but an America in which the private sector and government work together to enable people to become smart and strong, so that many more of them will make it on their own.

Smart, inclusive conservatism

This is not about hand outs, special subsidies or tax relief. No, this is about a serious effort to modernize public education so that it will provide a real foundation for competing in this globalized economy. This is about simplifying  regulations and the tax system, so that it will be easier to start a business and hire people. This is about an energy policy aimed at capitalizing on the huge advantage created by America’s low cost natural gas. At the same time, it would be great if the Republicans could articulate a  sensible immigration policy reform that would provide a path to legal status for millions of illegal immigrants while  making it easy for smart would-be immigrants who bring their talent, energy and entrepreneurial spirit to America. 

Christie can do all that, this way leading a GOP revival.


No Deal Between Washington And Tehran On Nuclear Issues

By Paolo von Schirach

November 10, 2013

WASHINGTON – The Geneva negotiations between the West and  Tehran on Iran’s nuclear program  produced zero results. While there will be more talks at a future date, many analysts fear that Iranian president Hassan Rouhani’s ‘s objective here is not to come to a real deal, but to improve the atmosphere a bit, so that Iran can get concessions (the lessening of the crippling economic sanctions) without giving up its nuclear program.

America in a tough spot

Indeed, politically America right now is in a tough spot. Absent any substantive changes to Iran’s nuclear program, other countries are supposed to curtail even further their purchases of Iran’s oil. Should they fail to do so, then America could punish them by imposing trade sanctions on them. However, if the Iranians manage to create the impression that they are now flexible while America is unreasonable, then it would be politically difficult, in fact impossible, for Washington to punish the countries that do not cut down their oil imports from Iran. All of a sudden America would gain a lot of political enemies without advancing its goal of stopping Tehran’s nuclear programs via diplomatic means.

And this seems to be Rouhani’s end game. He wants to create the impression that a reasonable deal is possible in order to soften Iran’s image and gain points with world opinion. Tehran needs to end its political isolation. By appearing more reasonable, it will provide political cover to the sanction breakers who could argue that, since Iran is willing to negotiate, this is an appropriate time to show equal good will by ratcheting down the sanctions regime.

So, this is about public relations; and not about coming to a real, solid agreement.

Iran should simply comply with the Non Proliferation Treaty

Look, if Iran had turned a real corner, it would take its government just a few days to assuage the world’s concerns. Rouhani  would simply need to comply with all the mandates and obligations imposed by the Non Proliferation Treaty and enforced via the International Atomic Energy Agency, (IAEA), the nuclear watchdog, on all countries that want to pursue peaceful nuclear energy programs, but have no intention to develop nuclear weapons.

Iran would need to do what Japan, Germany, South Korea and many others do. The Iranians would open up all their facilities, guarantee total access to  the IAEA inspectors and cease any type of activities that are inconsistent with a peaceful nuclear energy program. This is not complicated. Doing so however is premised on the unequivocal intent to fully comply with all the mandates of the Non Proliferation regime.

No intention to stop enrichment

Iran of course keeps saying that it simply wants to pursue a peaceful nuclear energy program, just as other countries have done and do today. All very well, except that Iran is engaged in activities, when it comes to uranium enrichment, that can be explained only in the context of a nuclear weapons program. And so far the Iranian regime has shown no intention of stopping these activities. Hence the strong suspicions of the IAEA and of the broader international community, first and foremost in Washington. As Iran is unwilling to give up these enrichment programs, we can conclude that it is not negotiating in good faith.

This is a public relations campaign

However, if Iran’s new urbane and smiling President Rouhani gains points in his clever public relations campaign, then it would be hard for Washington and the other Western countries to keep the pressure on Tehran via the sanctions. China, Japan, India and others who depend on Iranian oil will have an excuse to keep buying it saying that now Iran is more flexible and therefore the international community should respond by being more accommodating.

And this would be a bad turn of events.  If Tehran sees a way out of the tough sanctions regime without giving up its uranium enrichment program, then there will be zero chance of resolving this long crisis by peaceful means. In that case, America’s only option to stop this emerging nuclear threat would be to bomb Iran’s nuclear facilities.


Major US Corporations Are Buying Trucks Powered By Liquefied Natural Gas – Much Cheaper Than Diesel

By Paolo von Schirach

October 30, 2013

WASHINGTON – A recent lead story in the MARKETPLACE section of The Wall Street Journal, (Truckers Tap Into Gas Boom, October 30, 2013), points out that major US retailers, shipping companies and others (including FedEx, Procter & Gamble, and UPS), are ramping up their purchases of new heavy trucks powered by Liquefied Natural Gas, (LNG). Well, it has been a slow process; but finally it is happening.

The LNG revolution

Yes, the trucking companies and other US corporations that rely on large fleets of trucks to deliver their supplies are waking up to the fact that America, thanks to the hydraulic fracturing revolution, is now producing plenty of cheap natural gas.  And natural gas, beyond its traditional use as feed stock for electric power generation, can be used quite effectively as transportation fuel. The obvious reason for switching over to LNG is lower cost. At today’s prices, filling up a truck with LNG would cost today almost half than filling up with diesel. Trucks are on the road all the time. Significant fuel cost savings, multiplied by hundreds or even thousands of heavy trucks, are the incentive to make the switch.

Technological problems

There are a number of technological hurdles. But the big ones have been resolved or have been at least addressed. In July Cummings Westport Inc. started selling its new 12 liter natural gas engine, ideally suited for trucks up to 80,000 pounds. Oil man T. Boone Pickens, the prophet of natural gas, has invested in Clean Energy Fuels, a Texas company that is already building the necessary infrastructure of natural gas refueling stations. These are basic preconditions, now in place, that are creating a real market for heavy trucks powered by LNG.

Cost of course is also an issue, as these new trucks cost more than traditional ones powered by diesel engines. But the price of LNG is so much lower that big companies realize that it is in their interest to make the investments, knowing that in a couple of years they will recover the additional expense for LNG powered trucks. After that there will be only savings. 

Hesitation would be normal if fuel costs were subject to significant fluctuations. But this is not the case. Oil prices, and consequently diesel prices, will stay high on account of sustained world demand (especially from Asia), while domestic LNG prices will stay low on account of vast, and if anything expanding, US natural gas supplies. 

A revolution

That said, beyond the advantages in terms of reduced operating costs for major US companies, there are additional gains that amount to an economic, environmental and –down the line– geopolitical revolution. The combined impact of lower electricity prices and the creation of a new, totally domestic and inexpensive transportation fuel will lift the otherwise anemic US economy. 

Consider this. The US has a fleet of about 3. 2 million big rigs and an additional 7 million single-unit trucks. While trucks represent only 1% of vehicles on the road, they consume about 20% of the fuel. Just one big truck, according to the WSJ story, burns the fuel of 40 sedans. Assuming that all heavy trucks will be soon powered by LNG, a fuel produced in America by Americans, this means cutting our oil imports by at least 2 million barrels a day. That’s a lot of oil that we shall not need to import from OPEC. That’s billions of dollars that will stay at home, instead of being transferred to Saudi Arabia, Kuwait or Angola. Besides, LNG, while not perfectly clean, is a lot cleaner than diesel. Therefore this switch over will have  a positive environmental impact in terms of air quality. 

Energy security

Finally, by relying more on domestic energy sources, US energy security will be greatly enhanced. For decades America had to be overly preoccupied with anything that happened or might have happened in the Middle East because that’s where most of the world’s oil is found. We absolutely needed that oil, and so did most of our key allies.

But now that picture has been transformed, beyond recognition. After many years of decline, now America produces more of its own oil. So, we need to import less. In the future oil imports will come mostly from vast Canadian reserves. This means far less oil from OPEC. And now, as a consequence of the natural gas revolution, the US will be able to do away with the oil imports currently necessary to fuel millions of heavy trucks. (For cars it is a different story; but with similar outcomes. It may be more cost-effective to develop electric vehicles than having cars powered by natural gas. Either way, LNG engines or EVs, technological changes will translate into lower oil imports).  

Geopolitical changes

All this means no more oil from OPEC. In fact it means no more oil from outside the Western Hemisphere. This is a major change that will have huge geopolitical consequences. It is hard to believe that 10 or 15 from now the US 5th Fleet will still be anchored in Bahrain, in the Persian Gulf, at a cost of billions of dollars a year for US tax payers. The US Navy is there for the sole purpose of keeping the oil flowing. If we no longer need that oil we can let the Chinese Navy patrol the Strait of Hormuz. China will need OPEC oil.

With the end of our oil worries, we shall also see a decline in the interest for anything that happens in the Middle East, just as the end of the Soviet Union caused a loss of interest in NATO affairs and German politics. 



Bernard Tyson, Kaiser Permamente CEO, Argues That The US Health Care Industry Should Re-Focus On Prevention

By Paolo von Schirach

October 16, 2013

WASHINGTON – Whatever the eventual fate of Obamacare, let’s be clear that this law is not “health care reform”. It is “health insurance reform”. It is a noble effort to allow millions of uninsured to finally get into the system, while eliminating various obstacles to obtaining insurance. Now insurers are obliged to cover people with of pre-existing conditions.  And this is a good thing.

Not health care reform

That said, Obamacare, while it claims that it intends to make health care delivery more cost-effective and in the end cheaper, does not attack the structural problems that have created the most expensive and least efficient health care system in the Western World. America spends an astronomic 17.5% of GDP on health care. Obamacare may do  something to reduce this amount; but not much.

Fee for service

But why does medical care cost so much in America? Ironically, it is because of health insurance. Yes, the combination of self-employed doctors setting their own fees and patients covered by insurance, produces health care inflation. In America physicians make money only when they “do something” to their patients; while patients are passive in this process, because most of them do not pay out-of-pocket for whatever their doctors prescribe. 

And there is more. From the standpoint of economic incentives, American doctors have no interest in promoting prevention and “wellness education”. The fact is that doctors do not make any money when their patients are well. They make money only when they are sick.

The Kaiser Permanente alternative model

Well, there is another model, in America. If one day there will be some sanity (of the mental kind) we will wake up and decide that this alternative is much better for the nation. Kaiser Permanente is one of the largest health maintenance organizations in the US. At Kaiser, doctors are salaried employees. Kaiser wants to keep its costs down and so it promotes prevention and wellness. At Kaiser, a healthy patient is a good thing, in the same way as a safe driver is a good thing for a car insurance company. Kaiser’s members who stay healthy pay premiums; but they do not require expensive treatments.

In polite words this is how Bernard Tyson, CEO of Kaiser, described to the FT (October 14, 2013) the problems of the US care industry as he sees them: “I feel strongly that the fee for service payment system creates the wrong incentives because it is volume driven….And there needs to be greater emphasis on prevention, early detection and really moving the dollars upstream as opposed to a healthcare industry that is really faced with dealing with episodic care…Finally, we need to get electronic medical records, the ability to aggregate information, throughout the entire industry“.

Structural changes needed

So, there you have it. 1) Fee for service is a bad thing, as it creates the wrong incentives: such as over treatment and over prescribing, mostly just to increase doctors’ income; 2) We should invest more “upstream”. Teach people good habits. Yes, as boring as this may sound, healthy diet and exercise matter –a great deal. Obesity and type 2 diabetes cost billions, and yet they are totally preventable; 3) Finally, electronic records. Yes, it would be nice if the health care industry discovered IT, a tool that would help with more rational care delivery, while it would reduce the massive administrative costs that plague the industry.