In Sickness or in Wealth

How out-of-pocket health spending added 10 million people to the ranks of the poor.

The U.S. Census Bureau has adopted a new, more comprehensive Supplemental Poverty Measure (SPM) that accounts for various safety net programs. The new measure takes into account the hundreds of billions of dollars provided to the needy—including food stamps and cash assistance programs—and makes adjustments for major expenses such as out-of-pocket medical spending, income, and taxes. According to the new measure, out-of-pocket health spending alone added 10 million people to the ranks of the poor in 2010 (figure 13.1a).

China and America in South-East Asia

by R.G. | BEIJING

THE spectre looming over Barack Obama’s eight-day swing through Asia was unmistakable. Behind the talk of a trans-Pacific free-trade zone, and the agreement to rotate American troops through a base in northern Australia, and America’s first participation in the East Asian Summit meeting in Bali, the president’s tour was all about China.

As if to mark the end of a decade in which a rising China was superseded by radical Islam as America’s biggest potential security threat, Mr Obama is now recalibrating his foreign-policy machinery and focusing on the Asia-Pacific region.

Venezuelan monetary policy

by P.G. | CARACAS

IF YOU’RE looking to store a large amount of gold bullion, you may be in luck: the Bank of England should soon have room for another 100 tonnes or so, thanks to Hugo Chávez, Venezuela’s president. In August Mr Chávez decreed that Britain—along with the United States, France and Switzerland—was no longer a suitable place to safeguard his country’s gold reserves. Unlike many of his schemes that are announced with fanfare only to be quickly forgotten, the president meant business this time: on November 25th the first shipment of repatriated ingots arrived in Caracas, the capital. In total, Venezuela plans to move 160 tonnes of the precious metal from those countries to the vaults of its own central bank, as well as transferring $6.3 billion in foreign-currency reserves from banks in the United States and Europe to Russia, China, Brazil and other emerging economies.

The central banks act

by R.A. | WASHINGTON

THE past 24 hours have seen a flurry of action around the world, in response to growing concern about the euro zone's sovereign-debt crisis. The story begins in Europe, where finance ministers meeting to discuss the future of the European Financial Stability Facility seem to have taken some key decisions regarding the fund. The EFSF will be able to lever its meagre €440 billion in capital (less amounts already committed to rescues for Greece, Ireland, and Portugal) in two different ways. First, by using its resources to guarantee 20% to 30% of the bond issues of struggling peripheral economies and, second, by creating "co-investment funds" that (it is hoped) will attract money from other investors and which can be deployed to buy bonds.

Nonfarm productivity (output per hour) rose at a 2.3% annual rate in the third quarter

Data Watch
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Nonfarm productivity (output per hour) rose at a 2.3% annual rate in the third quarter
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 11/30/2011
Nonfarm productivity (output per hour) rose at a 2.3% annual rate in the third quarter, revised down from last month’s estimate of 3.1%. Nonfarm productivity is up 0.9% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector declined at a 3.2% annual rate in Q3 and is also down 2.3% versus last year. Unit labor costs fell at a 2.5% rate in Q3 but are up 0.4% versus a year ago.
In the manufacturing sector, the Q3 growth rate for productivity (5.0%) was higher than among nonfarm businesses as a whole. The faster pace in productivity growth was due to both rising output and (slightly) falling hours. Real compensation per hour was down in the manufacturing sector (-3.4%), and due to the increase in productivity growth, unit labor costs fell at a 5.1% annual rate.

Implications: Forget about productivity for a moment. The big economic news this morning was the ADP employment index, a measure of private-sector payrolls, which increased 206,000 in November, easily beating consensus expectations and the largest gain in almost a year. The gain among small businesses was the best in five years. Other timely indicators continue to show growth. The Chicago PMI, which measures manufacturing activity in that region, increased to 62.6 in November from 58.4 in October. The November reading is the highest since April. In addition, pending home sales, which are contracts on existing homes, soared 10.4% in October, the third largest monthly gain on record (dating back to 2001). This suggests a solid gain to existing home sales (counted at closing) in November. Last week, chain store sales were up 4% from a year ago according to the International Council of Shopping Centers and 5.4% according to Redbook Research. (These figures do not include sales at stores open for less than a year.) The news on home prices was mixed. The Case-Shiller index shows a 0.6% decline in September, while the FHFA index shows a 0.9% increase. Case-Shiller measures home prices in the 20 largest metro areas around the country, while FHFA looks nationwide but only at homes financed with conforming mortgages. The conforming loan limit was reduced in some of the highest priced areas of the country on October 1. This may have cut the price sellers of some expensive homes were willing to accept in the months leading up to the change. The news on productivity was close to consensus expectations. Productivity (output per hour) was revised down for the third quarter, consistent with last week’s downward revisions for real GDP growth. Hours worked were revised upward slightly, also putting some downward pressure on output per hour. Productivity is up a tepid 0.9% in the past year, but was up 3.3% in the year ending in Q3 2010. It is normal in recoveries for productivity to surge early on and then temporarily slow down as firms start to give their workers more hours. Long-term, we expect strong growth in productivity as the technological revolution continues.
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Violence Tests U.S. Prohibition. by Ted Galen Carpenter

Nearly five years ago, Mexico's president, Felipe Calderón, declared war on the country's powerful and vicious drug cartels. His strategy of using the military against them initially enjoyed widespread domestic popularity, as well as Washington's strong support, but it has failed to yield results. Some 42,000 people have perished in the resulting violence, and the cartels seem more powerful than ever.

The Mexican people are increasingly disenchanted with the drug war, and influential political figures are urging a different approach. Some say the government should negotiate a truce with the cartels. Others, most notably Calderón's predecessor, Vicente Fox, are bolder, advocating drug legalization to deprive the criminal enterprises of their vast black-market profits.

We Don't Need a Balanced Budget Amendment. by Tad DeHaven

The Constitution already places strict limits on what the federal government can and cannot do. The problem is that those limits have become stretched over the years to the point that the federal government can do pretty much what it pleases. As a result, Americans have become accustomed to, and dependent upon, the federal government to supervise their lives from cradle to grave.

Most Republicans are about as enthusiastic to confront this reality as most Democrats are in reversing it. Thus, the convenient resurgence in popularity for a balanced budget amendment on the part of Republicans has been driven by an unwillingness — or inability — to flesh out exactly what federal agencies and programs would have to go in order to bring the budget into balance without raising taxes.

The Whigs versus the Schoolboys. by Steve H. Hanke

The Whig interpretation of history is captured by the phrase "onward and upward." The course of recent financial and economic events in the United States and Europe throws that notion into doubt. With each passing day, something new — and negative — pops up. This pattern fits the schoolboys' interpretation: "it's just one damn thing after another."

Just take a look at the money supply growth data for the U.S. The broadest measure of money published by the Board of Governors of the Federal Reserve System in Washington, D.C. is M2. This measure is widely used by analysts. It has been rapidly accelerating. At present, M2 is growing at an annual rate of 10%, lending credence to the onward and upward phrase (see the accompanying chart).

But, the M2 money supply figure has shortcomings. It represents a simple sum of the components that make up that metric. In short, each component carries the same weight. A much superior measure of the money supply is the so-called Divisia metric. With this measure, each component of the money supply is assigned a weight,depending on its usefulness as a medium of exchange. So, currency, traveler's checks, and demand deposits receive a relatively "high" weight; whereas, institutional money market funds receive a relatively "low" weight.

Back to Bush's Big-Government Conservatism. by Michael D. Tanner

In the wake of the disastrous Bush presidency and the Republican defeats of 2006 and 2008, it was widely assumed that the GOP had repudiated the idea that big government could be harnessed for conservative ends. And, of course, in 2010, the Tea Party led a return to conservatism's traditional small-government roots, resulting in the biggest Republican landslide in 70 years. One would think that settled the matter.

Yet, just five weeks out from the Iowa caucuses, both of the front-runners for the Republican nomination are strong advocates for a bigger, more activist government. Obviously, everything is relative. Neither Mitt Romney nor Newt Gingrich represents the sort of income-redistributing welfare state embodied by the Obama administration. But neither are they a threat to truly cut back the size, cost, and intrusiveness of the federal government.

Central Banks Act to Help Global Financial System

Stocks Surge on Central Bank Action

Police Shut Down Occupy L.A. and Philly

The Receding Democratic Majority? Obama has a "path to 270." Republicans hope he makes it even farther.

By JAMES TARANTO

Back in 2002, John Judis and Ruy Teixeira published a book titled "The Emerging Democratic Majority," in which they argued that demographic trends were the Democrats' friends--specifically, that the donks were fated to benefit from rising numbers of "minority voters, including blacks, Hispanics, and Asian-Americans; women voters, especially single, working and highly educated women; and professionals," while "the ranks of white working-class voters will not grow over the next decade," spelling trouble for the GOP.
If history had stopped in 2009, they would have been able to claim vindication. Republicans made modest congressional gains in the 2002 and 2004 elections, and George W. Bush was re-elected decisively though not resoundingly. But 2006 wiped out the GOP's congressional majorities, and 2008 bolstered those of the Democrats. Barack Obama achieved the biggest popular-vote majority of any president in 20 years and of any Democrat in 44 years--that is, since before Kevin Phillips published "The Emerging Republican Majority" (1969) to which the Judis-Teixeira tome was a rejoinder.

Blame It on Berlin The euro bailout caucus wants the Germans to write a blank check.

Which century is this anyway? We ask because elite opinion is once again blaming Germany for ruining the rest of Europe, if not the entire world economy. All that's missing are references to the Kaiser or Herr Schicklgruber, but we hope the Germans don't fall for this global guilt trip.
Berlin's alleged sin is its reluctance to write a blank check to save the euro—either by underwriting a new euro-zone fiscal union, or granting permission for the European Central Bank to buy trillions in sovereign debt. The chant comes in unison from the debtor nations themselves, the bailout caucus in Brussels, an Obama White House concerned about its re-election, and liberal pundits worried that their welfare-state economic model is under assault. Like the "rich" in America who must pay their "fair share," the Germans are supposed to pay up to save a united Europe.

Paul Gigot on the discussions over how to save the euro fiscal union and sovereign states from default. Plus, what to make out of Barney Frank's retirement.

XXX-Ratings May Save Us From Financial Armageddon: William Pesek

Twelve-hour flights are a chance to catch movies you might not expect to be good entertainment -- such as “Too Big to Fail,” Hollywood’s take on the meltdown of Lehman Brothers Holdings Inc.
I watched it while flying from Tokyo to New York and kept thinking about what Lehman’s failure says about the Olympus Corp. scandal back in Japan. The off-balance-sheet risks, the tax havens, the impenetrable accounting, the smarmy and delusional executives saying all’s well, the hapless regulators.
Then it hit me. The world of finance should become more like the movies, with a rating system that actually makes sense.

The Cure for an Uncoordinated Economy: Laurence Kotlikoff

If a deadly virus struck our country, scientists at the Centers for Disease Control and Prevention would diagnose the problem, inform the public, and then prescribe a cure. If only this were true for our economic illness.
Neither President Barack Obama nor the disloyal opposition has explained what really ails the economy. But this hasn’t stopped them from applying highly expensive and generally ineffective elixirs.
The Obama administration blames its predecessor, reasoning that President George W. Bush enabled the housing bubble to develop and stood by as Wall Street churned out trillions of dollars in deeply flawed investments. The resulting financial panic led to a huge, ongoing slump.

Is Gingrich Romney’s Speed Bump or Roadblock?: Margaret Carlson

We don’t know if the editorial board of the New Hampshire Union Leader had to hold its nose and squeeze its eyes shut in order to endorse Newt Gingrich for president this week. But there were hints. “Republican primary voters too often make the mistake of preferring an unattainable ideal to the best candidate who is actually running,” wrote Union Leader publisher Joseph W. McQuaid.

Illustration by Jiro Bevis

By Enrique Krauze

Latin America’s romantic attachment to the idea of revolution began in Cuba and achieved its greatest strength there. And it may well come to an end there.
The Spanish-American War of 1898 (Theodore Roosevelt’s “splendid little war”) was a major chapter in the American assertion of “manifest destiny,” which claimed the U.S.’s right to determine governments and policies for its Latin- American neighbors. Throughout the Spanish-speaking world, in Latin America and Spain itself, the conflict was experienced as an historical tragedy.

Stocks Extend Biggest 3-Day Gain Since ’09. By Stephen Kirkland and Rita Nazareth -

Stocks surged, extending the biggest three-day rally in global equities since 2009, and the euro strengthened after six central banks acted together to make additional funds available to ease strains from Europe’s debt crisis. Treasuries fell while commodities surged.
The MSCI All-Country World Index climbed 3.1 percent at 10:23 a.m. in New York and is up 7 percent in three sessions. The Standard & Poor’s 500 Index gained 3.2 percent to 1,233.78 as only six stocks retreated. The euro strengthened 1.1 percent to $1.3465. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 133 basis points below the euro interbank offered rate after earlier reaching a three-year high of 163. Oil jumped above $101 a barrel and copper rallied 5.6 percent.

INTERMEX POWER

Wednesday, November 30, 2011