April 11, 2013

April 11, 2013

For 19 Straight weeks, Big Money Has Been Flowing into U.S. Equities

In 2013, U.S. stocks have seen big inflows of money.  $100 billion has been added to U.S. stocks so far this year.  Contrary to some pundits’ assertions, money is also coming into bonds, but to a lesser extent.  $50 billion has been added to U.S. bond funds this year.

It wouldn’t be irrational to ask, “Where has this money pouring into U.S. stocks and bonds come from?”…

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Advantage U.S. — Shale Energy Transforms American Prospects for Jobs and Manufacturing

The cost of labor has been a central factor in the comparative advantage enjoyed by the export economies of the developing world — especially China.  In its post-Mao reforms and the unparalleled growth of the past generation, China has parlayed this advantage into development.  Urban and coastal Chinese cities and regions now boast levels of development comparable to those of the European nations we typically think of as highly developed.  According to the U.N.’s Human Development Index, Shanghai now slightly outranks Iceland; Beijing sits at the level of Finland; and Tianjin, China is on a par with the U.K.

As China became an export powerhouse and the world’s workshop, these gains were driven in large part by China’s lower labor costs.  But labor is not the only cost component in manufacturing.  With the recent development of fracking technologies and the ability to meaningfully exploit shale oil and gas reserves, the U.S. stands to benefit mightily from a comparative advantage in energy costs even more significant than the labor cost advantage China has enjoyed.

Cheap shale oil and gas will reshape energy costs and manufacturing worldwide over the next decade, leading to a renaissance for American manufacturers and exporters.  That will translate into jobs — a siren song that American politicians of all persuasions will not be able to resist.  We believe that the pressure for growth and job creation will drive politicians, including President Obama, to be pragmatic in their embrace of fracking and shale energy.

  • Another Drawing in the Global Lottery
  • U.S. vs. China for Manufacturing
  • Pragmatists Will Go Along

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The Health-Care Cartel: How Lack of Transparency Drives Stratospheric Prices

Several recent articles — an award-winning series in Charlotte’s News & Observer, a long expose published in Time — have addressed an underlying question often lost in the U.S. health care debate.  A rush to answer the question of who will pay for care bypasses the logically prior question of why the price of care is so high.  Time’s Steven Brill asks, “Why does simple lab work done during a few days in a hospital cost more than a car?”

Ordinarily, a market functions as a network of exchange in which consumers benefit from competition among producers.  Markets can fail when there are significant “externalities” — that is, when there are costs of production that don’t get included in the direct price of a good, but are distributed publicly (think of pollution).  But in broad strokes, markets do function as they should, reducing prices and increasing the quality and abundance of goods — which is why they’re embraced with various levels of enthusiasm by politicians of all stripes.

The recent attention to health-care prices shows a critical weakness in the health-care market.  One critical element of market exchange is transparency.  Consumers need to know what they’re buying, and how much various providers are charging for it.  There needs to be information symmetry — consumers need access to the same information that producers have about cost and price.  Armed with this knowledge — the knowledge of how the price a seller is offering stacks up compared to other, competing offers — consumers can make the choice that will give them the most bang for their buck.  And with sellers competing with one another for business from educated consumers, they won’t be able to pull the wool over anyone’s eyes.

The recent attention to the health-care market — and especially to non-profit hospitals — shows how much of the U.S.’ spiraling health-care costs are attributable to the distortion of this market by a lack of transparency.

Lack of Transparency Creates a Seller’s Market for Health-Care


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Guild Basic Needs IndexTM

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To track the effects of rising prices of basic, essential needs, and our discussion of how it affects American policy and society, visit www.gbni.info.

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