I taught Money and Banking for 40 years at Ohio State and before that at Boston College, and never once used a movie in class. However, after viewing Jim Bruce’s new documentary, Money for Nothing: Inside the Federal Reserve last night at the Museum of American Finance, I would not hesitate to use this film to introduce the course, probably during the second class, or perhaps breaking it in two, leaving plenty of time for discussion after each half. I would also highly recommend it for any Macro Principles or Intermediate Macro courses.

The story is presented almost entirely through interviews with economists, Fed officials, and investors. The format is to raise pertinent questions rather than to answer them. However, although prominent Keynesians like Janet Yellen (filmed before she was in the running for Chair) and former Fed vice-chairs Alan Blinder and Alice Rivlin are among the interviewees, the interviews are heavy with arch-monetarists Allan Meltzer and Michael Bordo, and inflation-hawk Reserve Bank Presidents Tom Hoenig, Richard Fischer, Charles Plosser, and Jeffrey Lacker. Alan Greenspan and Ben Bernanke are represented only by file footage (including some great zingers with Jon Stewart and Stephen Colbert!), but Paul Volcker provided a thoughtful interview for the film. NYU financial historian Richard Sylla (who hosted the Museum of American Finance showing) provides historical perspectives.

My previous blog entry tried to shed some light on the phenomenon of hospital charges that are out of control, such as $500 for a single stitch.

Well, the hospitals have their challenges, too. They increasingly have to worry about collecting money directly from patients, instead of insurers. According to recent articles, it is a growing challenge.

However, it is hardly new. Back in 2009, an article appeared under the headline “Hospitals forced to become bill collectors.” The article lamented the rise of high-deductible health insurance, which means that a higher proportion of costs are paid directly by patients.

Well, the self-pay patient is here to stay, and hospitals still struggle to get his money. The way hospitals speak about this issue, you would think no one else has ever had to figure out how to manage the risk of not getting paid for services rendered. The idea of informing the patient how much he owes before he shows up for a scheduled surgery, and discussing a payment plan if he cannot afford his entire share upfront, are still viewed as mysterious and odd requirements by most hospital administrators.

In a 2011 survey, seven out of ten hospitals reported that they collected less than one third of fees due from patients at the time of service. To say that many hospital CFOs are sweating over lengthening accounts-receivable ledgers would be an understatement.

At our Gala for Liberty honoring him, Archbishop Desmond Tutu offered his memories of working with Nelson Mandela in transitioning South Africa from the violent, divided rule of apartheid, by way of the first Truth and Reconciliation Commission that could grant amnesty to perpetrators (subject to forgiveness by the victims or their families)—a stirring and powerful account of the power of love over evil:

As Archbishop Tutu also recounts, Mandela’s 27 years in prison transformed him:

We were incredibly blessed in South Africa to have had at a crucial time in our history this extraordinary man, Nelson Mandela, who by the way was not a magnanimous, compassionate person when he went to jail. He was young, and the 27 years that many of us reckon is a waste of time were quite important in the evolution of Nelson Mandela from being—if you remember, he was the commander-in-chief of the military wing of the ANC. And it was in jail with all of the suffering—suffering either makes you bitter or it ennobles you. But we were very lucky that he was at the helm of our ship of state. And where people had expected an orgy of revenge and retribution, I think people to some extent were awed by the spectacle of our Truth and Reconciliation Commission.

Timeless lessons for any place and time. Watch it and weep, laugh, and be inspired.

Chris Conover writes about

…the 3.8 million Americans that the RAND Corporation estimates will become newly uninsured as a result of this law. 2.5 million of these currently have employer-based coverage and another 1.3 million have non-group coverage. While there arguably are tens of millions of other losers created by this ill-conceived law, these 3.8 million arguably are its biggest losers.

And goes on to say:

What should be obvious and is doubly tragic is that we never needed to sacrifice these 3.8 million victims in the first place. As just one example, the conservative alternative to ObamaCare recently proposed by Ramesh Ponnuru and Yuval Levin would provide universal catastrophic coverage to every American.

Sorry, but that’s a bit glib. There would surely be newly uninsured under the Ponnuru/Levin/AEI plan, previously summarized here. But, unlike Obamacare, the plan would not leave them to fend for themselves.

[Cross-posted at Psychology Today and John Goodman’s Health Plan]

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

All students of government regulation (and, to some extent, of other intervention, as well) know about Bruce Yandle’s model of bootleggers and Baptists. In this vision, a special interest with a large financial stake in a regulation joins forces politically (sometimes only covertly or simply in effect) with a religious or ideological interest group that seeks the same regulation on ostensibly less venal grounds. The latter group gives political cover and public respectability to the former group, which generally provides most of the money to carry out the politicking. I recently came across what must rank as one of the earliest examples of such a situation, which is described in chapter 19 of The Acts of the Apostles:

About that time there arose no little stir concerning the [Christian] Way. For a man named Demetrius, a silversmith, who made silver shrines of Artemis, brought no little business to the craftsmen. These he gathered together, with the workmen of like occupation, and said, “Men, you know that from this business we have our wealth. And you see and hear that not only at Ephesus but almost throughout all Asia this Paul has persuaded and turned away a considerable company of people, saying that gods made with hands are not gods. And there is danger not only that this trade of ours may come into disrepute but also that the temple of the great goddess Artemis may count for nothing, and that she may even be deposed from her magnificence, she whom all Asia and the world worship.” When they heard this they were enraged, and cried out, “Great is Artemis of the Ephesians!” So the city was filled with the confusion; and they rushed together into the theater . . . .  Some of the crowd prompted Alexander, whom the Jews had put forward. And Alexander motioned with his hand, wishing to make a defense to the people. But when they recognized that he was a Jew, for about two hours they all with one voice cried out, “Great is Artemis of the Ephesians!”  [Acts 19:23-29, 33-34]

Bootleggers and Baptists; silversmiths and Artemis cultists: essentially the same setup for political purposes.

Despite its editorial position in favor of more government control of people’s access to medical care, the New York Times has an excellent track record of journalism covering the real problems in U.S. health care. A fine example is Elisabeth Rosenthal’s report last Monday (“As Hospital Prices Soar: A Stitch Tops $500”, December 2, 2013) on outrageous hospital prices, including $500 for a single stitch.

She identifies something that we don’t hear from hospitals themselves: Emergency rooms are profit centers. And we are not talking about rocket surgery: As Rosenthal notes, stitching a wound with needle and thread — a procedure undertaken since antiquity — routinely leads to a charge of over $1,500.

Rosenthal filed her story from San Francisco. California requires hospitals to file all their charges for procedures (the “chargemaster”) with the Office of Statewide Health Planning and Development (OSHPOD), which publicizes them. Many observers believe that the state forcing hospitals to publicize prices will lead to price reductions. However, that is a misdiagnosis: It addresses the symptoms and not the cause.

Russia’s Vladimir Putin has obtained a Pyrrhic victory in forcing the Ukraine to reject a free-trade agreement with the European Union that would have eliminated 95 percent of custom duties on its exports to those 28 countries and, more importantly, institutionalized its ties to the Western world.  The move has triggered protests that have grown in numbers and intensity ever since president Viktor Yanukovich unleashed brutal repression on the citizens who demanded his resignation in Kiev. The crisis has hardened the deep contempt in which the Ukraine’s western regions hold Russia’s autocrat and strengthened the resolve of other countries that are trying to resist Moscow’s pressure to reject further association with the EU—namely, Georgia, Moldova and Armenia.

What is at stake is simply this—Putin is trying to reestablish the Soviet empire by bringing six republics into a Eurasian Economic Union that would turn them into satellites. Two of them, Belarus and Kazakhstan, have already caved in by forming a customs union with Moscow that will automatically turn them into members of Putin’s system in 2015. The other four have been under major economic and political blackmail to do the same, including the imposition of high tariffs on their exports to Russia, drastic border controls, limited supplies of natural gas to those countries that depend on them and open interference with their domestic politics.

Of those four countries, the Ukraine is Putin’s most coveted prize. The Orange Revolution of 2004 was a big setback for Moscow’s despot, who supported a rigged election that favored the same man who currently holds the Ukraine’s presidency. Since then Putin has done almost everything in his power to bring that country to its knees. Given the split between the Ukraine’s western and eastern regions, he has counted on a significant chunk of that country’s establishment and public opinion to steer it back towards Russia. An electorate that became increasingly impatient with the leaders and heirs of the Orange Revolution (who seemed more interested in fighting among themselves than governing) brought Yanukovich back to power in 2010. He soon jailed many of the people who had played a key role in the revolution, including former Prime Minister Yulia Timoshenko, on trumped-up charges, and concentrated power in his own hands. Meanwhile, the economy tanked. The central bank´s reserves have dwindled.

For a while, Yanukovich played Brussels and Moscow against each other, sending contradictory signals about his intentions. He seemed interested in pursuing the EU’s Eastern Partnership, an initiative originally pushed by Poland, itself a former Soviet puppet, to bring some of Moscow’s former satellites into an association with Western liberal democracies. As time passed, it became increasingly obvious that he was only trying to extract more promises from Putin and to strengthen his position vis-à-vis his real objective—to be re-elected in 2015. He has now decided that those personal interests are better served by caving in to Russia.

Or so he thought until the masses took to the streets in Kiev in what is rightly being perceived as the second part of the unfinished Orange Revolution.  Whether Yanukovich will be able to hold on to power through repression is an open question. But he has unleashed a force that will make it extremely difficult for him to win re-election in 2015 and is fueling Russophobic sentiment not just in the Ukraine but also in the other republics currently suffering the embrace of the Russian bear. His move may now even strengthen the EU´s hand in future negotiations with the countries that are still indicating they are interested in becoming associated with the European bloc.

One of the biggest differences in how the left and the right view the world concerns the welfare state. Currently, the federal government spends about $1 trillion a year on 126 means tested welfare programs. That amounts to almost $22,000 for every poor person in America, or $88,000 for a family of four.

What difference does all this spending make?

Among people on the right, there is little doubt. These programs are destroying the culture of the recipient communities. They are replacing a culture of self-reliance and self-help with a culture of dependency. Amazingly, a record 91.5 million people of working age — almost one third of the entire population — are not working and not even looking for a job.

Among conservatives I have met who were once poor (and I have met a surprising number of them), the view that welfare subsidizes and encourages dependency is almost a self-evident truth. I’m not sure I have ever met a liberal who was once poor. But then again, the liberals I encounter are all in the academic and public policy world ― far away from the poverty population they so often talk about. I think this is a fascinating sociological phenomenon. If my experience is different from yours, weigh in in the comments section.

As noted in a previous blog entry, the Obama administration has ways to partially immunize health insurers from losing money in Obamacare’s exchanges.  A later entry proposed that early results of open enrollment for Obamacare, which began on October 1, suggest that health insurers will require a bigger bailout than originally anticipated, and the administration is searching for ways to do this without congressional approval.

By the end of November, the U.S. Department of Health & Human Services (HHS) released its proposed rule for payment parameters for 2015. However, as well as proposing the parameters for reinsurance, risk adjustment, and risk corridors for the second year of the Obamacare exchanges, the proposed rule sketched out some of the adjustments it plans to make to the previously finalized rule for 2014.

The one that jumps out is the change to the attachment point for reinsurance. As described in the earlier post, the attachment point for 2014 was set at $60,000, with a maximum of $250,000.

For example, if a patient has medical claims of $200,000, the insurer would be compensated $112,000 [($200,000-$60,000) X 80%] by the reinsurance fund. If the patient has medical claims of $500,000, the insurer will claim the maximum of $152,000 [($250,000-$60,000) X 80%].

At the last minute, the new proposed rule has lowered the attachment point for 2014 to $35,000 from $60,000. Revisiting the two examples above, the patient with medical claims of $200,000 will now cause the insurer to be compensated $132,000 [($200,000-$35,000) X 80%] by the reinsurance fund.  If the patient has medical claims of $500,000, the insurer will claim the maximum of $172,000 [($250,000-$35,000) X 80%].

Every year, scholars from the Commonwealth Fund report the results of a survey of eleven developed countries, which questions thousands of residents about their health costs and access to health care. The media invariably cherry pick the report to produce headlines like this: “We pay more, wait longer than other countries”.

Perhaps there is not much point in getting worked up about it. Every industrial democracy, including the United States, has a largely socialized health system. So, the headline might just as well be: “Differently socialized health systems impose different costs of socialism”. However, the authors (and the media) insist that there is some clear blue sky that separates the United States from all other developed countries, which have “universal” health systems.

The authors attempt to describe the differences between various “universal” health systems, but this is not quite successful. It is unclear what they mean by “supplemental” private coverage. For example, they differentiate the British and Canadian health systems by claiming that Canada has supplemental private coverage. However, this is not quite accurate: Dental care and prescriptions are covered by the National Health Service in Britain, and by private insurers in most Canadian provinces. However, there is no supplemental hospital insurance in Canada, as there is in Britain through BUPA, for example. It is also clear from the media coverage that most reporters have little, if any, grasp of the differences between, for example, the Swiss health system and the German one.