FutureOfCapitalism.com, June 29, 2009:

"Second stimulus" is a judgment that yet another round of federal spending should not count as a third stimulus, after the $152 billion "Economic Stimulus Act of 2008" signed into law by President Bush in February 2008 and the $787 billion American Recovery and Reinvestment Act signed into law by President Obama in 2009.

Donald Marron, July 6, 2009:

we already did a second stimulus...The question we face today is whether to enact a third stimulus, not a second one.

The Economist has an article on the detention by China of four Rio Tinto executives. It makes a worthwhile postscript to the China post here earlier today. The Economist article concludes:

In June, the Australian government rejected an offer by Chinalco, a state-controlled aluminium company, to raise its stake in Rio to 18% on the grounds that its state ownership raised concerns about its ability to operate under normal business principles, rather than an as agent of the Chinese government. The Chinese government was irate, but the detention of the Rio employees would seem to justify some of Australia's concerns.

One of the benefits of spending some time last week on Martha's Vineyard is that I was able to pick up the 2009 annual report of Martha's Vineyard Hospital. Page five carries a useful little pie chart headlined "Sources of Funds M.V. Hospital," reporting that 36% of the hospital's revenues come from Medicare and 15% from Medicaid. That adds up to 51%, or more than half. Just to get another comparison point, back home in New York, New York-Presbyterian Hospital, whose $2.9 billion in revenues are about 60 times those of Martha's Vineyard Hospital's, reports that its own patient mix is 29.8% Medicare and 29.1% Medicaid, for a total of 58.9% of patients whose medical coverage derives from a government payer in one way or another. At a certain point, the argument about "socialized medicine" and a "public option" becomes a bit of a red herring when the government is already such a big payer. So, too, do the Obama administration's complaints about how under the current system, we spend more than other countries but are no healthier. With this large a share of the spending, the government, rather than the doctors or the drug companies or the insurance companies, might be held accountable for some of the outcomes.

One of the more interesting puzzles in the future of capitalism is the role of China. I noted earlier a report that the world's three largest banks by market capitalization are Chinese. Here are three additional data points:

The Princeton professor Burton Malkiel, author of "A Random Walk Down Wall Street," says in an interview that investors should have 5% to 10% of their portfolios invested in China: "Education is an important part of the culture in China. It is also hard-working and entrepreneurial, and it has a gambling instinct; that's what you need if you are going to be entrepreneurial. I expect it will be the economy that grows the fastest over the next decade...The income distribution in China is much more unequal than it is in the United States."

Here's Paul Krugman writing in the New York Times this morning:

all the signs point to a "jobless recovery": on average, forecasters surveyed by The Wall Street Journal believe that the unemployment rate will keep rising into next year, and that it will be as high at the end of 2010 as it is now...To head off this outcome — and remember, this isn't what economic Cassandras are saying; it's the forecasting consensus — we'd need to get another round of fiscal stimulus under way very soon.

Here's the Wall Street Journal article on its own survey of economic forecasters:

Most economists believe the U.S. doesn't need another round of stimulus now despite expectations of continued severe job losses. Just eight of 51 economists in The Wall Street Journal's latest forecasting survey said more stimulus is necessary...

An article in this morning's New York Times argues that President Obama wants to avoid spending a lot of the public's time and energy investigating the intelligence practices of the Bush administration. "It is just the kind of distraction from Mr. Obama's domestic priorities — repairing the economy, revamping the health care system, and addressing the long-term problems of energy and climate — that the White House wanted to avoid," the article says, quoting a political science professor who says that Mr. Obama "wants to dominate the discussion, and he wants the discussion to be about his domestic agenda — health care, energy and education." The article also says that "Mr. Obama has been eager not to put himself at odds with the military and intelligence agencies," and that "a rash of investigations could undercut the good will he has earned."

Members of Congress have formed a "media fairness caucus." The leader is Rep. Lamar Smith, a Republican of Texas, who is quoted as saying, "To me, the greatest threat to America is not necessarily a recession or another terrorist attack. The greatest threat to America is a liberal media bias. And I think that because, if the American people don't get the facts, they can't make good decisions. And if the American people can't make good decisions, then our democracy is threatened." Some of my own thoughts on press bias are available here.

In an interview with the Financial Times, Sir Martin Sorrell, the chief executive of the world's largest advertising agency, WPP, adds his voice to the warning issued by Microsoft CEO Steven Ballmer (reported here) about President Obama's proposed tax increases. Says Sir Martin: "the threatened tax changes on US corporates are quite severe: this is on the taxation of overseas earnings, which would cost most major companies $1.5bn-$2bn in after-tax profits. That must have a significant impact on employment, I would have thought, in the United States."

The New York Times has managed to publish a front-page news article and a follow-up story about a health-insurance policy that Aetna apparently sold to a man in Texas that failed to cover nearly $200,000 in medical bills and left him bankrupt -- without ever mentioning that during the White House ABC health care special on June 24, President Obama said to the chief executive of Aetna, "Aetna is a well-managed company and I am confident that your shareholders are going to do well." Mr. Obama may want to think twice the next time before he singles out a particular private company for praise. It could be embarassing. But sometimes it looks like some in the press are more interested in criticizing the insurance companies than in making the link to Mr. Obama.

In the four full months since President Obama signed the $787 billion "stimulus" package, the American economy has lost 1.96 million jobs (652,000 in March, 519,000 in April, 322,000 in May, and 467,000 in June). It's worked so well the New York Times editorialists this morning say "it makes a compelling case for more government stimulus." As we said before, "There's got to be a point at which if something isn't working one stops repeating it, but it's not yet clear that we are at that point."

In Israel, similarly to Canada and Australia, mortgage defaults are a non-issue. As in Canada, home mortgage interest is not tax deductible. The process for approval is very thorough, and funds given by the bank are generally transferred to the developer or seller directly. Additionally, the bank has recourse to the borrower's other assets in case of default.

One special twist on Israeli mortgages is that as a condition for receiving and maintaining the loan, the borrower must take out both property insurance on the home and a life insurance policy for the value of the mortgage, with the bank as the beneficiary. The bottom line is that the banks cover themselves from every angle.

Donald Marron has an analysis of this morning's jobs report for June from the federal Bureau of Labor Statistics. Mr. Marron makes the point that in the private sector, "The average workweek fell to 33.0 hours in June, the lowest since BLS began tracking the data in 1964. The economy is thus losing jobs and, for the jobs that remain, is losing hours worked." Meanwhile, on a seasonally adjusted basis, as private-sector employment falls, government employment is growing, adding about 200,000 jobs from May to June on a seasonally adjusted basis. Fewer and fewer private-sector jobs supporting more and more government employees is a trend of the sort that President Obama, if he were talking about health-care costs, would call unsustainable.

"Today the three largest banks in the world by market capitalisation are all Chinese," the Financial Times reports, in another example of how rapidly the terms of the debate have changed. Here we had thought banking was something capitalism, not communism, was supposed to excel at. On the other hand, some of the big non-Chinese banks (RBS, Citi, B of A) are themselves incorporating Chinese-type models of state-ownership, with all the politicized trimmings.

One common thread about a larger government role is that it tends to lessen the opportunities for differentiation and competition by businesses. A federal requirement of a certain fuel economy standard, for example, reduces the likelihood of one auto company winning customers by selling cars that offer unusually high fuel economy. Federal imposition of safety features reduces the chance of a car company appealing to customers by boasting that their models offer certain safety features not found on their competitors. The same goes for a bill introduced by Rep. Daniel Lipinski to "standardize and clarify the dimensions of carry-on baggage and personal items on air carriers." (The bill provides an exception for musical instruments and for "outer garments, including a coat and a hat.") The New York Times endorses the bill in an editorial this morning.) Once the government sets a uniform standard for carry-on baggage, no airline is going to compete for passengers by saying, "On our airline, you can carry on as much luggage as you want, and our flight attendants won't hassle you for it, because we have the largest overhead bins." One can understand the desire to impose certain minimum standards for safety -- it's hard to imagine an airline having to advertise, say, that its pilots are more likely to be sober during take-off and landing than those on the other airlines. But if, say, the government required every car to be as safe as a Volvo, Volvo wouldn't be able to market its brand as a safety leader, and it probably wouldn't bother investing much in research and development of safety features.

Now that the federal government has poured $66 billion into General Motors and its suppliers and affiliates, $11.5 billion into Chrysler and its suppliers and financing affiliate, and $5.9 billion into Ford, the automaker that supposedly didn't need a bailout, it is starting to wield its influence. We've already taken note of the new fuel economy standards; the latest proposal, the Detroit News reports, is a plan to require cars to "warn drivers when they are leaving a lane" and also to "automatically brake ahead of an impending crash."