Outlook 2011: Is the Smart Money Right About China?

 Editor's Note:   In multiple media, this editor has defended China's economy and its coming world impact against the sour grapes hurled at it by angry Americans since the current Depression began. The following however is a tour de force that Wordsmith Wars believes demands pause for thought.


Dian L. Chu

M.B.A., C.P.M. and Chartered Economist with a syndicated financial blog frequently published and quoted by media outlets worldwide

China has been ranked as the top growing country among the G20 since 2001, and is expected to retain that title for at least another five years (See Growth Chart). However, the news coming out of China for the past three months has not been good. It is looking more and more that it is not a question of if China is a bubble and going to burst, but when.

Click to enlarge images

The country has major infrastructure issues, troubling population dynamics, poorly aligned employment outcomes, inflation problems, a real estate bubble, an opaque and potentially insolvent banking system (had mark-to-market accounting been applied), geo-political problems with North Korea and Taiwan, and an underperforming stock market in 2010 (see stock comparison chart).

Smart Money Rushing Out

While the hot money is flooding into China, the smart local money is doing everything they can to get their money outside of China, which partly explains why Shanghai SE Composite has underperformed other markets for the past year or so (see Comparison Chart).

The many issues of China could conspire to become the biggest train wreck waiting to happen, and potentially dwarf any little budget problems in Europe by a factor of ten.

Big Trouble In Big China

China has a population related societal structural problem. The nation has tried to utilize the vast manpower to its advantage over the last two decades building a powerhouse manufacturing economy through the availability of low cost workers, which supplied the world with lower cost goods.

Nevertheless, the harsh reality is that the nation's infrastructure, quality jobs, food, and overall resources are too scarce to support such mass population, while achieving the government's goal of a smooth transition to a developed middle class to sustain an internal demand model going forward.

If you think having riots in Greece over the pension retirement age being raised is bad, just wait till riots break out in Beijing and other cities over a 90 cent bowl of noodle soup now costing four dollars due to food shortages, and a runaway inflation problem.

Loose Lending = Non-performing Projects

This is only reinforced by some of the news events taking place over the last three months. Let's start with the raising of banks reserve requirements by the central bank, which is the sixth such increase in 2010.

These measures are meant to curb the excess lending which has fueled much of the overbuilding and real estate speculation occurred over the past two years as China`s central bank initially wanted to avert a recession by artificially creating demand for workers and construction projects to replace lagging demand from the developed economies.

The problem is that too much lending has occurred, and bad lending at that. Because of the cheap available credit, now you have cement companies and manufacturing firms getting bank loans to invest in endeavors such as real estate, which is outside of their core expertise and competency.

Real Estate Misery Loves Company – China & Spain

The result is a bunch of excess inventory and poorly thought-out construction projects which have no means of recouping the initial investment needed to repay the bank loans.

This practice is similar to Spain`s situation now, where they have entire uninhabited building complexes that have yet to be marked to market, and will probably ultimately be demolished. But at least in Spain, even though it was a construction boom, it was engineered by developers in Spain, and not by some manufacturing outfits like those in China.

So, multiply the bad business project factor by ten and you get an understanding of the magnitude of bad loans on the books of Chinese banks. The problem is being further exacerbated by the practice similar to Spain's-- of banks making additional loans to the businesses just so that they can then turnaround and pay back the interest owed on the original loans.

The only way this would work out is if these projects magically develop revenue streams. Unfortunately, in the case of Spain, a 20% unemployment rate, coupled with a still overvalued housing market in which prices still need to come down significantly, would suggest that by the time the Spanish economy recovers enough to support the excess inventory, the abandoned projects are run down and uninhabitable.

A similar scenario could play out in China as well.

True Smart Money Wary of the Write-off Domino

Furthermore, China's practice of overbuilding at the height of real estate valuations makes even haircuts on loan write-offs an untenable practice for banks, and by further throwing good money after bad, the ultimate mark- to-market effect could be catastrophic for Chinese Banks.

This is the main reason all the major Chinese banks have gone to the market in 2010 to raise more capital before investors wise up to the underlying deficits these banks face, as these bad loans eventually would need to be written off the books.

Victor Shih, a Northwestern University professor estimates that Chinese local governments borrowed some 11.4 trillion renminbi at the end of 2009, and that local government financing loans to be roughly one-third of China's 2009 GDP.

Shih reckons the most likely scenario over the next few years is that there would be increases of non-performing loans ratio from local governments. This would require a large scale of recapitalization of the Chinese banking system, which would eat up a large share of China's foreign exchange reserves and possibly slow down growth.

I do believe Beijing is quite capable of a few bailouts and surviving a widespread banking crisis, but this most definitely will not bode well for the financial markets. That's most likely why you see insiders removing capital from direct exposure to the inevitable re-pricing that will happen throughout Chinese markets from real estate to the stock market.

This can be seen at this early stage by the underperformance of the Chinese stock market compared to other global markets. Remember, foreigners cannot invest directly in these markets, so these capital outflows are truly the smart money.

Logistic Gridlock Crimping the Middle Class

Next let's look at the recent news regarding a severe cutback in automobile registrations in Beijing to 240,000 in 2011 from 700,000 registered in 2010 by the municipal government. Other large cities in China are bound to follow. This is most likely related to the reported 9-day traffic jam on the Beijing-Tibet expressway in August, and other extended traffic jams throughout China in 2010.

China is trying to build infrastructure projects after the fact; whereas with proper central planning these should have been established far ahead of the massive transition from a rural, agricultural based populous to that of a modern, large city based business and manufacturing concentration.

Simply put, it is impossible for all the Chinese citizens who want and can afford automobiles to be able to own and utilize this form of transport without a total breakdown in the transportation system. We are seeing the early stages of complete and counterproductive gridlock in the transportation system of China, and it is only going to get worse over the next decade.

No Jobs for College Grads

For all the talk about how China graduates more engineers each year, and other college educated young people who have strong backgrounds in the hard sciences than most developed nations combined, this is actually another sign of problems to come over the next decade in China.

China's wealth and emergence into the second largest business economy hasn't been built around the need for these types of mind and skill set. So literally, you have a large mismatch between the types of available jobs in China, that are supported by the heavy manufacturing and construction intensive focus of the past twenty years, to that of the recently educated pool of graduates who have grown in sizable numbers over the past five years.

The Mind Is A Terrible Thing To Waste

This results in a large human asset class that China is currently wasting, as most of the newly educated workforce is working in jobs which require little or no advanced education at the university level. So you have highly educated university graduates in areas like engineering and accounting working low level service and sales jobs that pay less than many manufacturing jobs.

In short, there are too many highly educated Chinese citizens graduating each year for the number of jobs available needing their skill set because China`s economic model isn`t built around these type of jobs. This type of misaligned employment outcome never ends well; it usually manifests itself in increased civil and social unrest.

8% Inflation in 2011

The next major challenge for China is skyrocketing inflation, which at its root is the fact that there are too many people chasing too few resources. This fundamental flaw in population dynamics underpins many of the problems that China faces going forward.

Recent CPI data for November illustrates the inflation problem in China with a reading of 5.1% from a year ago comparison, this is up from a 4.4% reading for the previous month. Couple this with the latest 4% hike in fuel prices in China because of rising oil prices, you could expect future CPI and PPI reports to reflect even higher rates of inflation.

For now, most of the year over year spike has revolved around higher food prices as energy has mainly been flat for 2010 thanks mostly to government subsidies. Now that energy prices have entered the picture, China will start to experience even more inflation pressures in 2011.

Furthermore, with the undervalued yuan pegged to the dollar, it is only getting worse for China in 2011 due to Fed's QE2 pressures on the dollar. The real inflation rate for Chinese citizens for 2011 will probably approach 8% next year.

An Asian Contagion by China?

This escalating inflation concern is further compounded by Beijing's lack of decisive action to combat the problem by delaying a much needed currency appreciation, and hiking interest rates in a timely fashion. There is no getting around the fact that these two things need to occur as soon as possible.

By the time the Chinese government is forced to implement these tightening tools, the damage to the economy is most likely already done. The longer China delays the inevitable serious tightening measures, the harder the economic crash that will occur in the aftermath of these policy changes. And it is unlikely to end well. The resultant impact will probably take the rest of the Asian economies down with it – an Asian Contagion scenario.

History Repeats Itself

Eventually central planners and finance ministers around the world might start to understand that policies which lead to bubbles being formed in the first place are counterproductive in the long run. But until that lesson is learned, it seems like we are doomed to repeat the same mistakes over and over again.

Right now, there are more and more signs coming out of China that all is not well with its economy, and the likelihood of a more severe downturn in the future is a distinct possibility, unless its policy makers take decisive and prudent actions to minimize the damage of a hard landing

The American Way?

Ed- American capitalism is working more efficiently than ever. What does that mean for the future of our country?

Corporate Profits Were the Highest on Record Last Quarter

By CATHERINE RAMPELL

Published: November 23, 2010

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses earned profits at an annual rate of $1.66 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.

Tuesday’s Commerce Department report also showed that the nation’s output grew at a slightly faster pace than originally estimated last quarter. Its growth rate, of 2.5 percent a year in inflation-adjusted terms, is higher than the initial estimate of 2 percent. The economy grew at 1.7 percent annual rate in the second quarter.

Still, most economists say the current growth rate is far too slow to recover the considerable ground lost during the recession.

“The economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation,” Paul Dales, a United States economist for Capital Economics, wrote in a note to clients. “This is unlikely to change in 2011 or 2012.”

The increase in output in the third quarter was driven primarily by stronger consumer spending. Wages and salaries also rose in the third quarter, which might help bolster holiday spending in the final months of 2010.

Private inventory investment, nonresidential fixed investment, exports and federal government also contributed to higher output. These sources of growth were partially offset by a rise in imports, which are subtracted from the total output numbers the government calculates, and a decline in housing and other residential fixed investments.

Want Sane Politics? Start Here:

  Editors note:   This is how the Mother of Parliaments deals with candidates or campaigns run on lies and half-truths. At a stroke. Can we learn? (reprinted from The Telegraph of London  (11/5).

 Labour minister barred from Commons for three years

 

Phil Woolas loses seat after knowingly making false statements about opponent in May's general election.

The Labour MP could be barred from the Commons for three years, with the election contest for his Oldham East and Saddleworth seat set to be re-run. 

But Mr Woolas said he would fight the ruling - the first of its kind in 99 years - and was seeking a judicial review.

"The court has decided that an election should be overturned and an MP should lose his seat and be incapable of being elected to the House of Commons for three years because statements which attacked a candidate's 'political conduct' were also attacks on his 'honour' and 'purity'."

The court decided that the Oldham election should be be re-run, and that Mr Woolas should lose his seat and be barred from being elected to the House of Commons for three years.
It is now up to Commons Speaker John Bercow to decide whether to impose the three year ban, initiate a by-election for Oldham East and Saddleworth immediately or wait for further legal proceedings.

The Speaker's office said Mr Bercow would make a statement to the Commons on Monday.
Lord Falconer, the former Lord Chancellor, had earlier conceded that Mr Woolas would be forced out, saying he will not be Labour's candidate in the by-election that must now be held.

He said: "If there is to be a by-election, which it sounds like there is going to be, then Labour will have a new candidate."

Mr Woolas, who won May's general election with a majority of just 103 votes, is the first MP for 99 years to face a successful challenge to his election victory on the basis of publishing false statements about an opponent.

The specially convened election court had heard that the Labour MP stirred up racial tensions in a desperate bid to retain his seat in Oldham East and Saddleworth.


Giving their judgment, Mr Justice Nigel Teare and Mr Justice Griffith Williams said Mr Woolas was guilty of illegal practices under election law.

Mr Woolas was also found to have knowingly made a false statement that Mr Watkins had reneged on a promise to live within the constituency prior to the election.

That suggested Mr Watkins was "untrustworthy".

Soles of War

by Claudia Ricci

Professor Ricci is an author, professor of journalsim at SUNY/Albany

and a founding principal in "Wordsmith Wars"

Outdoors, in the garden. The light is the color of seawater. There are shadows. There are feathery astilbe tails, swishing like golden wings. There are lilies of every color, cupped to the sky. And there are trees: palm and mango and even, a dwarf apple. Always in a story like this, a tale of evil and temptation, a story of sin and possible redemption, there has to be an apple tree. And of course, an Eve. Only in this case, Eve’s name is Caroline. Cee for short.




Oddly enough, his name is actually. Adam.



“Oh but why?” she asks him. Her eyelashes are as thick and dark as midnight brooms.



“Why do you have to go?”



“Why do you think?” He toys with her earlobe. A teardrop of flesh between his callused fingertips. Then he slides one finger down her neck. Traces her collarbone. Stops right on the point of it. Her collarbone. The rounded nub. It sticks out so far. She’s always been so self-conscious.



“Could you not do that?” She speaks in a low voice.



“Don’t whine.”



She sits up. They are parked on the lush green lawn that occupies one side of the hotel’s garden. She is sitting enveloped in between his legs. His arms wrap hers. His arms in fatigues. Hers in a white T. “I’m not whining,” she says, struggling to ramp her voice up to a new note. It sounds false.



She cocks her head back. Her eyes are giant black olives. “I just can’t believe you are leaving me. Again. When you promised you wouldn’t. When you came back you said you would never ever have to…”



He moves roughly to cover her mouth with his hand. “And so now I do. I have to go, Cee. Please don’t make it hard for me.”



She tries to move his hand away with her own two, but his hand is vised there. She smells his cologne. A fragrance her body owns. She makes a small ragged noise as she pries away at his grip. Finally she bellows loud and sharp and starts kicking her sneakered feet. For a fleeting moment, she thinks: this is what it must feel like, to be one of his enemy prisoners.



One long screech, and then she is free of his embrace. She gets to her feet. Her face is red and blotchy. Her heart is slamming.



“Damn you Adam. Damn you. You didn’t have to do that.” She bolts out of the garden. Walks the curved white stone path that ends up in the slate courtyard of the hotel. The doors slide open and she steps into the frigid air conditioned lobby. The chill feels good on her face, which is burned by his hand. She walks past the desk and the dull-eyed clerk and pushes the elevator button. She is going up.



The door of the elevator opens. As it does, she sees into the mirror inside. He’s standing there behind her. He is more than a full head taller than she is. She hesitates, glares at him. They get into the elevator. She turns away from him. Crosses her arms. The door closes. They are going up.



“Caroline, the simple matter is this. I have to hit the sands in 33 hours exactly. Now are you going to spend this last day being angry at me?”



She blinks. Her image of him now: silty. Covered in the fine white and yellow dusts of the desert. His helmet. His eyes. His nostrils. All encrusted. The terrible terrible desert he has described to her so many times. Her heart pumps a little bit faster. Thinking of him like this makes her eyes watery. All those months she spent. Watching CNN. Waiting for email. Cringing at every early morning or late night phone call.



She can’t live life with him over there. She shouldn’t have to. Again.



Tears balance like waves on the rims of her eyes.



But they don’t fall.



Instead, she hears these words. They form all on their own, as if her lips are a forge of their own.



“I’m going. I’m going too, Adam. I’m going to sign up. Join. If you are going, then, hell, I’m going to. I’m not staying here. I won’t…I just won’t do it, won’t stay behind. Waiting. Waiting. I won’t do it anymore. I can’t. I can’t live that way.”



There is a small ding. The doors open. They both stand there.



“That is the stupidest thing you have ever said.” He mutters that and shuffles out of the elevator.



She sniffles. Starts to trail after him. “Oh what, so you think I can’t do it? You think I can’t be a soldier. What I’m too weak, too scared?”



He doesn’t speak. And then he does. “No, Caroline, you are not too weak. You are not too scared. There are just things you could never do,” he says. He starts down the hall.



“What things? What things? What like marching or something?” She is following him. She is hurrying. She hears herself. She is shrieking.



He stops. He turns to face her. To look down into her eyes. He’s smirking. She stares at him. His squared jaw. His pouty lips. His eyes, which narrow into slits.



“What things can’t I do?” she says again, breathing hard, but more quietly now.



He bends toward her. She can smell garlic on his breath. Garlic from the shrimp they ate at lunch. And she can smell the bottle of white wine they shared.



“You couldn’t hurt somebody Caroline. You would fall apart before you shot somebody in the head. And there comes a time when you have to hurt somebody in war. You have to hurt somebody real bad. As in, pow. Splat. Red blood. Dead.”



His eyes –hazel with a yellow streak--widen. And maybe it’s her imagination, but they seem to shine. They seem to shine in some kind of violent color.



She shrinks away from him. He turns, and all of a sudden she sees him. Falling. Fallen. His face blackened, one cheek crushed into the ground. His teeth smashed. Bits of teeth everywhere. And his right leg. A bloody stump lying a few feet away on the side of the road. The fabric of his pants blood soaked. The humvee he was riding in a moment ago, now tipped upside down, the dull grey metal in shreds. The shattered pieces scattered across the road amid dead body parts and a tangle of brambles and bushes.



She shakes her head. She has to make the image go away. “I would do anything to stop you from going, Adam.” She says that so quietly it cannot be heard. And now she is starting to sob. But he is walking away. “Doesn’t that matter to you Adam? At all? Adam?”



He stops again. Doesn’t turn to face her. Speaks into the empty hotel hallway. His voice thunders in her ear.



“Caroline for chrissakes what has gotten into you? You went through two years with me gone. And you knew there was a chance I’d have to go back. And now here I am half-way there. No, three quarters. For chrissakes. Here I spend a goddamn fortune on two days with you in a five-star hotel just so you can ruin things this way? What the hell are you doing?”



“Adam, I just know,” she says, sucking in her breath. “I just…I know you shouldn’t go. Something…something is going to…”



He is too far down the hallway now to hear her. The thick carpet sucks up the word “happen.” There is no sound from his boots.



She stares into the muted lights on the walls.



He disappears around the corner.



She blinks.



She follows him. Something comes to her now. Another vision of him.



She is thinking something she can’t possibly think.



********



They make love with the television blaring. When they finish, they lie in silence, side by side, changing channels.



“You hungry Cee?” he says after a while.



“I guess. I don’t know. I’ll be fine.” She hugs her knees. She is in a short pale blue silk bathrobe, sitting on the bed, cross legged.



He picks up the phone and orders a bottle of chilled champagne and fresh strawberries and warm chocolate from room service.



After a while, there is a knock on the door. It is about four o’clock. The sun rays are lying across the bed like strips of gold.



The waiter, an older black man dressed in a short red jacket and crisp grey trousers, wheels in the table, covered in a spotless white cloth. The champagne is in a large silver decanter that gleams. The strawberries are piled high in a silver bowl. The chocolate is in a closed bowl astride a small candle.



The waiter offers to open the bottle but Adam declines the offer.



As soon as the waiter leaves, Adam twists off the wire caging at the top of bottle. Then he leans to a chair and pulls out his pocket knife from his fatigues. The blade is a sharp little mirror that catches a narrow wedge of sun and casts it on the wall. He uses the blade to loosen the cork. In a moment the cork shoots up across the bed. Champagne the color of ginger ale slops out of the bottle. He holds the bottle to his lips and slurps in the champagne. Grinning, he offers her the bottle. She refuses.



“Geesh,” he says, wiping the back of his hand across his mouth.



He lays the pocket knife on the table. She eyes the blade. She blinks. She is thinking something she doesn’t want to think.



He is bare-chested. In red plaid boxer shorts. Sitting on the edge of the bed, he pours two glasses of champagne. The white fizz foams up and over the top of the slender glasses. He holds up one glass and hands her the other. She raises her glass but averts her eyes.



“Caroline?”



She looks up at him. She blinks. Her mouth is cottony. Her lips are a grim little line. She raises her glass and the two glasses come together in a dull “clink.”



They dip strawberries into warm chocolate. She eats one and says she’s had enough.



“You know, Cee, lately you are no fun at all.” He dips one after another strawberry into the chocolate goo.



They finish the champagne. He drinks most of the bottle.



They sit in bed, slumped together under the comforter. There is a smudge of chocolate on the sheets.



Soon, she can tell from his occasional snore, and his steady breathing, that he is asleep. She pulls herself from his grasp. She keeps the television on.



She stares at his sleeping face. The soft O in his pouty lips. She picks up one of his hands and kisses the back of his knuckles. He mutters something, but drops back to sleep. She kisses his lips. Her hair falls onto his cheeks.



She makes the sign of the cross and lifts her eyes into the air. “Bless me Father,” she whispers, “for I am about to sin.” Her head drops. “Please, that I may be forgiven.”



She walks to the end of the bed. Pulls up the comforter. Pulls up the sheet.



His feet are bare. The tops of his feet are wired in sparse black hairs. His toenails are square and ragged. Yellowing. They need clipping.



She walks over to the table where the empty champagne bottle lies in the silver decanter. She picks up the pocket knife.



She is not crying or trembling and she can’t figure out why she is not.



She carries the pocket knife to the end of the bed. She sits cross legged on the floor. She reaches up to the bottom of his left foot. She stares at the callused heel a moment, and then, she cuts.



She slashes the knife straight up, from heel to toe, going deep with the knife. Then she switches direction, cuts again, perpendicular this time, so that he has what looks to be a crude red crucifix on the bottom of his foot. Blood spurts out from the cross. His leg jerks back into the covers. Her breath grows rapid as warm crimson streaks the sheets.



She kneels, and bowing over the right foot, she sets quickly to work. Digging. Deep into the other sole.



The End

The Roman Empire Comes to Delaware



This single Republican may cost Republicans control
of the Senate and Nation



By A S Sandy Prisant

Are we about to prove the adage: if you don't heed history, you're condemned to repeat it?

Those who know Europe appreciate there isn't that much to see today that can't be linked back to the Romans and their stunning Empire.  Roman aqueducts still stand, all the way down to the Middle East. Roman roads still criss-cross the continent. Almost all spa baths are the ones Roman discover and developed 3,000 year ago. Some say, only partly tongue-in-cheek, mankind has created little of import since the Romans--except possibly Lipitor for cholesterol.

Tuesday night, the US Republican Party--already the most right-wing of all the world's major right-wing parties, was embarrassed to learn that its followers had nominated in a Delaware primary for US Senator, an amateur so far off the end of the cliff that she, Sarah Palin, and The Tea Party that supported her have now left the Planet Earth.

What is the difference between standard Republicans and this latter lot? Every Republican sentence on policy includes the words "cut" or "repeal". Never an idea. Even a bad one. The Tea Party folks say the very same thing, but add at the end of each sentence: "or I will shoot you." 

Christine O'Donnell has no management experience and no political or government experience. At all. For years she's just been running and losing. She is a fiscal conservative whom personally is a fiscal radical with a record of horrendous personal debt. She is a strident believer in truth, morality and no abortions, but it turns out her academic credentials are a thin tissue of lies. Upon hearing of her victory, it was reported that Karl Rove--Bush's ex-Rasputin--had to undergo a Heimlich Maneuver to be saved from choking to death.  Rove, who knows much more about such things than us, says O'Donnell can't possibly win in November.

Meanwhile in liberal New York State, one of the first Tea Party candidates for governor won the Republican nomination.  The New York Times said: "The result was a potentially destabilizing blow for New York Republicans." The little known man, who seems to struggle with English, is like Silvio Berlusconi, but without the style. In short, a tough guy.

And how is this like the Roman Empire?  Historians have shown that every great nation has its day and then begins to slip.  Usually this is the moment when more extremist elements come out and society begins to break down into sects--more concerned with internal spats and resisting change than righting the Ship of the Nation. It's human nature: let's do anything to keep our eye off an unpleasant future.

This is precisely what caused Rome's collapse--no direct invasions; no major competitors, simply endless internal sniping, distracting minor wars over the horizon and arguments over angels dancing on the head of a pin. All sense of community was lost, meaning common will and purpose was replaced by endless domestic power grabs. Then, by nobility. Today, by the banks. The result: slow, steady utter collapse of a nation-state. 

In the O'Donnell case, It leaves everyone in the middle--44% of whom have someone unemployed in their family--flailing in frustration and irrationally yelling to the heavens: "Don't Confuse Us With Ideas. Just Do Something or We'll Vote for an Anti-Candidate!!"

Does any of this sound like what's happening in a nation near you?

  



A Second Opinion on U.S. Health Care Reform

editor:  the following is a reply to a "New England Journal of Medicine"  commentary. The author, an  M.D. and Ph.D., is assistant professor at the Institute for Health and Aging at the University of California, San Francisco.

By Claudia Chaufan MD

In a recent issue in the New England Journal of Medicine, economist Jonathan Gruber praises the Patient Protection and Affordable Health Care Act (PPACA) as a “step in the right direction,” even as he expresses a healthy skepticism about PPACA’s capacity to control escalating health care costs, which he recognizes as “key to the long-term viability of our health care system.” Gruber also argues that there is “shortage of evidence” regarding which approach will meet Americans’ health care needs while controlling costs; therefore there is “no consensus” on what works [1].

Had Gruber looked beyond the U.S. borders, however, he would have found plenty of evidence. For instance, he would have found that U.S. consumption of health care as measured by critical indicators — per capita annual doctor visits, length of stay following heart attacks, or length of stay following normal childbirth – is no greater than the OECD average, and therefore cannot justify the extraordinary level of U.S. spending [2].

He would also have found that U.S. prices for medical care commodities and services are significantly higher than in other nations and constitute a key determinant of U.S. overall spending [3], and that such prices are determined by the exceptionally high administrative overhead caused by the system’s fragmented, public-private financing [4] and by the comparatively limited market power of American patients vis-à-vis their counterparts in countries with national health systems where the government negotiates prices with drug and medical device companies [5]. And he might have concluded that PPACA will do predictably little to change all this.

Moreover, the international literature would have shown the author the extraordinary international consensus around nonprofit financing to cover medically necessary services [5].

But what about the dramatic expansion of coverage promised by PPACA? Is this not a step in the right direction? The problem is that insurance coverage, as desirable as it may be, is not health care, but just a means to that end. And the U.S. system is notorious for providing coverage without care. High co-pays and deductibles are significant obstacles to access. Nor does health insurance offer financial security: nearly 78 percent of personal bankruptcies in 2007 that were linked to medical debt involved persons who were insured at the onset of their illness or injury [6]. PPACA, by allowing the sale of premiums for policies that will cover only 60 percent of health expenses [7], will do predictably little to change this state of affairs.


There is, however, an alternative proposal whose financial and policy soundness are based on decades of international experience and evidence. It would improve and expand Medicare to include all residents in the nation or in one state. That alternative may have to wait until PPACA unravels, as it predictably will [8].


President Obama argued that a model of reform as that implemented by PPACA would allow Americans to build on “what works” [9] – a decades-long experience with employer-sponsored for-profit health insurance. Maybe paradoxically, however, PPACA will unravel as employers realize that it is cheaper to pay a fine than pay for increasingly more expensive and inadequate policies, and employees enter the individual health exchanges implemented by the new law and find them so expensive that they “clamor for a nationalized health care system” [10].


References

1. Gruber, J., The Cost Implications of Health Care Reform. N Engl J Med: p. NEJMp1005117.

2. Peterson, C.L. and R. Burton, U.S. Health Care Spending: Comparison with Other OECD Countries. 2007. Order Code RL34175(September 17): p. http://assets.opencrs.com/rpts/RL34175_20070917.pdf (Accessed November 10 2007).

3. Anderson, G.F., et al., It’s The Prices, Stupid: Why The United States Is So Different >From Other Countries. Health Affairs, 2003. 22(3): p. 89-105.

4. Woolhandler, S., T. Campbell, and D.U. Himmelstein, Costs of Health Care Administration in the United States and in Canada. The New England Journal of Medicine, 2003. 349(August 21): p. 768-75.

5. White, J., Competing solutions: American health care proposals and international experience. 1995, Washington D. C: The Brookings Institution.

6. Himmelstein, D., U. , et al., Medical Bankruptcy in the United States, 2007: Results of a National Study. The American Journal of Medicine, 2009. 122(8): p. 741-746.

7. Dorgan, B., The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. http://dpc.senate.gov/dpcdoc-sen_health_care_bill.cfm, 2010. Democratic Policy Committee.

8. Angell, M., Is the House Health Care Bill Better than Nothing? Physicians for a National Health Program, 2010: p. http://www.pnhp.org/news/2009/november/is_the_house_health_.php (May 17, 2010).

9. The New York Times, Obama’s Health Care Speech to Congress. 2009: p. http://www.nytimes.com/2009/09/10/us/politics/10obama.text.html?_r=1&pagewanted=print (Date accessed September 12, 2009).

10. Helderman, R., Gingrich in Va.: A Republican Congress could defund health care law. 2010: The Washington Post. p. http://voices.washingtonpost.com/virginiapolitics/2010/05/former_speaker_of_the_house.htm

 

Finally: People Are Using the "D" Word

By Sandy Prisant

While there are a few facts about the number of bank failures and percentage of US unemployed that are less grim this time, the greatest difference between the The Great Depression and The Great Recession is the choice of one word.

As we roll through Year 3 of this, house prices are again falling,  consumer confidence and stock markets are again dropping.  At the current rate of job creation it will take more than 10 years to replace all the jobs we've lost--which is a tactful way of saying we will NOT be able to replace all the jobs we've lost. Ever.

At the moment we are locked in a profound debate about the choice between balanced budgets and throwing lifelines.  But the US economy seems to snicker at all this chatter and continues to wend its way down hill.

In the last couple of years we've had a surfeit of wild estimates about this decline lasting 6 months. Or a year. Or a couple of years.  We've had "jobless recoveries" before and our gut tells us this isn't one of them. The fact is The Great Depression lasted 10 full years and it took Adolf Hitler to get us out of it. 

To date no one has presented any compelling case for our current malaise lasting less than a decade--as Depressions can. But there are some experts detailing what most US sources are unwilling to say. 

The following article from Sunday's Telegraph (London) comes from a senior economics analyst:

With the US trapped in depression, this really is starting to feel like 1932

The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.

People queue for a job fair in New York. The share of the US working-age population with jobs in June fell from 58.7pc to 58.5pc. The ratio was 63pc three years ago. Photo: EPA


By Ambrose Evans-Pritchard

Published: 9:33PM BST 04 Jul 2010


"The economy is still in the gravitational pull of the Great Recession," said Robert Reich, former US labour secretary. "All the booster rockets for getting us beyond it are failing."


"Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing," he said.


California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.

Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. "It is getting worse every single day," said state comptroller Daniel Hynes. "We are not paying bills for absolutely essential services. That is obscene."

Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.


Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.

The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.

"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."

Republicans on Capitol Hill are filibustering a bill to extend the dole for up to 1.2m jobless facing an imminent cut-off. Dean Heller from Vermont called them "hobos". This really is starting to feel like 1932.

Washington's fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.

The housing market is already crumbling as government props are pulled away. The expiry of homebuyers' tax credit led to a 30pc fall in the number of buyers signing contracts in May. "It is cataclysmic," said David Bloom from HSBC.

Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.


Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.

On Friday, Jacques Cailloux from RBS put out a "double-dip alert" for Europe. "The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011," he said.

It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.

The Fed is already eyeing the printing press again. "It's appropriate to think about what we would do under a deflationary scenario," said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to "strict scrutiny", a comment I took as confirmation that the Fed Board is arguing internally about QE2.

Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us

Oil in the Gulf: The 100 Million Gallon Truth

By Sandy Prisant

The 24-hour news cycle and the explosion of media mean an awful lot of people need to do an awful lot of talking about the Gulf of Mexico Oil Catastrophe and anything periphal to it: the President's image,  volume of oil recovered, compensation claims, oyster beds, marshes, barriers, ruined vacations, Federal law, etc.

And BP is really OK with all that because it means a lot of help for them in keeping your eye off the ball.  So what should you do?  

Don't Listen. There is only one fact that matters and from which all consequences spring:

The consensus of US technical experts from the Government's flow rate panel, the University of Indiana  U.S. Geological Survey and Woods Hole Observatory  is that "from April 22 when the Deepwater Horizon rig sank until June 3 the well has gushed 1.26 million barrels of oil, or 52.9 million gallons." (Blomberg News) 

Since the leak cannot be stopped for at least another 75 days therafter, (until new side wells are completed)  the most conservative estimate insures a total spill of 3-3.5 million barrels.

 

 

According to the Department of Energy, there are 42 gallons of oil in one barrel. And that means the only fact you need to think about is this: By the end of August BP will have spilled into the Gulf, a minimum of:

 

130 MILLION GALLONS OF OIL

130 MILLION GALLONS OF OIL

130 MILLION GALLONS OF OIL

 

 

 

The Great Word War: 4? 5? 6?

By Sandy Prisant

Don't look over there. Look over here. It's all going on over here.

Is it a World War Or a Word War? Or a Media Circus? It no longer seems to matter 

We seem to be answering one of the great questions in human relations through a real-life experiment, acted out by deadly serious people.

What happens when two sides are locked in a struggle to the death for decades, except one side is unable to kill off its adversary and the other side refuses to?  What happens?

Nothing definitive like The Charge of the Light Brigade or the Attack on Pearl Harbor; that's apparent.  What we're left with is two sides quibbling over land rights, media rights and most vitally, the Narrative:   The story each side tries to endlessly to sell its followers and the rest of the world about the sheer, heart-rending decency of their own position, and only their position.

The explosion of the digital age has trumped the explosion of C4 incendiary devices. In a conflict where one side's poor use of arms makes them look bad and the other side's very   efficient use of arms makes them look badder, both sides realized they need another way.

Hamas understood it had to stop looking like The Gang Who Couldn't Shoot Straight. Israel realized it had to stop being accused of "disproportionate force", merely because it could hit targets and the other side couldn't. 

And then suddenly both sides realized the heavy lifting could be done in this war by simply turning it over to CNN, SkyNews and the Hindustani World Service.

As sad as each of these incidents are for all of us, they have merely become "starter pistols" for the next round of the Word War between Hamas--which never conducts itself like a state-in-waiting--and Israel.  

As the Media War has replaced the shooting kind. It's not at all about reality. Like much of life, Its always about perception and whose narrative is more compelling.

Hamas plays this the only way it can if you've been on  the losing side for 50 years--impishly firing off a sling shot when the teacher's not looking--and hoping she overreacts.


Why the Israeli's can't envision and better prepare for just this kind of game , the rather predictable result of all its military success,  is a bit of a mystery.


Does the Israeli Defense Force really want to be left with a narrative that says "100-plus misguided civilians, many school girls, left us with no option but to kill a dozen because ONE (1) stole a gun from our well-armed soldier? Oh and someone had a knife, maybe."

Where has the guile of Entebbe gone? Where has the shrewd 1967 downing of Egyptian MiGs without touching a single decoy, gone? How could Israel not have had
a military strategy for this and future media
battles, which is now what these incidents are ALWAYS about? In short, what the hell is going on in the planning bunkers of Jerusalem?

From the Gulf to the Amazon: The Environment & You (Part I)

by Sandy Prisant

While you read this, I sit here. Waiting for the Oil.  The oil that will  shred the very thin economic base of my depressed state, like single-ply toilet paper.  Worse...it turns out it doesn't even matter if the oil actually gets here. The ill-informed, fickle tourists of our great nation are panicking--and cancelling--already.

Apologies, but I can't resist Pogo's over-used line:"We have met the enemy and he is us."

What does that mean?  It means what in God's name are we doing?  To ourselves?  Our planet?  Our self-interest?  Once, elf-interest was merely a euphemism for greed. Now it's been elevated to a political doctrine.  And it's winning. Hands down.

There is a significant school of political thought which unabashedly argues that the Only
real reason for a nation to exist is the furtherance of its own, superficial self-interests. That's not academic babble. It's Real Politik.  Let's see how it's working...

For openers, it explains why the UN is doomed to permanent joke status; why the Copenhagen Environmental Summit was slightly less coherent than Times Square on New Year's Eve; and why--despite knowing (KNOWING) Gulf oil drilling could NOT provide energy independence, we collectively said, "What the Hell; drill baby, drill." (aka The Sarah Palin Doomsday Energy Policy).

Well, the Gulf of Mexico may be gone for our lifetime, but not to worry--cynicism and our past blunders aside, there'll be more environmental challenges in the weeks ahead. Why, just last month the mythic Amazon Jungle was given Hollywood status--the very lungs of the world, just when we're putting most of the oil we don't spill in the sea, up, up in the air.   Surely we can get this one right.

Can we?  It's been my privilege to visit this colossal wonder and to meet its people and I want you to know this may be tricky.  Because as much as we all want to hate BP, it turns out if you're honest and ethical and moral, doing right by the existing environment and native cultures is actually hard work.

For some, eco-culture wars are a no-brainer.  Black and White.  We outsiders are all BP. Natives are good guys who want to be left alone. It seems obvious. From a distance.

But in real life, the Arara tribe of central Brazil and the Hurarani indians and the Kaiapo Nation, one of the Amazon's most respected, sometimes don't stand still and play to passive stereotype--not when the government wanted to throw up a dam in the name of progress and block the Amazon's Xingu River. None of these guys may have an I Phone, but somehow they were hip enough to learn of the blockbuster "Avatar" and shrewdly got a potential dam-stopper in Producer James Cameron. He is now the natives' white knight.

Setting foot in the Amazon for the first time, Cameron promptly declared to more than 70 indigenous people, some holding spears and bows and arrows:

"The snake kills by squeezing very slowly. This is how the civilized world slowly, slowly pushes into the forest and takes away the world that used to be."  

Mr Cameron's equation seems fair enough: Development = BP.  No Development = Julie Andrews.

But if you delve a layer down, into this most crucial of eco-systems, you begin to see that the clash of cultures and oil drilling (Texaco started in this jungle in 1993) and Hollywood is way more complicated than Mary Poppins could ever imagine.

In Part II, we'll meet Oscar a true native son of the Amazon and a man of the jungle, like the natives who met Mr Cameron.  A tracker by trade, Oscar can spot an endangered 4-inch bird at 300 meters with his bare eye.  His village reverently named him "Great Owl".

A dignified young man with straight black hair down his back and a cool, steady gaze, Oscar speaks no English, but sounds just a little bit like an autoworker from Michigan.

"Jobs," Oscar says.  "We need more jobs. And more American volunteers building improvements in our villages."

Why is a native speaking this way?  Because unlike Hollywood, he knows there will be more change in the Amazon, in the Age of Self-Interest.  Even if Big Oil encroaches no further than it has.

The real questions are: can self-interest be tempered? Is there such a thing as change that preserves native culture, traditions, life---the tangibles and intangibles that define the distinct heritage of these already dwindling Amazon tribes?

The real questions are:  will the future just be about the money and man's ambition and $5 foot-longs?  Remember, this jungle provides more of the world's oxygen than any continent you're now standing on.  Will we flatten it?  Will we send it the way of the Gulf of Mexico?

The answer:  The jury is still out.  Stay turned for Part II.

BRAZIL: Where the Flag is Always Greener

Notes from Rio
By Sandy Prisant



If America has already seen it's best days, then it's likely the next wave will include the BRIC nations.  The "B" of course, is for Brazil . We recently visited Rio and here are eight things we learned in six days about a new player on the block.

• Economy. Petrobras is the state oil company. It is growing like crazy and finding reserves like crazy. It is not run by sinister, incompetent government lackeys, but sharp oil guys. It is not like 200 Nigerians syphoning off that country's greatest resources. Petrobras is the most important oil company based in the Southern Hemisphere. It already competes with the likes of BP and Shell.  And it is the stalking horse for a country pushing out into the world.
• Image. Last year, this new Brazilian self-confidence was given a flashy, but pricey reward--Rio was voted the host of the expensive 2016 Summer Olympic Games. The first ever in South America.
• Maturity. But this immediately raises questions about whether the new boy on the bock is ready for Primetime.  The language of Brazil is Portuguese. That is not the language of South America and it is not the language of more than 90% of the foreign visitors coming to see The Olympics. "Well,'' you might say, "the 2nd language of Brazilians must be Spanish or possibly English?" But for the most part, the 2nd language is either football (soccer) or dancing. Or both. Any strictly English speaker who knows world- class football can hold an almost coherent conversation  with a Brazilian Portuguese speaker. He only wants to talk about football anyway--not whether Brazil will get a UN Security Council Seat.  But there is still the Olympics problem--Brazilians have historically beeen reticent to adopt other languages--even the Spanish of all their neighbors.  It is obliged to import hundreds of thousands of skilled workers who can speak more international languages.  So how will several million locals be able to meet the tedious, practical and continuous needs of many Olympic guests, expecting to be well-cared for after such an expensive trip? And if that kind of job can't be done well, what does it say about the nation as a near-term international player?
• The stereotype that even some Brazilians dislike, is absolutely valid. Brazil is about football and dancing.  We arrived at our hotel before noon,  and saw no less than 7 games being played on our TV'---from England, Spain, Germany, Italy--and 3 in Brazil.   If you sit in an outdoor restaurant at night, you will eventually see 2 or 3 girls break into impromptu dance to the rhythms of a far-off radio, purely for the girl's honest pleasure.
• Politics.  One Sunday morning we heard a great roar down in the street, below our window.  It was a popular protest against the imminent visit of Iran's President Ahmadinejad.  In what seemed unnecessary, but quite purposeful, Brazil's respected President  Lula Da Silva rushed to tell the world,"It is a very great honor for the people of Brazil  to be visited by the President of Iran."  No Brazilian we spoke with felt honord. Maybe this was some big deal in the works with Petrobras?  There was no obvious explanation for the "Lion of the South" getting into bed with "The Axis of Evil".
• The streets of Rio.  This city does not have great sites to visit, per se. Instead, it draws the visitor to half a dozen fine venues from which one can view the lone majestic site--the panoramic sweep of Rio itself.
• The people. As a capital in development, Rio sorely lacks a middle class.  The "Very, very Haves" jostle in the streets with the "Very, very Have Nots'.  The latter, mostly naked from the waist up, are only wearing shorts and cheap flip flops, doing little.  The "Haves" are wearing very expensive flip-flops and are variously adorned from the waist up in jewelry that exceeds the annual income of any "have not". As in developing countries elsewhere, one can eat very well--but at New York prices.
• The Beaches.  We have visited beaches on 6 continents. The famed Ipanema is possibly the most overrated.  The sand is coarse and full of garbage.  The sea delivers a fierce undertow at the shoreline that quickly flips newcomers.  On the 1st day we arrived, we wondered why the hotel had a roof pool, only two blocks from the beach. By the 2nd day, we understood.

So, has Brazil arrived? There is one clear litmus test--the departure fee at the airport. This is the one sweeping generalization that never fails:  If a government forces you to pay them in hard currency as a charge for simply leaving--after taking $300 from you to get a visa back at the start--then that country cannot yet be taken seriously.

Bottom Line:  when a million learn fluent Spanish, a tenth of that English and when Brazil's economy can make it without airport blackmail, go take a look. The country will get there in the end.

1st in War; 1st in Peace; 37th in Health Care

Probability of death in males 15-60 in US, Australia and Sweden; 1970-2005

(Compiled by US official data and World Health Organization)

By Sandy Prisant

In the week we apparently have decided to adopt collective amnesia and opt for total denial rather than health care reform, don't walk just yet.  Remember that the problems won't be walking away. And remember that left unsolved, they will simply scuttle all the other economic stuff you'd now prefer to think about:

Ranking 37th —

Measuring the Performance of the U.S. Health Care System

Christopher J.L. Murray, M.D., D.Phil., and Julio Frenk, M.D., Ph.D., M.P.H.

New England Journal of Medicine  (6/1/10)

Evidence that other countries perform better than the United States in ensuring the health of their populations is a sure prod to the reformist impulse. The World Health Report 2000, Health Systems: Improving Performance, ranked the U.S. health care system 37th in the world1 — a result that has been discussed frequently during the current debate on U.S. health care reform.

The conceptual framework underlying the rankings2 proposed that health systems should be assessed by comparing the extent to which investments in public health and medical care were contributing to critical social objectives: improving health, reducing health disparities, protecting households from impoverishment due to medical expenses, and providing responsive services that respect the dignity of patients. Despite the limitations of the available data, those who compiled the report undertook the task of applying this framework to a quantitative assessment of the performance of 191 national health care systems. These comparisons prompted extensive media coverage and political debate in many countries. In some, such as Mexico, they catalyzed the enactment of far-reaching reforms aimed at achieving universal health coverage. The comparative analysis of performance also triggered intense academic debate, which led to proposals for better performance assessment.

Despite the claim by many in the U.S. health policy community that international comparison is not useful because of the uniqueness of the United States, the rankings have figured prominently in many arenas. It is hard to ignore that in 2006, the United States was number 1 in terms of health care spending per capita but ranked 39th for infant mortality, 43rd for adult female mortality, 42nd for adult male mortality, and 36th for life expectancy.3 These facts have fueled a question now being discussed in academic circles, as well as by government and the public: Why do we spend so much to get so little?  Comparisons also reveal that the United States is falling farther behind each year (see graph). In 1974, mortality among boys and men 15 to 60 years of age was nearly the same in Australia and the United States and was one third lower in Sweden. Every year since 1974, the rate of death decreased more in Australia than it did in the United States, and in 2006, Australia’s rate dipped lower than Sweden’s and was 40% lower than the U.S. rate. There are no published studies investigating the combination of policies and programs that might account for the marked progress in Australia. But the comparison makes clear that U.S. performance not only is poor at any given moment but also is improving much more slowly than that of other countries over time. These observations and the reflections they should trigger are made possible only by careful comparative quantification of various facets of health care systems.

Of course, international comparisons are not the only rankings that should inform the debate about reforming the health care system. Within the United States, there are dramatic variations among regions and racial or ethnic groups in the rates of death from preventable causes. While aiming to provide solutions to the problems of incomplete insurance coverage and inefficiency of care delivery, health care reformers have given insufficient attention to the design, funding, and evaluation of interventions that are tailored to local realities and address preventable causes of death. The big picture — the poor and declining performance of the United States, which goes far beyond the challenge of universal insurance — will inevitably get lost if we do not routinely track performance and compare the results both among countries and among states and counties within the United States.

Although many challenges remain, the available methods and data are better now than they were when the World Health Organization’s rankings were determined. As part of its reform efforts, the U.S. government should support and participate in international comparisons while commissioning regular performance assessments at the state and local levels.

Experience has shown that whenever a country embarks on large-scale reform of its health care system, periodic evaluations become a key instrument of stewardship to ensure that initial objectives are being met and that midcourse corrections can be made in a timely and effective manner. To be valid and useful, such evaluations cannot be an afterthought that is introduced once reform is under way. Instead, scientifically designed evaluations must be an integral part of the design of reform. For instance, the recent Mexican reform adopted from the outset an explicit evaluation framework that included a randomized trial to compare communities that were introducing insurance in the first phase of reform with matched communities that were scheduled to adopt the plan later. This external evaluation was coupled with internal monitoring meant to enable policymakers to learn from implementation.

In addition to its technical value, the explicit assessment of reform efforts contributes to transparency and accountability. Such assessments can also boost popular support for reform initiatives that inevitably stir up fears of the unknown. In the polarized political climate surrounding the current U.S. health care reform debate, the prospect of periodic evaluations may help reformers to counter many objections by offering a transparent and timely way of dealing with unintended effects. Built-in evaluations may be the missing ingredient that will allow us to finally reform health care in the United States.