Market Power

Heaven Sent!

Cloudy, cold, and rainy days in Southern Minnesota are OK, but not in late December.  It might as well snow if the weather's gloomy.  We had an 8" snowfall in November, but nothing since then and the track of the most recent storm didn't look promising for snow.  I didn't think we'd get a lick of snow, but snow it did!  From the National Weather Service:

That little red dot is Mankato.  Eldest and I put three rulers on the deck to measure snow and took the average as the official PowerMeasurement:  9".  The PowerKids and I spent about 2 hours outside frolicking at various times.  Youngest took me on an expedition around the North Pole.  Eldest threw snow at me and I pulled him around the yard on the PowerSled.  I spent another 2 hours with the manly snow blower trying to clear the driveway for the PowerWife (she works tomorrow). 

I may claim to be from Missouri, but I grew up in northwest Iowa, so snow is nothing new to me - nor is it anything to fear.  But now I'm sore.  Avery, Boulder, and Left Hand Brewing are getting reacquainted to ring in the new year (thanks to Apollo Liquor in Rochester).

A Rat Race or a Rising Tide?

If you follow the economic news, you know that income distribution is a hot topic now.  The St. Louis Post-Dispatch has an article that I blogged about here and here.  The article contains the obligatory rat race comment:

Last year, the number of millionaire U.S. households jumped for a third straight year to a record 8.9 million, according to the market-research firm TNS Financial Services.

But these days having a net worth of  $1 million or so places you in a universe light years from, say, Warren Buffett's.

And this is a bad thing?  So what if Warren Buffet's net worth is rising faster than, say, Buffy Warren's?  The reference to the rat race covers the "a rising tide lifts all boats" interpretation of this.  Sure, inequality is rising, but the poor of today live a heckuva lot better than the poor of, say, 1970 because of what they can spend their money on and what they have to spend to get it (thanks to Wal Mart and others who provide people, rich and poor, with more value at the margin).

Thankfully, it seems that according to the article, many don't see the rich as bad people:

Still, a Gallup Poll suggests the very rich remain more admired than despised: A majority of Americans agree that "people who make lots of money deserve it" and "almost anyone can get rich if they put their mind to it."

And that's a good thing.

A Childhood Remembered and Recreated for the PowerKids

I remember my Christmas from my childhood fondly and I'm trying to recreate much of the magic I felt in my youth for the PowerKids.  I also try to remember not to get too bent out of shape when the PowerKids do something that they shouldn't.  I almost did not put the wrapped presents under the tree this year for fear the temptation would be too great.  But I decided against this because that was one of the things I remember from my childhood:  wondering what was in the big box with my name on it.  On Christmas Eve, after my siblings and I had gone to bed, Santa came down our chimney.

The PowerWife was rather ill on Christmas Day, having worked herself quite hard during the previous 4 days while fighting a cold (she apparently didn't read this piece of news), so I slept in the basement to ward off those evil cold bugs.  The PowerKids came all the way down the basement to get me so they could open their presents.  Sometimes they sure can be well-behaved.  I guess you could say the same of me, eh?

I am happy to say that, so far, the Christmas gifts have held up well and have been very well received.  Two of the gifts I bought for the PowerKids were toys I played with as a little kid:  Hot Wheels Sizzlers and a Big Kick Headbanger football kicker.  You bash Big Kick on the head to kick the ball.  You know it's said that they don't make toys like they used to.  Well so far (knock on wood), this Big Kick lasted a lot longer than the one I had as a kid.  Within a couple of days, I had banged his head so hard that his foot flew off.

Sorry dude.  My bad.

The favorite toys so far have been a remote controlled front loader, a Pirates of the Caribbean haunted ruins toy, and slippers each PowerKid got.  We haven't set up the slot car racing track that I blogged about here and here yet this year, but once I do we can try out our new racers.  The PowerWife is still sick, but feeling much better, so she hasn't had a chance to enjoy her gifts.  I enjoy my iPod.  I just hope I don't misplace it.  You know what they say:  it's only fun until someone loses an iPod.  But I'm rather wary about using my rollerblades, but they look like a fun way to get around.

My Thanksgiving Thanks

This is a bit late, but I said the following at the dinner table (to puzzled looks and rolled eyes, I might add) at Thanksgiving this year:

I am thankful for the big oil companies that produce a valuable product that allows me the freedom to travel to places that I probably would never visit and meet people I would never meet.  I am thankful for big oil companies for producing a product that, when burned, does produce pollution, but it is a pollution that beats the mess and filth of the exhaust left behind in the horse-drawn carriage days.

More on Wealth Inequality

Here's some more on thoughts on the St. Louis Post-Dispatch article about inequality that I blogged about here and here.

Globally, the richest 2 percent of adults now own more than half of the personal wealth, says a new study by U.N. researchers. Not only is the bulk of the world's valuables controlled by relatively few people, but those people live in relatively few places: North America, Europe and some nations in the Asia Pacific region.

...nations that are largely capitalistic.  It's in these countries where, for the most part, private property is respected and one can choose where to put one's assets (inlcuding one's human capital). 

Wealth is created when assets are moved to higher-valued uses.  Even if people don't have many assets to begin with, they can still create and build wealth if they are allowed to choose the activities they want to.  But in societies where there are few incentives to take risks to acquire wealth through its creation, we have societies of people who are mired in poverty and trememdous resources get poured into wealth acquisition but not wealth creation.

Governments control most of the assets in many African countries.  We find frequent clashes between rival factions who want control of the government in those nations ... not because the fighters believe they can improve the lives of citizens, but because that's how they become wealthy:  they take it but do not create it.  So rather than using resources to produce things the locals want, improving their societies' standard of living incrementally but surely, resources get poured into fighting for government control and, thus, the control of wealth.  The winners win.  Everyone else loses.  It is, at best, a zero-sum game, and wealth inequality is still the name of the game. 

Think what could be in these nations if private property and a climate of entrepreneurship (i.e. capitalism) could "take over."  Bob Geldoff could take a day off.

Stock vs. Flows and Inequality

Earlier I blogged about a St. Louis Post-Dispatch article on income inequality that had a small passage on the inequality of doctors' income growth.  I've got a little pet peeve to get off my chest.  Income and wealth are related, but they are not the same.  Income is a flow.  Wealth is a stock.  But whoever wrote this piece has the two confused:

Now climb up the income ladder to the top 1 percent of households. There, says the center's Aviva Aron-Dine, real income shot up 57 percent in the same period.

Climb higher. For the top 0.1 percent — where incomes average about $4.5 million a year — the jump was 85 percent. For the top .01 percent, 112 percent.

"The increasing gulf between the rich and super rich is a reflection of the greater chasm throughout society," says Aron-Dine. "What's going on is an increasingly skewed assessment of wage and income over the long term."

With higher levels of income, people can build more wealth.  But wealth and income are not the same thing.

The Comparative Advantage of Big Pharmaceutics

Disclaimer:  I'm not an expert on the pharmaceutical industry, nor do I play one on TV.  But this does not surprise me:

One often hears the claim that "big pharma" doesn't really do much research and development, and that the creative work is done by small companies that then license their compounds to the big drug companies. That is to a great degree true, but it misses the point: the development of a drug is vastly more complex than the discovery of an active compound. Not only must that drug be tested and trialed at an unbelievable cost that goes beyond the financial and technical means of most small "discovery" companies, but it must then be sold before any patient can take it. There is nothing more complex than the selling of any new medical technology. Why? Because the person who must be persuaded (your physician) is not the person who will benefit (the patient), not the person who will stock it (the pharmacy), and not the person who will pay for (most) of its cost (your insurer or employer). The small discovery companies are as dependent on big pharma as big pharma is on them, and all patients everywhere are dependent on the symbiosis between them.

Criticizing the drug companies for not making their own discoveries is no different from criticizing a pencil company that buys wood for their products from an outside supplier or criticizing an automobile manufacturer that buys some of its parts from outside suppliers.  Wells Blue Bunny does not raise its own dairy cows.  Breweries generally do not raise their own hops.  Likewise, it makes no sense whatsoever for "Big Pharma" to do everything in house. 

From what Tigerhawk has written, it appears that the small "discovery companies" have a comparative advantage in the "creative work" while Big Pharma has a comparative advantage in getting the "creative work" through the approval process - running trials and the like.  And the cooperation of the discovery companies and Big Pharma results in the availability of many medicines at lower costs than if Big Pharma did everything in house.

Fighting Poverty the John Edwards Way

So, John Edwards is making the fighting of poverty his primary stumping grounds.

The North Carolina Democrat's theme of ending the "Two Americas" of haves and have-nots dates to his 2004 presidential bid. Mr. Edwards didn't win his party's nomination then, but his strong reception among voters helped him to secure a place as Massachusetts Sen. John Kerry's running mate. Mr. Edwards argues that the disparity between the richest Americans and the working class has widened since then.

A noble cause.  He can start by laying off of Wal-Mart (first comment): 

i hope he goes all out demonizing wal-mart, like he did in pittsburgh this summer. hit on the place where poor people get to buy stuff and save money

But laying off of Wal Mart wouldn't help keep those union campaign funds flowing in.

What Killed Heavy Metal Music in the 1980's?

So the PowerWife gets me an iPod for Christmas and I start filling it up with tunes.  2700 songs so far.  8 days worth of music.  I let PowerKid, The Youngest listen to it.  He hears a Megadeth tune and raises his fist and says "Yeah" and starts headbanging like only a 4 year old could do.

That's my boy.

He hears a heavy Thin Lizzy tune, a Metallica tune, and some other upbeat and heavy tune (Satriani, I think).  Same result each time.

Then a Dokken tune comes on ("Breaking the Chains," I    think).  He listens.

"Ew!  Girly music."  He immediately    takes off the headphones and hands them to the PowerWife.

Indeed.    

Thus the death of 80's metal.

High Income vs. Very High Income: The Doctor Edition

From the St. Louis Post-Dispatch comes an article on income and wealth inequality that I plan to blog more about later.  The article contains a passage on doctor salaries:

The splintering of the affluent — a demographic once loosely regarded as one — is profoundly evident in the medical industry. The spectacular lifestyles accorded to some doctors specializing in tummy tucks and facelifts lure gifted surgeons who feel they aren't earning enough reattaching severed limbs.

Procedures that are generally *not* covered by third-party insurance.

Spiraling costs of medical schooling and the temptation of specialists' pay drive doctors away from family practice or pediatrics and straight up the "E-ROAD." That's the fraternal acronym for emergency, radiology, ophthalmology, anesthesiology or dermatology.

Just as we'd expect - just as what's happening with dentistry as I wrote nearly two years ago:

What is happening to cause this switch?  Three quotes from the article

In part, it's because dentists have avoided being flattened by the managed-care steamroller, and instead many have turned into upscale marketers. ...

Dentists wrung their hands over their inability to get more insurance coverage -- a failure that now looks heaven-sent. ...

 "We shifted from needs-based dentistry to wants-based dentistry," says the youthful-looking Dr. Bryson, who has a dazzling smile. "It has totally transformed our practice and our personal lives. We see a much smaller number of patients, at a slower pace. I can't wait to get in in the morning."

Dentists, who aren't as highly regulated as many medical doctors, are thus able to steer their resources towards the things that consumers want most - cosmetic dental work. And both the patients and dentists are doing nicely, thank you.

When the net surplus from a career begins to exceed that of some alter, we see more people choosing to acquire the human capital necessary to move into that career.  This results in a shift to the more lucrative career as time goes on.  The costs of becoming a physician are increasing as are the costs associated with being a physician (all that dadgummed paperwork).  Add to that the increased demand that comes with third party payment systems.  And when incomes don't increase at the same or faster rate as the costs, fewer people will go into those careers.  But we are supposed to look down upon doctors who specialize in cosmetic surgery and the like because they aren't choosing some specialty that, supposedly, society at large values more?  We shouldn't because they are only acting as we'd expect them to:  rationally and in their own self-interest.  Instead of looking down upon those who choose these careers, we should instead pay attention to the public mindsets and policies that are driving the costs up and the incomes down.