divinebuzz: April 2010

The Los Angeles Chapter of the American Guild of Organists presents an educational event and concert. Featured will be new music written for St. Luke's Presbyterian Church, Rolling Hills Estates, and Temple Adat Elohim, Thousand Oaks, by Dr. Raymond Egan, Music Director and Organist at both

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HITTING THE RESET BUTTON
Mar 31st 2010

The passage of health-care reform has energised Barack Obama

"OUR long national Obamacare nightmare is just beginning," clanged the
Heritage Foundation's daily alert, the "Morning Bell", on March 29th.
The conservative think-tank was referring to the long political fight
that will now ensue between friends and foes of the far-reaching health
reform the Democrats have managed at last to squeeze through Congress.
But another sort of nightmare is also beginning to trouble America's
conservatives. It is the possibility that Barack Obama's big win on
health will inject new vigour into what had looked like a prematurely
tired presidency, making it harder for the Republicans to thrash the
Democrats as thoroughly as they had expected in November's mid-term
elections.

The White House has certainly been doing everything it can to spin the
theme of a re-energised president. With scarcely a pause to savour his
victory, Mr Obama made an unannounced weekend visit to Afghanistan, his
first as president, enabling him to play the commander-in-chief in
front of cheering troops while the Republicans at home were still
whining about health reform. The administration hailed a new deal to
reduce nuclear warheads as evidence that Mr Obama had succeeded in
pushing the "reset" button in relations with Russia, which is also
showing signs of being more amenable to the idea of tougher sanctions
on Iran. And in the Middle East a tougher Mr Obama seems determined to
win his second round with Israel's prime minister, Binyamin Netanyahu,
after losing the first round in 2009, when he asked Israel to freeze
settlement in the occupied territories.

At home, too, Mr Obama is showing renewed confidence and a bigger
stomach for the fight. As Congress headed into recess, the president
who made so much of his desire for bipartisanship used his power to
make "recess appointments" when Congress is not sitting to fill 15
senior administration positions whose confirmation had been held up for
many months by Senate Republicans. Some of these appointments are
highly controversial, such as that of Craig Becker, an academic and
labour lawyer who will now join the National Labour Relations Board
over the strong objections of the US Chamber of Commerce. On March 31st
Mr Obama prepared to unveil a plan, anathema to greens, to open
millions of acres of coastal waters to offshore oil drilling.

Having surmounted the formidable roadblock of health reform, the
administration claims that it can now devote more attention to other
pieces of ambitious legislation, such as Senator Chris Dodd's plan to
reform financial regulation and the administration's proposal to
rewrite George Bush's No Child Left Behind Act, and with a greater
prospect of success. In an interview with POLITICO, an online
newspaper, Mr Obama's spokesman, Robert Gibbs, said the president "goes
into these negotiations and into these legislative battles with a
stronger hand, because people understand that he's going to fight for
what he believes in."

Many in the media seem more than willing to buy this line. "Is it just
me, or does Barack Obama seem different since health care passed?"
asked Peter Beinart in the DAILY BEAST, another online paper, comparing
the Democratic victory over health to Ronald Reagan's
presidency-energising sacking of the air-traffic controllers in 1981.
It isn't just Mr Beinart: the Obama rebound and the "spring offensive"
have abruptly become a staple of Washington's pundits. But it is one
thing to argue that the health vote has buoyed up the administration.
It plainly has. Whether it has impressed the voters is, however, a
different and more important question. And if early polls are to be
believed, the answer is: not yet.

A USA TODAY/Gallup poll on March 23rd, days after the vote in Congress,
suggesting that most Americans might be swinging in favour of health
reform, has not been borne out by later surveys. A poll published in
the WASHINGTON POST on March 28th found no evidence that passage of the
legislation had made it either more popular or less contentious: 50%
opposed the changes and 46% favoured them. The president's approval
rating continues to hover around 48% or so, showing little or no sign
of a post-health bounce. In a new USA TODAY/Gallup poll published on
March 30th 64% of respondents said the health reforms would cost
taxpayers too much.

Even if health reform does not become more popular as the mid-terms
approach, passage of the legislation has at least given Mr Obama and
his party a chance to change the subject, and left Republicans
wondering about the extent to which they should do so too.

The party line is currently that the new law must be repealed and
replaced. Senator John McCain has said that the Republicans will punish
the Democrats for their tactics during the health battle by withholding
co-operation for the rest of the year. But the HILL newspaper notes
that several Senate Republicans have said that they remain willing to
collaborate across the aisle. They include Lindsey Graham of South
Carolina, who intends to continue talking to the Democrats over
legislation on energy and immigration reform, and Olympia Snowe of
Maine.

Outside Congress there are even some Republicans who dare voice the
heresy that the party would have done better to collaborate on health
as well, instead of opposing it to a man and then losing anyway. David
Frum, a former speechwriter for George Bush who was brave enough to
refer to health care as the Republicans' "Waterloo" in a much-noticed
column, was unceremoniously sacked a couple of days afterwards from his
job at the American Enterprise Institute.

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FROM BAD TO WORSE
Mar 31st 2010

Lessons from a state that has let its pupils down

AS THE Obama administration spreads enthusiasm about a proposal to
replace a patchwork of state education standards with national ones, it
might also heed a cautionary tale. In the 1990s California too
established rigorous standards. "We thought they were the highest," up
there with those of Massachusetts and Indiana, says Mike Petrilli of
the Thomas B. Fordham Institute, an education think-tank in Washington,
DC. But California never translated those standards into results. Its
public schools are, with some exceptions, awful. Moreover, the state's
fiscal crisis is about to make them even worse.

California's 8th-graders (14-year-olds), for example, ranked 46th in
maths last year. Only Alabama, Mississippi and the District of Columbia
did worse. California also sends a smaller share of its high-school
graduates to college than all but three other states. One of its
roughly 1,000 school districts, Los Angeles Unified, which happens to
be the second-largest in the country, has just become the first to be
investigated by the federal Office for Civil Rights about whether it
adequately teaches pupils who have little or no English.

Eli Broad, a Los Angeles philanthropist who is trying to reform
education, blames a combination of California's dysfunctional
governance, with "elected school boards made up of wannabes and
unions", and the fact that the state's teachers' union is both more
powerful and "more regressive" than elsewhere. The California Teachers
Association (CTA) is the biggest lobby in the state, having spent some
$210m in the past decade--more than any other group-- to intervene in
California's politics.

The CTA has used its money to defeat almost any reform that might have
turned the standards into reality. It helped to defeat ballot measures
that, for example, would have given California a school-voucher system
and changed the probation period for teachers. It ensured that the
state has "laughably easy teacher tests", as Mr Petrilli puts it. It is
also the biggest donor to the state's Democratic Party.

Another factor is money. California's infamous Proposition 13 of 1978
cut property taxes, the main source of revenue for municipalities and
school districts. Other ballot measures, such as Proposition 98 in
1988, were meant to restore school spending, with horrendously complex
funding formulas. But although schools account for the largest part of
California's budget, California entered the recession ranking 46th in
spending per pupil. It has the largest classrooms in the country, with
23.4 students per teacher in 2008, almost twice the national average.
Schools in black and Latino districts fare much worse than those in
white areas.

Now spending is being cut further, as California has to keep plugging
budget holes. Funding per pupil in the state has dropped almost 11% in
the past two fiscal years, and is certain to drop further. This fiscal
year, the school districts have been able to use federal funds from the
stimulus programme to mitigate the effects. But those funds end in the
fiscal year that starts in July.

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HOPE AT LAST
Mar 31st 2010

The world's biggest economy has begun a much-needed transition. Barack
Obama could do more to help

GREAT storms and floods have a way of altering landscapes. Once the
waters recede, some of the changes are obvious: uprooted trees, damaged
property, wrecked roads. Later come further changes, as people seek to
avoid a repeat, erecting new flood walls or rebuilding elsewhere.

As in the physical world, so in the economic one. The financial deluge
that broke over America has passed and the recession it caused, the
worst since the 1930s, is ebbing. This year the American economy is
expected to grow by around 3%, after shrinking by 2.4% in 2009.
Rainbow-spotters hope that employment is at last beginning to grow
again. And the economy emerging from recession is not the same as the
one that went in. There is obvious damage: high unemployment, millions
of foreclosed homes and a huge hole in the public finances. Less
obviously, a "rebalancing" is under way: from consumption, housing and
debt to exports, investment and saving. As our special report[1] this
week argues, this is enormously promising for America and the world;
but it is far from assured. A lot depends on politicians--and not just
the ones in Washington.

America has relied for decades on its consumers' willingness to spend,
borne up by borrowing and the false comfort of bubbles in asset prices.
Now Americans are saving more and borrowing less because the collapse
in home prices has eviscerated their wealth. Bankers and regulators who
once celebrated the democratisation of credit now ration it. Businesses
from General Electric to Citigroup that prospered from the consumption
culture are rethinking--and often shrinking--their loan books. Property
developers are building smaller, simpler houses. The country's
geography is changing. Recession has slowed the rush to sun and sprawl.
People are moving out of Florida and into North Dakota. Foreclosures
and costlier commutes have laid low the distant suburbs, or exurbs.

Dearer, scarcer credit is not the only reason. Energy, though not as
frighteningly expensive as in 2008, is also no longer cheap. Americans
are choosing cars over light trucks, utilities are being told to use
more renewable fuel, and domestic deposits of oil and gas locked deep
beneath the sea or in dense rock are suddenly profitable to extract. If
these trends continue (admittedly, a big if), America could import
barely half as much oil in 2025 as seemed likely just five years ago.

UNITED STATES OF EXPORTS
With consumers forced to live within their means, American firms will
have to sell more to the rest of the world. That may seem a tall order,
but with a competitive dollar and favourable growth in other countries,
exports in which America already excels, such as high-value
manufacturing and services, should do well. The result will be a more
balanced American economy and, by extension, a healthier global
economy.

Or so it should be. But the smoothness of this transition cannot be
taken for granted. Policy decisions both inside and outside America
will determine whether this rebalancing is painful or easy. Put
crudely, if Americans save more and spend less while other big
countries do the opposite, the world economy will prosper. If Americans
become thriftier while foreigners fail to spend more, it will stagnate.

The world's surplus economies have been propelled by American
consumers' appetite for everything from cars and electronics to
furniture and clothing. If the United States is going to save and
export more, countries in emerging Asia will have to rely more on their
own shoppers and on each other. That means changing a mindset that
equates economic health with bulging trade surpluses, and also ushering
in a plethora of microeconomic reforms to boost Asian workers' incomes
and encourage consumption. It is now in everybody's interest to push
China to overhaul its health care, pensions and corporate governance.

And, yes, a stronger yuan would also speed up global rebalancing. Yet
it is also dangerous for America to make a fetish of China's currency
(see article[2]). Slapping bilateral tariffs on China, which some
Democrats want to do to punish it for the low yuan, would hardly help
rebalance anything: America would merely import stuff from elsewhere.
And the cost in terms of beggar-thy-neighbour protectionism and
diplomatic poison would be dire. Far better for Mr Obama to seek a
multilateral solution while focusing on rebalancing at home.

HOW TO BECOME THRIFTIER WITHOUT ANYBODY MINDING
From that perspective the macroeconomic imperative in Washington is
clear: a credible medium-term plan to reduce the deficit. That would
avoid premature and dangerous tightening while calming bond markets
enough to hold down long-term interest rates. The combination of tight
fiscal policy and low interest rates is usually a recipe for a weaker
currency.

Plenty of microeconomic reforms could also help with rebalancing.
America taxes income and investment too much and consumption too
little. So far Mr Obama's policies have mostly worsened the tilt.
Health-care reform applies for the first time a payroll tax (for
Medicare) to investment income. His administration has rejected a tax
linked to the carbon content of fuel. It has also increased the
subsidies, guarantees and preferences for mortgages that helped inflate
the housing bubble. The federal government now stands behind 60% of
residential mortgages and seems open to the idea of creating a
permanently expanded backstop.

Rather than reinforce these biases, Mr Obama should remove them.
Getting rid of the tax concessions for housing would help both control
the deficit and speed up rebalancing. Housing assistance should be
aimed at homeowners who cannot easily move to jobs in brighter parts of
the country because their homes are worth less than their mortgages. By
helping people reduce their mortgage debts, Mr Obama has taken a step
in the right direction.

The world's biggest economy has begun a long overdue rebalancing.
American consumption and borrowing can no longer be the engine of
either America's economy or the world's. That is the hope. The fear is
that politicians everywhere are incapable of dealing with the
consequences.

-----
[1] http://www.economist.com/displayStory.cfm?story_ID=15793036
[2] http://www.economist.com/displayStory.cfm?story_ID=15819107

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THE TRUTH HURTS
Mar 31st 2010

Will the Treasury call China a currency manipulator?

TO MOST people, to say that China holds down the value of its currency
to boost its exports is to state the obvious. Not, though, to America's
Treasury Department. By law it must report twice a year on which
countries fiddle their exchange rates at the world's expense. China was
last fingered in 1994. Ever since then, the Treasury has concluded that
the designation would do more harm than good. Speculation is growing
that it may decide differently in its next report, due on April 15th.

The mood in America resembles that in 2005, when the Senate voted to
hit China with tariffs of 27.5% and the Treasury ratcheted up its
rhetoric. China abruptly moved to a managed float for the yuan. It was
allowed to appreciate by 20% over the next three years before a halt
was called during the banking panic of 2008.

China seems more determined to resist pressure this time, though, and
can rightly point out that its fiscal stimulus has halved its
current-account surplus since 2007. America's trade deficit with China
has edged a bit lower (see chart), though further declines seem
unlikely, now that its own recovery is under way.

Nonetheless, the weight of opinion in America is running heavily
against China. Unemployment has doubled since 2005 and Barack Obama
wants exports to lead the recovery. That will be harder if China sticks
to its export-centric yuan policy.

Businesses have also become less reliable defenders of China, rankled
by measures such as an edict last autumn which, according to American
technology companies, virtually shuts them out of Chinese government
procurement. The hacking attacks on Google and the trial of Rio Tinto
executives have hardly helped. "A whole slew of multinationals I've
talked to are increasingly fed up with how they are being dealt with on
micro, industry, product-specific stuff," says Fred Bergsten, director
of the Peterson Institute for International Economics, a think-tank.

Charles Schumer, a Democratic senator, and Lindsey Graham, a
Republican, authors of the 2005 China tariff bill that probably pushed
China to move, have introduced a variant that would force the Treasury
to make the designation and then seek redress through the International
Monetary Fund, the World Trade Organisation, and unilateral duties. One
manufacturing-union group has produced maps showing just how many jobs
each congressional district and state has lost to China.

A popular view in Washington is that the Treasury could call China a
manipulator to wrest control of the issue from hotheads in Congress.
The practical consequences are small: it requires the United States
only to consult with the offending country, something the two already
do frequently. It would also fulfil Mr Obama's promise to use America's
trade enforcement tools more vigorously. But Nicholas Lardy, also of
the Peterson Institute, thinks that--far from restraining others--a
Treasury designation of China as a manipulator would be "like throwing
red meat to the Congress and enhancing the possibility they pass a
currency bill."

The administration's best hope is that China moves of its own accord
before events in Congress or elsewhere force a confrontation. Tim
Geithner, the treasury secretary, is surprisingly confident that China
will act. Sander Levin, the usually interventionist-minded chairman of
the House Ways and Means Committee which oversees trade matters,
advocates multilateral rather than unilateral pressure. So perhaps the
administration will give China one last chance and seek a multilateral
remedy at the G20 in June. If China still fails to respond, the
Treasury, by the time of its autumn report, will no longer be able to
deny the obvious.

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TIME TO REBALANCE
Mar 31st 2010

America's economy is set to shift away from consumption and debt and
towards exports and saving. It will be its biggest transformation in
decades, says Greg Ip (interviewed here[1])

STEVE HILTON remembers months of despair after the collapse of Lehman
Brothers in 2008. Customers rushed to the sales offices of Meritage
Homes, the property firm Mr Hilton runs, not to buy houses but to
cancel contracts they had already signed. "I thought for a moment the
world was coming to an end," he recalls.

In the following months Mr Hilton stepped up efforts to save his
company. He gave up options to buy thousands of lots that the firm had
snapped up across Arizona, Florida, Nevada and California during the
boom, taking massive losses. He eventually laid off three-quarters of
its 2,300 employees. He also had its houses completely redesigned to
cut construction cost almost in half: simpler roofs, standardised
window sizes, fewer options. Gone were the 12-foot ceilings, sweeping
staircases and granite countertops everyone wanted when money was free.
Meritage is now catering to the only customers able to get credit:
first-time buyers with federally guaranteed loans. It is clawing its
way back to health as a leaner, humbler company.

The same could be said for America. Virtually every industry has shed
jobs in the past two years, but those that cater mostly to consumers
have suffered most. Employment in residential construction and
carmaking is down by almost a third, in retailing and banking by 8%. As
the economy recovers, some of those jobs will come back, but many of
them will not, because this was no ordinary recession. The bubbly asset
prices, ever easier credit and cheap oil that fuelled America's age of
consumerism are not about to return.

Instead, America's economy will undergo one of its biggest
transformations in decades. This macroeconomic shift from debt and
consumption to saving and exports will bring microeconomic changes too:
different lifestyles, and different jobs in different places. This
special report will describe that transformation, and explain why it
will be tricky.

The crisis and then the recession put an abrupt end to the old economic
model. Despite a small rebound recently, house prices have fallen by
29% and share prices by a similar amount since their peak. Households'
wealth has shrunk by $12 trillion, or 18%, since 2007. As a share of
disposable income it is back to its level in 1995. And if consumers
feel less rich, they are less inclined to spend. Banks are also less
willing to lend: they have tightened loan standards, with a push from
regulators who now wish they had taken a dimmer view of exotic
mortgages and lax lending during the boom.

Consumer debt rose from an average of less than 80% of disposable
income 20 years ago to 129% in 2007. If other crises of the past
half-century are any guide, America's consumers will spend the next six
or seven years reducing their debt to more manageable levels, reckons
the McKinsey Global Institute. This is already changing the composition
of economic activity. Consumer spending and housing rose from 70% of
GDP in 1991 to 76% in 2005 (see chart 1). By last year it had fallen
back to 73%, still high by international standards.

The effect on the economy of deflated assets, tighter credit and
costlier energy are already apparent. Fewer people are buying homes,
and the ones they buy tend to be smaller and less opulent. In 2008 the
median size of a new home shrank for the first time in 13 years. The
number of credit cards in circulation has declined by almost a fifth.
American Express is pulling back from credit cards and is now telling
customers how to use their charge cards (which are paid off in full
every month) to control their spending.

Normally, deep recessions are followed by strong recoveries as pent-up
demand reasserts itself. In the recent recession GDP shrank by 3.8%,
the worst drop since the second world war. In the recovery the economy
might therefore be expected to grow by 6-8% and unemployment to fall
steadily, as happened after two earlier recessions of comparable depth,
in 1973-75 and 1981-82.

NO BOUNCE-BACK
But this particular recession was triggered by a financial crisis that
damaged the financial system's ability to channel savings to productive
investment and left consumers and businesses struggling with surplus
buildings, equipment and debt accumulated in the boom. Recovery after
that kind of crisis is often slow and weak, and indeed some nine months
into the upturn GDP has probably grown at an annual rate of less than
4%. Unemployment is well up throughout the country (see map), though it
declined slightly in February.

So if America is to avoid the stagnation that afflicted Japan after its
bubbles burst, where is the demand going to come from? In the short
term the federal government has stepped up its borrowing--to 10% of GDP
this year--to counteract the drop in private consumption and
investment. Over the next few years this stimulus will be withdrawn.
Barack Obama wants the deficit to come down to around 3% of GDP by the
middle of this decade, though it is not clear how that will be
achieved. Indeed, if the rest of the economy remains moribund, the
government may be reluctant to withdraw the stimulus for fear of
pushing the economy back into recession.

Tighter credit and lower consumer borrowing are not the only drivers of
economic restructuring. A less noticed but significant push comes from
higher energy prices. A strengthening dollar and ample supply kept oil
cheap for most of the 1990s, feeding America's addiction to imports.
That began to change a few years before the crisis as the dollar fell
and emerging markets' growing appetite put pressure on global
production capacity.

A fourfold increase in oil prices since the 1990s has rearranged both
consumer and producer incentives. Sport-utility vehicles are losing
popularity, policies to boost conservation and renewable energy have
become bolder, and producers have found a lot more oil below America's
soil and coastal seabed. Imports of the stuff have dropped by 10% since
2006 and are likely to come down further. When natural-gas prices
followed the rise in oil earlier this decade, exploration companies
used new methods to get at gas trapped in shale formations from Texas
to Pennsylvania. Abundant domestic shale gas should radically reduce
America's gas imports.

America's economic geography will change too. Cheap petrol and ample
credit encouraged millions of Americans to flock to southern states and
to distant suburbs ("exurbs") in search of big houses with lots of
land. Now the housing bust has tied them to homes they cannot sell.
Population growth in the suburbs has slowed. For the present the rise
of knowledge-intensive global industries favours centres rich in
infrastructure and specialised skills. Some are traditional urban cores
such as New York and some are suburban edge cities that offer jobs
along with affordable houses and short commutes.

A burst of productivity could lift incomes and profits. That would
enable consumers to repay some of their debt yet continue to spend. The
change in the mix of growth should help: productivity in construction
remains low, whereas in exports the most productive companies often do
best. But the hobbled financial system will make it hard for
cash-hungry start-ups to get financing, so innovation will suffer.

The outlook for business investment depends on whether it is for
equipment or buildings. Spending on equipment is expected to be fairly
strong, having largely avoided excess in the boom period, and indeed in
the fourth quarter of 2009 it raced ahead at an annual rate of 19%. In
February John Chambers, the boss of Cisco Systems, a maker of
networking gear, called it "one of the most robust, positive
turnarounds I've seen in my career". Demand for new buildings is far
lower: empty shops and offices attest to ample unused capacity. And
business investment typically accounts for only 10-12% of GDP, so it
will never be a full substitute for consumer spending.

THE ROAD TO SALVATION
As consumers rebuild their savings, American firms must increasingly
look abroad for sales. They have a lot of ground to make up.
Competition from low-wage countries, mostly China, has increasingly
taken over the markets of domestic industries such as furniture,
clothing or consumer electronics. Yet shifts in the pattern of global
growth and the dollar are laying the groundwork for a boom in exports.
"There's a world view that the United States is the consumer of the
world and emerging markets are the producer," says Bruce Kasman, chief
economist at JPMorgan Chase. "That has changed." He reckons that
America will account for just 27% of global consumption this year
against emerging markets' 34%, roughly the reverse of their shares
eight years ago.

The cheaper dollar will resuscitate some industries in commoditised
markets, but the main beneficiaries of the export boom will be
companies that are already formidable exporters. These companies
reflect America's strengths in high-end services and highly skilled
manufacturing such as medical devices, pharmaceuticals, software and
engineering, as well as creative services like film, architecture and
advertising. Thanks to cheap digital technology, South Korea and India
now knock out the sort of low-budget films that compete with standard
American fare. But only Hollywood combines the creativity, expertise
and market savvy to make something like "Avatar" which has earned $2.6
billion so far, some 70% of which came from abroad. That adds up to
several jumbo jets.

Exports are a classic route to recovery after a crisis. Sweden and
Finland in the early 1990s and Thailand, Malaysia and South Korea in
the late 1990s bounced back from recession by moving from trade deficit
to surplus or expanding their surplus. But given its size and the
sickly state of most other rich countries' economies, America will find
it much harder. It has been exporting more to emerging markets than to
developed ones for several years, but if other countries, particularly
China, do not sufficiently boost domestic demand, "the unwinding of the
global imbalances could reverse quite quickly in 2010," says an IMF
staff paper.

America's current-account deficit, the broadest measure of its trade
and payments with the rest of the world, shrank from 6% of GDP in 2006
to 3% last year (see chart 2). Could it come down to zero? It nearly
did in 1991 after five years of booming exports. This time the deficit
started out a lot larger and the rest of the world is weaker. Still,
even stabilisation around 3% would be a blessed relief because it would
slow the growth in America's indebtedness to foreigners.

America's imbalances were years in the making and will not be undone
overnight. But the elements of a rebalanced economy are already visible
a 40-minute drive to the south of Mr Hilton's offices in Scottsdale,
Arizona. Around the same time that Mr Hilton was watching sales of his
homes dry up, Brian Krzanich, head of global manufacturing at Intel,
was finalising plans to spend $3 billion retooling his company's
massive semiconductor factories in nearby Chandler. Mr Krzanich knew
perfectly well there was a recession going on. Intel's sales were down
and 3% of the staff at the factories had been laid off. But he also
knew that once global demand rebounded, Intel would have to be ready to
produce a new generation of cheaper, smaller and more efficient chips.
"Unless you think your business is going to shrink for an extended
period, like seven years, it always pays to make that investment," he
says. In the last quarter of 2009 Intel, helped by resurgent demand for
technology, enjoyed record profit margins, and Mr Krzanich was
approving overtime.

Mr Hilton, for his part, runs his company on the assumption that the
days of easy money and exuberant consumers are gone for ever. In his
office he has a yellowed copy of the WALL STREET JOURNAL from September
18th 2008, the week when Lehman failed and American International Group
was bailed out. "Worst crisis since the 30s with no end in sight",
reads one headline. "I wish I'd had that article in 2005," says Mr
Hilton. He keeps it around as an antidote any time he is "feeling all
happy and slappy".

-----
[1]
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THE PANDA HAS TWO FACES
Mar 31st 2010

Doing business in China is no stroll in the people's park--and never
will be

GOOGLE and Rio Tinto are the chalk and cheese of the business world:
the former a bits-and-bites wunderkind born in 1998, the latter a
grizzled mining company that has been around since 1873. But over the
past few months they have both found themselves in trouble with the
Chinese authorities.

To avoid censorship, Google has closed its Chinese search engine and
diverted traffic from the country to its site in Hong Kong. Rio Tinto
has seen four of its employees sentenced to lengthy prison terms for
taking bribes from Chinese firms. Google and Rio are only the most
recent of a long line of Western companies to have been bruised by
China. Unilever suffered for years because it was forced into shotgun
marriages with unsatisfactory Chinese partners. The government has
prevented Coca-Cola from buying a local juice-maker out of seemingly
spurious concerns about competition. A recent survey by the American
Chamber of Commerce in China found that a high proportion of American
firms doing business in the country feel that they are the victims of
discriminatory or inconsistent treatment.

The most obvious reason for this is that the ruling Communist Party is
a nightmare to deal with--all smiles one moment and snarls the next.
The party has been wooing foreign investors for decades with access to
cheap labour and a huge market, not to mention fancy office parks and
world-class infrastructure: since the mid-1990s Shanghai has built a
second international airport, a new subway, inner and outer ring roads,
two elevated freeways and a light-rail system.

But at the same time the Chinese want their pound of flesh. The party
regards foreign investment as a mechanism for acquiring foreign
know-how rather than just jobs and capital; hence the insistence on
joint ventures. It also regards economic growth as a tool for
entrenching its own power; hence the application of the iron fist
whenever business threatens to get out of control.

These political difficulties are piled on top of cultural difficulties.
The Chinese emphasis on personal connections (GUANXI) makes it hard to
distinguish between business-as-usual and corruption. And the weakness
of the legal system means that companies operate in a confusing
half-light. Transparency International's most recent Corruption
Perceptions Index ranks China 79th out of 180 countries.

Corruption, legal caprice and the government's determination to control
and exploit foreign firms all seem to have played a part in Rio's
troubles. Although the trial of Rio's employees hinged on the bribes
they confessed to taking, the government's decision to arrest them in
the first place came hot on the heels of Rio's decision to pull out of
a deal with one Chinese state-controlled firm, and amid tense
negotiations over the price of iron ore with others. The government has
done nothing to bring the Chinese bribe-payers to book. In the case of
Google, the government not only insisted on censoring search results,
but was also thought to be behind attempts to hack into dissidents'
correspondence on the company's webmail service.

All very messy. Yet the only thing more dangerous than dealing with
China is not dealing with it. China is already well on the way to
becoming the world's biggest market for anything you can think of. It
has 400m internet-users compared with America's 240m and India's 80m.
Last year car sales in China surpassed those in the United States. And
the Chinese market is only going to get bigger. China's economy is
growing at 10% a year at a time when the developed world looks set for
a period of prolonged lethargy. No wonder more than 300,000 foreign
firms have invested in the Middle Kingdom.

How can these companies boost their chances of riding the Chinese wave
rather than being dragged down by the undertow? The fact that some of
the world's best companies have struggled in China suggests that there
are no easy answers. But several decades of corporate agonies suggest
two clear rules for doing business in the country.

JUST ADD BUTTER
The first is that companies need to show an almost exaggerated respect
for China's traditions: the Chinese are simultaneously immensely proud
of their history and highly suspicious of foreigners who, in their
view, have repeatedly mistreated them. This means making a long-term
bet on the country. P&G took three years to become profitable in
China. L'Oreal took nine. KFC spent ten years perfecting its business
model before becoming the powerhouse that it now is, with restaurants
in 450 cities. It also means investing heavily in politicking. Stanley
Wong, head of Standard Chartered's Chinese operations, reckons that
multinationals' senior representatives in China must spend 30-40% of
their time buttering up officials and regulators.

The second rule is that companies should never abandon their principles
for short-term gains. Freedom of information is so central to Google's
identity that it was right to declare it sacrosanct and repudiate its
previous willingness to negotiate it away for commercial advantage.
Although the Chinese government may not accept such intransigence, as
in Google's case, the odds are better if firms slavishly follow the
first rule.

That is a price worth paying. There is growing evidence that the
Chinese market is living up to its promise. The American Chamber
reported in 2008 that three-quarters of the companies that it surveyed
were finally making money in China, and almost half were enjoying
margins that are higher than the global average, up from 13% a decade
before. But there is equally no doubt that the Chinese will remain
tough customers. They have profited mightily from their ability to
squeeze concessions from Western firms. And the financial crisis has
boosted their confidence in their way of doing things. There will be
plenty more cases like Google and Rio Tinto in the years to come.

See this article with graphics and related items at http://www.economist.com/business-finance/displaystory.cfm?story_id=15814746

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SIGNED, SEALED, DELIVERED
Mar 25th 2010

Barack Obama has transformed health reform from near death to fact. So
how will Obamacare change America's health system?

THE Barack Obama who addressed Americans at near midnight on March 21st
had every right to gloat. After a year in which his proposals for
health reform were savaged by Republicans and leftists alike, and
declared dead half a dozen times by everyone, he has somehow managed to
get them over the finishing line.

The reform package is made up of two bills. One, a flawed and
pork-laden version of health reform passed by the Senate before
Christmas, has now been approved by the House; Mr Obama signed this on
March 23rd. The other is a "reconciliation" bill meant to fix some of
its flaws, and the House also passed this. Because this is a new bill,
the Senate has to pass it too. It can do so under special
"reconciliation" rules that require only 50 votes, not a
filibuster-proof 60. As THE ECONOMIST went to press, it looked set to
do so.

What will it mean for America? The short answer is that the reforms
will expand coverage dramatically, but at a heavy cost to the taxpayer.
They will also do far too little to rein in the underlying drivers of
America's roaring health inflation. Analysis by RAND, an independent
think-tank, suggests that the reforms will actually increase America's
overall health spending--public plus private--by about 2% by 2020, in
comparison with a scenario of no reform (see chart). And that rate of
spending was already unsustainable at a time when the baby-boomers are
starting to retire in large numbers.

The heart of the new reform is a restructuring of America's flawed
insurance market. Insurers now face tough new regulations forbidding
such practices as dropping people with "pre-existing conditions" (real
or trumped up), or putting lifetime caps on coverage.

In return, though, the insurance industry will benefit from a big
expansion of the country's private insurance market. Heavily regulated
exchanges, or insurance marketplaces, would be set up so that consumers
not covered by employer-provided plans today could shop for ones more
easily. Insurers would be required to offer plans that meet minimum
government requirements for health coverage, and to price them
transparently.

Some 32m of the country's 49m or so uninsured (most of those left out
of the new scheme are undocumented aliens) would, starting in 2014, be
required to take out insurance. The working poor and uninsured earning
up to $88,000 a year get subsidies on a sliding scale so that they can
afford to buy coverage; the poorest of all will be added to the rolls
of Medicaid, a health scheme for the indigent. It is this binding
requirement on individuals that exercises conservatives most.

They point to recent studies done by the Cato Institute, a libertarian
think-tank, which, they claim, are early warnings of trouble to come.
Cato recently examined the impact of introducing health reforms similar
to Obamacare in Massachusetts a few years ago. It estimates that the
law has not improved people's health, but has led to a "substantial
crowdout of private coverage" and to 60% fewer young (and presumably
healthy) adults moving to the state. It claims that the "leading
estimates understate the law's cost by at least one third." Premiums
have also risen.

If coverage is the new law's strong point, cost control is its
weakness. That is not to say that most ordinary people will pay more
for coverage, as critics of reform noisily insist. True, some of those
forced to buy insurance will earn too much to qualify for subsidies,
and so will be spending more than they do today--but, in return, they
will get insurance plans that offer more generous coverage than current
basic plans. What is more, many other Americans may end up with lower
premiums.

The vast majority of workers enjoy health insurance today through
employer-provided schemes. RAND estimates that by 2019 the
employer-provided system will benefit from 6m new (mostly healthy)
customers, and that premiums for everyone in that system will drop by
2% versus business-as-usual.

Fine, but what about costs to the federal government and the overall
health system? The Congressional Budget Office (CBO), a non-partisan
agency, estimates that the new health reforms will cost the federal
government some $940 billion over the next decade. Of that, roughly
$400 billion will be spent by 2020 on the subsidies and about $500
billion on increased spending on Medicaid.

But that underestimates the full cost of this new reform. Elizabeth
McGlynn of RAND points out that the huge numbers of newly insured--who
now typically skip medical care or simply turn up, in a crisis, in
emergency rooms--will soon consume a lot of routine medical services.
She thinks this spending will expand the country's health outlays even
more than the direct cost to the federal exchequer.

This need not be a waste of money. Spending more on routine care today
is sure to save some money in the long run: paying for someone to pop
statin pills daily, for example, is much cheaper than treating his
eventual heart attack. The snag is that economists disagree on whether
and how much this will really save the government or the health system.
What is clear, argues Ms McGlynn, is that this new spending will
improve the health and probably extend the lives of those many
unfortunates currently without insurance.

PAYING THE PIPER
So how is the bill going to be paid? The CBO's analysis suggests that
the federal deficit will be slashed by well over a trillion dollars
over the next two decades by this reform. That suggests this reform
effort is fiscally prudent. Not so, howl Republicans. Paul Ryan, a
Republican congressman, believes the reforms will prove a "fiscal
Frankenstein" (meaning the monster) because the CBO's rules on
"scoring" bills have led it to rely on several sleights of hand.

For example, insist critics, a big chunk of the savings is made up of
politically implausible cuts in doctors' reimbursements (known as the
"doc fix") and in Medicare, the government health scheme for the
elderly. Also, some of the income provisions will kick in soon, but the
main spending on subsidies will not begin until 2014--skewing the
ten-year analysis. The cost to the government of expanding coverage
over the ten years from 2014 to 2023 will be $1.6 trillion, not $940
billion.

Such talk infuriates Peter Orszag, the head of the White House's
Office of Management and Budget and the administration's most important
health expert. He insists all the fuss about ten-year windows obscures
three big ways in which this reform will curb costs, by shifting the
incentives in the delivery system to reward value and results rather
than mere piecework (or "fee for service").

The first big idea that he stresses is the creation of a new agency to
spearhead innovation and scale up any of the many pilot schemes
contained in the bills that manage to reform delivery or payment
systems. It is true that the reform effort began with earnest intent to
"bend the cost curve". Alas, explains Mark McClellan of the Brookings
Institution, the most meaningful proposals have since been watered down
or delayed.

The second lever of change that Mr Orszag says is underappreciated is
an excise tax introduced on the most expensive (or "Cadillac")
insurance plans. Most economists like this idea, as it is likely to
discourage excessive consumption of health care. Unfortunately, because
of political pressure from labour unions and other groups, the Cadillac
tax has been diluted, and delayed until 2018. Sceptics wonder if a
future Congress will really implement this tax when the time comes. Mr
Orszag is right that, if implemented, this provision will represent an
important lever of cost control. But it's a big "if".

The third and strongest argument Mr Orszag makes is for the potential
of an independent payment-advisory board on Medicare spending. Under
the new law this group is to make recommendations to Congress on how to
reduce the rate of growth in spending per head in Medicare if that
expenditure exceeds a target figure.

Sceptics abound. Yes, the approach succeeded when used by the Pentagon
to decide which military bases to shut down. But an earlier version of
this idea, known as MedPAC, flopped because Congress simply ignored
even worthy ideas that proved politically inconvenient. And the new law
carves out a ten-year exemption for hospitals--appalling, when one
considers that runaway costs and misaligned incentives in hospitals lie
at the very heart of the cost problem. But Mr Orszag believes this
approach will help in two ways: it insulates tough decisions from
politics, and it encourages ongoing reform rather than one-shot
heroics. Critics say that is a lot of faith to put in a weakened body.

All this points to the only certain thing about Obamacare: that this
is just another episode in the long saga of health reform. Indeed, by
adding tens of millions of people to an unreformed and unsustainably
expensive health system, this reform makes it all the more urgent to
tackle the question of cost.

On that, at least, left and right seem to agree. Paul Krugman, an
economics professor at Princeton and a liberal booster of reform, wrote
on the eve of the votes: "There is, as always, a tunnel at the end of
the tunnel: we'll spend years if not decades fixing this thing." Robert
Moffit of the Heritage Foundation, a conservative think-tank opposed to
the effort, agrees, albeit in darker terms: "This marks the beginning
of the next phase of this hundred years war."

See this article with graphics and related items at http://www.economist.com/world/united-states/displaystory.cfm?story_id=15769767

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MIRACLE OR MONSTROSITY?
Mar 25th 2010

Democrats and Republicans alike are taking a gamble on health reform

IF MOMENTUM is what counts in politics, this has been a wonderful week
for Barack Obama. A party that was expecting a battering in November's
mid-term elections can now campaign on a promise redeemed. But the
knife-edge 219-212 vote in the House of Representatives on March 21st,
which could easily have gone wrong for the Democrats, was only the
first half of a double gamble, and the outcome of the second will not
be known till November. Will voters reward them in the mid-terms for
getting their signature legislation through at last? Or, as the
Republicans are hoping, will voters punish the Democrats for using
underhand tactics to ram through a government takeover that the country
cannot afford?

Bill Galston, a former Democratic strategist who is now a senior fellow
at the Brookings Institution in Washington, dc, says that having
invested so much in health reform, it is better for the Democrats to
have passed the legislation than to have laboured mightily and still
failed. But he does not think the victory will necessarily save the
Democrats from a drubbing in November or even be a net positive. Polls
suggest that both the measure itself and the manner of its
passing--without a single Republican vote in favour--are broadly
unpopular. A Pew survey conducted before the climactic vote in the
House on March 21st showed 38% in favour and 48% opposed. A CNN poll
published the next day showed 39% in favour and 59% opposed. Our own
YouGov poll, however, shows opinion more evenly divided, even though
people are nervous about the cost implications (see chart).

Nor can this week's victory be relied on to re-energise the new voters
who supported Mr Obama in 2008 but stayed at home in last year's
governors' races in Virginia and New Jersey and January's Senate
election in Massachusetts. The turnout for the mid-terms is likely to
be smaller, older and whiter than it was for the general election of
2008, and Republican voters seem angrier and so more likely to vote. It
may prove hard to transfer this week's excitement in the White House to
Democratic activists in the field, many of whom hoped for more
audacious change, such as a government-run insurance option open to
everyone, and are disappointed by a measure that hands millions more
customers to the insurance companies and closely resembles the approach
the Republicans themselves offered up as an alternative to Hillarycare
in 1993.

REPUBLICAN RAGE
Despite the resemblance, the Republicans have been swift to denounce
the legislation as an abomination and its centrepiece--an obligation on
all citizens to buy health insurance on pain of a fine--as a violation
of the constitution. Republican attorneys-general (and one Democratic
one) are mounting legal challenges and the party leadership promises to
"repeal and replace" the law when back in power.

Apart from injuring America, the Republicans say, the Democrats have
scored the mother of own goals. "This is the people's House," declaimed
John Boehner, the chamber's Republican leader, at the end of Sunday's
debate, "and the moment a majority forgets this, it starts writing
itself a ticket to minority status." The Republicans claim that using
reconciliation to pass amendments in the Senate with a bare majority
offends against a tradition of bipartisan lawmaking in far-reaching
social legislation. John McCain, 2008's Republican presidential
nominee, said the Democrats had "poisoned the well", and that his party
would therefore withhold co-operation on legislation from the president
for the rest of this year.

By framing the debate in such stark terms, however, the Republicans are
taking a gamble of their own. One danger for them is that familiarity
will soon start to make the new law look less scary, and the direness
of Republican prognostications correspondingly overheated.

In a pep talk before the critical vote Mr Obama told Democrats on the
Hill that it would be harder when the bill was law for critics to
"mischaracterise" its implications. Voters would notice that "nobody is
pulling the plug on granny", that people who liked their insurance
policies would be able to keep them, and that there was no "government
takeover". Although the reform is to be phased in over several years,
the White House is already highlighting potentially popular changes
that will kick in this year in good time to influence the mid-terms,
such as letting young people remain on parents' policies up to the age
of 26 and stopping insurance companies from denying insurance to
children on grounds of a pre-existing condition.

On March 23rd a USA TODAY/Gallup poll provided some evidence of
attitudes shifting in the president's direction. This found 49% of
respondents saying it was a good thing that Congress had passed the
bill, against 40% taking the opposite view. About half said they were
positive ("enthusiastic" or "pleased") about the reform whereas about
four in ten were negative ("disappointed" or "angry"). The largest
single group, 48%, described the bill as a good first step that should
be followed by further action. So the Republicans' promise to campaign
for a wholesale repeal of the bill may well backfire.

It is, after all, a fairly hollow threat. Without a veto-busting
two-thirds majority on the Hill, the Republicans cannot hope to repeal
the bill until Mr Obama leaves the White House, in 2013 at the
earliest. By then, repeal may strike voters as scarier than the new law
itself. Departing from the party line, David Frum, a former
speechwriter for George Bush junior and now a fellow at the American
Enterprise Institute, questioned whether Republicans could really
repeal the law once its new protections and entitlements became
popular. "Even if Republicans score a 1994-style landslide in November,
how many votes could we muster to reopen the 'doughnut hole' and charge
seniors more for prescription drugs? How many votes to re-allow
insurers to rescind policies when they discover a pre-existing
condition? How many votes to banish 25-year-olds from their parents'
insurance coverage?"

Indeed, Mr Frum concludes that it is in fact his fellow Republicans
rather than the Democrats who have scored the own goal. He argues that,
for all their talk of bipartisanship, the Republicans decided early on
that instead of co-operating with Mr Obama they would turn health
reform into his Waterloo, inflicting a crushing defeat like the one
they imposed on Mr Clinton in 1994. This time they bet wrong on the
outcome. Instead of seizing what might have been a chance to improve Mr
Obama's ideas, says Mr Frum, "we followed the most radical voices in
the party and the movement, and they led us to abject and irreversible
defeat."

Buttressing Mr Frum's argument, there are signs of a backlash against
the hateful extremes adopted by some opponents of Mr Obama's bill. The
spectacle of Republican congressmen egging on the protesters who
shouted vile abuse at black and gay Democrats has done the party no
good. A spate of violent attacks on Democratic representatives' offices
is not pretty either.

Messrs Galston and Frum are cerebral types working at some remove from
the passions feeding the grassroots of their parties. But Mr Galston's
warning that health reform may not avert a setback in November, and Mr
Frum's that a call for repeal could backfire, are likelier to find
their mark as the mid-terms draw nearer and the economy becomes the
overwhelming issue again. After their big gains of 2008, and if
unemployment is still at a miserable 9% or so, it would be a miracle if
the Democrats did not suffer hefty losses, even if this week has put a
spring in their step. Yet it could also be riskier by November for
Republicans to portray health reform as a monstrous offence against the
American way. A lot of Americans may by then have come to like it.

See this article with graphics and related items at http://www.economist.com/world/united-states/displaystory.cfm?story_id=15770890

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FROM HOPE TO CHANGE
Mar 25th 2010

Barack Obama has made history. But he can still make mistakes

A BLIND senator asked a question: "Isn't this a teeny weeny bit of
socialism?" The year was 1935, the senator was Thomas Gore of Oklahoma
(no relation of the former vice-president) and what he disliked was the
creation of Social Security (public pensions). Big changes always
provoke loud howls, and Barack Obama's health reform is no exception.
Mitt Romney, a Republican presidential aspirant, called it "an
unconscionable abuse of power". Richard Land, a Southern Baptist
leader, said it would "lead to the overwhelming majority of Americans
living shorter lives and experiencing more pain and suffering before
they die". Jim DeMint, a Republican senator, called it "an insult to
our democracy" that "threatens our nation's prosperity and freedom".

Relish it or revile it, everyone agrees that the bill is historic. None
of Mr Obama's predecessors managed to make health care universal. Teddy
Roosevelt's plan came to naught nearly a century ago. Franklin
Roosevelt's attempts in the 1930s and 1940s were frustrated. Harry
Truman's grand scheme fizzled, as did Dwight Eisenhower's more modest
one. Lyndon Johnson brought health care to the elderly and the poor.
Richard Nixon, Jimmy Carter and Bill Clinton all tried to extend it to
everyone else, but failed.

How does it compare with the great domestic reforms of the 20th
century? One difference is that Obamacare has been a strictly partisan
affair. Not a single Republican voted for the final bill. Contrast this
with the Civil Rights and Voting Rights Acts of the 1960s. Some 80% of
congressional Republicans (and a smaller majority of Democrats) voted
to give black Americans equality before the law. In the same decade
roughly half of Republicans joined the Democratic majority in voting to
create Medicare and Medicaid (public health care for the elderly and
the poor, respectively). Bill Clinton's welfare reforms, which chivvied
the jobless to find work, were also solidly bipartisan. The American
system of checks and balances makes it hard to pass sweeping change
without broad consensus. That Mr Obama went for broke despite polls
showing a plurality of voters opposed to his plan strikes some as bold;
others as rash. Some pundits predict that it will cost his party
control of the House of Representatives in November, though one new
poll suggests that Mr Obama's success has won him back some support.

Many on the right think Mr Obama is determined to change the
relationship between the individual and the state. By adding health
care--a sixth of the economy--to the list of services Americans expect
from their government, Democrats hope to spread dependency, reckons
George Will, a conservative columnist. Benefits, once granted, are
tough to take away. Beneficiaries will thank Democrats for their health
insurance and recoil from Republicans who might snatch it away.
Government will swell, freedom will recede and the great American
tradition of self-reliance will wither a little. Ronald Reagan once
argued that government medicine is a "foot in the door" for socialism;
and Mitch McConnell, now the Republican leader in the Senate, told the
NEW YORK TIMES recently that Democrats are trying to turn America "into
a western European country".

Nonsense, say Democrats. A plan that helps more people buy private
insurance is hardly a stepping stone to socialism. The status quo was
unacceptable. Americans spend far more on health than people in other
rich countries, but die younger. America even spends more public money
per head than many rich countries where the government covers everyone.
The basic planks of Obamacare--compelling citizens to buy private
insurance and subsidising those who cannot afford it--are hardly
Marxist.

Nonetheless, the fears of Republicans and tea-partiers are not entirely
foolish. America's public finances are a mess, and adding a huge new
entitlement will not improve matters. The White House insists that a
proposed commission to restrain health inflation will have powerful
jaws, and perhaps it will. But entitlements tend to cost more than
their creators predict. The payroll tax that funds Medicare is nearly
twice what it was originally supposed to be, but the programme is still
hurtling towards insolvency. Obamacare will mean higher taxes, and that
is in addition to the tax increases that were coming anyway. Neither
party likes to admit it, but bringing the deficit down to less
threatening levels will require both tax hikes and spending curbs.

A LESS EXCEPTIONAL AMERICA?
For decades not having universal health coverage has been an important
(if ugly) aspect of American exceptionalism. So this week is a good
time to ponder whether America is becoming less exceptional. Obviously,
America is not like France, where the state controls more than half the
economy including a phalanx of big firms. But it has moved in that
direction. Public spending (federal, state and local), which was 24% of
GDP in 1950 and 35% before the current recession, could hit 44% this
year. Uncle Sam owns big chunks of General Motors and Chrysler, among
other companies. Is the expansion of the state under Mr Obama a
temporary response to the economic crisis, or the harbinger of
something permanent?

Some Americans would welcome a more European future. In a new book,
Steven Hill of the New America Foundation extols the European social
contract of higher taxes for better government services. Life in Europe
is more secure, he argues, and therefore more agreeable. On the other
hand, government incentives gradually shape a culture, and can deform
it too. Safety nets, if too generous, make work optional. Tax rates, if
too high, punish it. Regulation, if too intrusive, throttles
enterprise. America is still the most dynamic nation on earth, but Mr
Obama should not take that for granted.

- - - - - Economist.com/blogs/lexington

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THE HEALTH-CARE SQUEEZE
Mar 25th 2010

Business is right to be scared by the costs of Obamacare

"IT MAY not happen in my lifetime," Bill Clinton joked about Barack
Obama's mammoth health-care bill a few days ago, "or Dick Cheney's, but
hopefully by Easter." The joke proved prescient: Congress passed the
bill the very next day and the president signed it on March 23rd.

It is undoubtedly a momentous achievement--the biggest change in
America's welfare state since the 1960s and a determined attempt to
bring health-care coverage to the country's 46m uninsured. But amid all
the celebration it is worth asking a prosaic question. What does
health-care reform mean for the source of the country's
prosperity--business?

The answer to the question is not particularly edifying, though not for
the reason that the Republicans would have us believe, with their
apocalyptic warnings about "nationalisation", "socialisation" and
"death panels". The most striking thing about Obamacare is not what it
does, but what it fails to do.

Obamacare has taken the most idiosyncratic feature of American health
care--the fact that the onus for providing health insurance falls first
and foremost on companies rather than on individuals or the
government--and set it in concrete. Companies with more than 50
employees will now be legally obliged to provide health insurance for
their workers or else face fines.

Critics from both the right and the left have long argued that putting
business at the heart of the health-care system is not a must but a
bug. Left-wingers point out that employer-provided health care fails to
control costs while leaving the government with a huge bill (Uncle Sam
pays about half the cost of health care). Conservatives argue that
costs would come down if individuals rather than companies were
responsible for their own insurance. But Mr Obama insisted from the
first that Americans who liked their existing cover would be able to
keep it.

America is the only rich country that makes use of this halfway house
of a system. It is an historical accident: employers began offering
health insurance during the second world war as a way of attracting
workers at a time when wages were fixed by the government. It became
ever more elaborate and expensive during the post-war boom when big
companies ruled the roost and when international competition was muted.
Mighty unions added new features to their "Cadillac plans" with the
same enthusiasm that Detroit added tail fins to real Cadillacs.

Today that world has vanished: global competition has intensified
dramatically, the life expectancy of companies has shrunk, and General
Motors complains that providing health care adds $1,500-2,000 to the
cost of every car it produces in America. The system seems designed to
inflate costs. Employees feel no compunction about undergoing expensive
treatments, since the company pays. The fact that employer-provided
insurance is untaxed blunts employers' incentives to control costs.

Researchers at the RAND Corporation have made a brave attempt to gauge
the impact of America's health-care system on business. They analysed
the performance of 38 industries over the 19 years after 1986. They
also compared the performance of America's industries with their
Canadian equivalents to make sure that they were not simply measuring
global trends. They found that industries with a high proportion of
workers enrolled in company-provided health-care schemes grew more
slowly than those with a lower proportion.

From Main Street's point of view the Obama administration has done too
little to control the costs of this flawed system. True, the
non-partisan Congressional Budget Office estimates that the reform will
leave the federal budget deficit $143 billion lower in 2020 than it
would otherwise have been. The administration has also talked endlessly
about "bending the cost curve downward". But the $143 billion estimate
is based on the fairy-tale assumption that Congress will not increase
the level of reimbursement it pays to doctors for Medicaid. And almost
all of the curve-bending measures have been abandoned in the fight to
pass the bill.

The most reasonable assumption for Main Street is that health-care
costs will either continue to grow at the same pace as for the past
decade--or accelerate. This is a looming disaster for American
business. The proportion of GDP devoted to health care has grown from
5% in 1962 to 16% today. Rising health-care costs appear to have
suppressed wages, as firms seek to make up for the expense. America
spends 53% more per head than the next most profligate country and
almost two-and-a-half times the rich-country average. With health-care
costs rising much faster than general inflation and 500,000
baby-boomers now becoming eligible for Medicaid every day, health-care
spending is likely to hit 20% of GDP by 2017 and 25% by 2025.

SMALL CONSOLATION
The health-care reform is not without its merits from business's
perspective. The administration has tried hard to lighten the burden on
small businesses, the engine of American job-creation. The bill exempts
companies with fewer than 50 employees from the obligation to provide
health insurance. It also creates insurance exchanges that allow small
companies to buy insurance at a discount (because the clubs pool risks
and administrative costs). But even such sensible changes hardly make
up for the bill's failure to control costs. The share of three- to
nine-person companies offering health insurance declined from 58% to
49% between 2002 and 2008 for the simple reason that it was too
expensive.

The Republicans are promising to "repeal and replace" the bill. But a
glance at the history of big welfare reforms demonstrates two things.
The first is that new entitlements are almost impossible to repeal. The
second is that overhauls of something as complicated as America's
health-care system only come once in a generation. Harried business
people will be dealing with the consequences of Obamacare for years to
come.

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Dear Frank Kline,

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HERO OR HOAX
Mar 25th 2010

The man and his pen

CONTESTED WILL: WHO WROTE SHAKESPEARE? By James Shapiro. SIMON &
SCHUSTER; 367 PAGES; $26. FABER AND FABER; GBP20. Buy from
Amazon.com[1], Amazon.co.uk[2]

JAMES SHAPIRO follows his award-winning book on William Shakespeare,
"1599", which came out in 2005, with an unlikely subject: an
investigation into the old chestnut that Shakespeare wasn't the man who
wrote the works.

Most mainstream Shakespeareans stand aloof from it. But apparently the
claims of Francis Bacon, Edward de Vere and Christopher Marlowe, among
others, are on the rise. An appetite for conspiracy theories, combined
with a call for "balance" from some sectors of academe and the rise of
the internet have given the thing new life. Respectable audiences turn
up to listen to lectures on it. The controversy is even taught at
university level. "What difference does it make who wrote the plays?"
someone asked the author wearily. Mr Shapiro (for whom Shakespeare was
definitely the man) thinks it matters a lot, and by the end of this
book, his readers will think so too.

The authorship controversy turns on two things: snobbery and the
assumption that, in a literal way, you are what you write. How could an
untutored, untravelled glover's son from hickville, the argument goes,
understand kings and courtiers, affairs of state, philosophy, law,
music--let alone the noble art of falconry? Worse still, how could the
business-minded, property-owning, moneylending materialist that emerges
from the documentary scraps, be the same man as the poet of the plays?
Many have shaken their heads at the sheer vulgarity of it all, among
them Mark Twain, Helen Keller, Henry James, his brother William, and
Sigmund Freud.

Mr Shapiro teases out the cultural prejudices, the historical blind
spots, and above all the anachronism inherent in these questions. No
one before the late 18th century had ever asked them, or thought to
read the plays or sonnets for biographical insights. No one had even
bothered to work out a chronology for them. The idea that works of
literature hold personal clues, or that--more grandly--writing is an
expression and exploration of the self, is a relatively recent
phenomenon.

The central chapters of Mr Shapiro's book concentrate on the 19th and
early 20th centuries, when the search for alternative claimants took
off. The two main characters in his story are Delia Bacon, who in 1857
put forward a Renaissance philosopher Francis Bacon (no relation); and
J.T. Looney, who in 1920 proposed an Elizabethan courtier, Edward de
Vere, 17th Earl of Oxford. Mr Shapiro takes them both seriously,
patiently following their lives and contextualising their ideas. It is
no accident that by the time Delia Bacon entered the field, Shakespeare
had become almost a god in the public imagination. Both she and Looney
developed their theories in a spirit of religious doubt, and in the
throes of their own personal crises.

"Contested Will" is dense with lives and stories and argument. It is
also entertaining. The quest for the true claimant drove people mad.
Here are secrets and codes, an elaborate cipher-breaking machine, an
obsession with graves and crazy adventures to find lost manuscripts.
One man spent months dredging the River Severn. Mr Shapiro himself
turns sleuth, exposing as fraudulent a piece of evidence long thought
to be genuine--one more hoax in the long history of Shakespearean wild
goose chases.

The last chapter is a return to sanity: a brilliant defence of the man
from Stratford. Piece by piece, Mr Shapiro builds the case-- the
contemporary witnesses, the tracks left by printing houses and
theatrical practice, the thousand details that show, apart from
anything else, how unnecessary the whole farrago has been. The
Shakespeare that emerges is both simple and mysterious: a man of the
theatre, who read, observed, listened and remembered. Beyond that is
imagination. In essence, that's what the book is about.

-----
[1] http://www.amazon.com/exec/obidos/ASIN/1416541624/theeconomists-20
[2]
http://www.amazon.co.uk/exec/obidos/ASIN/057123576X/economistshop-21

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----- Original Message -----

From: Frank Kline

To: Frank kline 673

Sent: Sunday, April 04, 2010 12:50 PM

Subject: Fw: Economist Articles

There are two articles on Chinese/US finances and relationships and several on healthcare. Surprisingly there are two positive articles on Obama. The Economist has been rather critical of him so far. Frank

----- Original Message -----

From: Frank M Kline

To: Frank M Kline 673

Sent: Sunday, April 04, 2010 12:40 PM

Subject: Economist Articles

divinebuzz

Wednesday, April 21, 2010

Fw: Buzzing not quite

Friday, April 16, 2010

Anyone home.

Saturday, April 10, 2010

Los Angeles Times 12 April 2010 Concert Listing

Clicking on the following takes you to the Los Angeles Times website that lists the announcement shown below.

http://tinyurl.com/yc9pu46

New Sacred Music for Church & Synagogue

Friday, April 9, 2010

Lord, Teach Us to Pray

Sunday, April 4, 2010

Easter Bonnets 2010

Fw: Economist Articles

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