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June 13, 2013

June 13, 2013

America the Cautious?

Some say Americans’ cautiousness is not just a result of the “burn” of the Great Recession; and that in actuality, for a generation, Americans have slowly been showing that their penchant for risk-taking is in decline.A recent Wall Street Journal piece (“Risk Averse Culture Infects U.S. Workers, Entrepreneurs”) points out four trends, observable since the 1980s, that show a loss of risk-taking psychology — and these confound some recent analysis that would pin blame either on the aftermath of the financial crisis and Great Recession, or on the epochal shift inaugurated by Baby Boomers’ retirement.

Are U.S. Companies, Workers, and Entrepreneurs Still Willing to Take the Risk?

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Pining for “Creative Destruction”

First, the pace of ongoing job creation and destruction has slowed.  Since the 1980s after each economic recession, employment levels have been increasingly slow to return to pre-recession levels.  Before the 1980s it took on average about 20 months after a downturn was over for employment to return to its pre-recession peak.  On the other hand, after the July 1990 to March 1991 recession, it took 32 months.  After the March 2001 to November 2001 recession, it took four years.  Now, four years after the end of the Great Recession, we’re still not back to pre-recession employment levels.  Companies aren’t expanding their payrolls even though times are clearly better;  businesses would rather sit on cash than risk further expansion…


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The Opaque nature of State and Municipal Finances Poses Risks to Muni Bond Investors

The SEC has shifted some of its attention to the abuses in the municipal bond market, and we are happy about this development.  Investors who own a lot of munis perhaps should pay attention to the Commission’s actions.

The slow recovery of the U.S. national economy has left many states and municipalities — which carry a large part of everyday government spending obligations — still struggling.  Part of these struggles are after-effects of the Great Recession’s catastrophic drop in revenue.  But over the past several years, more and more cases of deceptive or downright fraudulent accounting practices have come to light.  Many of these practices were meant to hide chronic structural fiscal shortfalls, largely related to pension and benefit obligations that were already unsustainable even without a deep economic downturn.  The States Project, a joint study by Harvard and the University of Pennsylvania, reported in its 2012 “State of the States” report that:

States are responsible for the pensions and health care of current and retired government workers, but for decades, states have underestimated the true cost of these programs.  As a result, nearly every state in the nation carries huge future liabilities, estimated at anywhere between $1 trillion and $3 trillion, depending on how those liabilities are measured.  These liabilities coupled with large state debts that have accumulated from years of over borrowing, paint a harrowing fiscal picture.

States’ Unfunded Obligations: High and Sometimes Concealed by “Creative Accounting”

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OPEB = other post-employment benefits (health care, etc.); GSP = gross state product
Source:  The States Project, “State of the States 2012

Fiscal Pressures, Budget Failures, and Public Corruption are all Causes…

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Paying More For Less

We continue to see the interest of journalists sparked by the lengthy exposé of health care price manipulation published earlier this year by Time Magazine (Steven Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” published March 4).  We commented on the story in our April 11 edition of this letter.

The interesting shift in Time’s coverage was from questioning who should pay for medical costs, to why those costs are so much higher in the U.S. than in other OECD countries.

Now the New York Times has inaugurated a series of stories to be published over the next several months, making a closer examination of a series of common drugs and procedures.  Their first, “The $2.7 Trillion Medical Bill,” uses colonoscopy as an iconic indicator of the financial consequences of opacity and cartel-like function of the medical market that we commented on in April.  Like our commentary, it focuses on the opacity of the market — how the non-disclosure of prices to the recipient of care short-circuits market incentives to lower cost and higher quality…

Asymmetric Information and Market Failure…

Lobbyists Work Their Magic…

How Will the Market Respond?…

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