Kevin Drum

Speculation in the Oil Patch

| Tue Jul. 28, 2009 10:59 AM EDT

Were speculators responsible for the spike in oil prices last year?  The Wall Street Journal has two stories on the subject today.  First up, the news from London:

Britain's financial regulator has found no evidence that speculators are behind big swings in oil prices, as politicians in the U.S., the U.K. and elsewhere have suggested, according to people familiar with the matter.

Hmmm.  And now Washington DC:

The Commodity Futures Trading Commission plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices — a reversal of an earlier CFTC position that augurs intensifying scrutiny on investors.

In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, said in an interview Monday.

....Mr. Chilton said the new report will contain a more-thorough analysis of the investors in contracts tied to oil and other commodities, and reveal cases in which single traders hold massive market positions. "We now have multiple sources, and confidence from different sources," he says. He said he believes the data on trading outside exchanges is also more reliable.

I'll remain agnostic until both the FSA and the CFTC actually release their reports, but the CFTC study should be the more interesting of the two, since proving a case is generally more difficult than the opposite.  Stay tuned.

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How to Get to the Hall of Fame

| Mon Jul. 27, 2009 7:47 PM EDT

Today is unsurprising research day.  The Wall Street Journal reports on a computer model that can predict whether a baseball player gets elected to the Hall of Fame:

Using a radial bias function network, a sort of neural net, Dr. Smith and Dr. Downey were able to identify statistical commonalities among Hall of Famers. As it turns out, hits, home runs and on-base plus slugging percentages are what count for hitters, while wins, saves, earned run average and winning percentage are what count for pitchers.

Sounds right to me.  But did we really need a computer to tell us this?

Idiocy on the Road

| Mon Jul. 27, 2009 7:07 PM EDT

The New York Times reports today on the results of a recent study that should surprise absolutely no one:

The new study, which entailed outfitting the cabs of long-haul trucks with video cameras over 18 months, found that when the drivers texted, their collision risk was 23 times greater than when not texting.

....In the moments before a crash or near crash, drivers typically spent nearly five seconds looking at their devices — enough time at typical highway speeds to cover more than the length of a football field.

Even though trucks take longer to stop and are less maneuverable than cars, the findings generally applied to all drivers, who tend to exhibit the same behaviors as the more than 100 truckers studied, the researchers said.

The controversy about talking on cell phones during driving is at least understandable.  Most people probably figure that talking is talking, and if you can talk to a friend who's sitting beside you in your car, then why shouldn't you be allowed to talk to a friend on the phone too?

But texting?  That's insane.  I'm just naive enough to be surprised that anyone in their right mind would do this in the first place, but given that they do, then of course it should be illegal.  It's astonishing that there are still states that haven't prohibited it.

The Problem With Private Health Insurance

| Mon Jul. 27, 2009 2:15 PM EDT

Paul Krugman says that in a private insurance market, insurance companies will do their best to avoid taking on sick people as customers.  Alex Tabarrok disagrees:

If insurance companies do avoid covering people who are "likely to need care," this suggests that the uninsured are unhealthy.  But 60% of the uninsured are in excellent health (Table 10)....

To be sure, this doesn't mean that being uninsured is not a problem but, contra Paul, it does mean that insurance companies would be willing to cover most of the uninsured at the same rates as the insured if the uninsured could or would pay those rates.

Color me perplexed.  That first sentence doesn't compute at all, and the rest doesn't make sense either.  Sure, insurance companies are willing to cover "most" of the uninsured.  That was Krugman's point.  The problem is that they won't cover the 40% who aren't in excellent health, and those 40% account for most of our healthcare expenses. That's perfectly reasonable behavior on their part, but it's also a pretty big problem for anyone who wants a solution to more than a fraction of the problem.

The Cowboys of Kabul

| Mon Jul. 27, 2009 1:02 PM EDT

In early 2002 Del and Barbara Spier filed for bankruptcy.  Their Houston-based private investigations firm, the Agency for Investigation and Protective Services, was dead.

But thanks to the war in Afghanistan, that turned out not to be a problem.  They immediately started up a brand new company, US Protection and Investigations, and got themselves a lucrative contract providing war zone security:

....By 2006, USPI claimed to employ more than 3,000 Afghan guards, along with 160 US and expat employees, and had a significant presence throughout the country, especially in Kabul, where guard shacks bearing its logo were a common sight. "It basically grew into a monster," the former Berger official says. On its website, the company described itself as "the foremost private security company working in support of Operation Enduring Freedom in Afghanistan." Its stated goal? To "help bring about change and improvement for the people of Afghanistan."

Without question, USPI's role in Afghanistan had brought about change and improvement for the Spiers. In Kabul, they took up residence in a luxurious compound that some of their employees jokingly called the "marble palace." In their bedroom, an ex-employee adds, was a safe that sometimes contained upward of $1 million cash, used to bankroll USPI's operation.

The former USPI security coordinator told me, "I remember at one point seeing boxes of cash that they were bringing in. I thought, 'Wow, that's really fucking weird.'"

Not just weird, it turned out, but completely illegal.  The whole operation was a gigantic fraud, and in 2007 it finally came to an end when USPI's office in Kabul was raided and shut down.  "Have you ever seen a dynamic entry, where people are clearing rooms out with guns locked and loaded and shoving a gun in your face?" said a former USPI supervisor.  "That's the way Blackwater did their entry into the house."

If you want to find out how the Spiers pulled it off — and how they finally got caught — Daniel Schulman has the rest of the story here.  It's worth a read.

Ben and the Bank

| Mon Jul. 27, 2009 12:06 PM EDT

Nouriel Roubini writes in the New York Times that although Ben Bernanke made some serious mistakes in the runup to last year's financial crisis, when the moment of truth arrived he acted decisively:

When a liquidity and credit crunch emerged in the summer of 2007, Mr. Bernanke engineered a U-turn in Fed policy that prevented the crisis from turning into a near depression....The federal funds rate was effectively pushed down to zero....New programs encouraged skittish institutions to resume lending....Mr. Bernanke also introduced a wide range of other programs, like those to maintain the functioning of the commercial paper market....The Fed was involved directly in the rescue of financial institutions like Bear Stearns and American International Group. It lent money to foreign central banks to ease a global shortage of dollars. The Fed even committed to purchasing up to $1.7 trillion of Treasury bonds, mortgage-backed securities and agency debt to reduce market rates.

I agree with all this.  But I'm not sure Roubini's conclusion follows:

The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression. For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.

Hmmm.  Bernanke's background and temperament did indeed make him well suited to address this crisis once it unraveled.  However, Roubini admits that back in more normal times Bernanke's actions also played a role in helping to create this crisis in the first place.

We're now — hopefully — about to head back into more normal times.  So does it really follow that just because Bernanke turned out to be a good crisis manager, he's also the best bet to head up the Fed during the mopping up stages?  I'm not sure I see that.  Unwinding Bernanke's programs doesn't require Bernanke at the helm, and the job of re-envisioning the role of the post-collapse Fed would be better off in the hands of someone who's taken bubbles seriously all along.

It's possible, of course, that Bernanke has gotten religion on this point, but I'd rather not chance it.  Why not choose someone instead whose views on credit bubbles are clear, consistent, and long held?  Someone who correctly assessed the situation before it blew up and can be trusted to do the right thing now even if he or she has to face down the financial industry to make it happen?  I don't think reappointing Bernanke would be any kind of disaster, but I also doubt that it would be the best choice.  The Fed needs a change of direction, not more of the same.

POSTSCRIPT: But what about Bernanke's recent charm offensive?  Consider me charmed!  I applaud the idea of a Fed chairman willing to talk to the press and answer questions in fairly plain language.  It's a change for the better.  But it's still not enough to make me think Bernanke ought to be reappointed.

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Quote of the Day

| Mon Jul. 27, 2009 11:10 AM EDT

From Sen James Inhofe (R–Cloudcuckooland), commenting on the conspiracy theorists who think Barack Obama wasn't born in the United States:

"They have a point."

This provides some needed context to Inhofe's frequently stated belief that global warming is also a hoax.  At least now we know what his standards are.

Sunday Dog Blogging

| Mon Jul. 27, 2009 1:26 AM EDT

Paul Krugman writes today about the incoherence of the Blue Dog position on healthcare reform: they say they want it to be fiscally neutral, but they relentlessly oppose every effort to actually make it revenue neutral.  Does this mean they're just corporate shills?

I guess I’m not quite that cynical. After all, today’s Blue Dogs are politicians who didn’t go the Tauzin route — they didn’t switch parties even when the G.O.P. seemed to hold all the cards and pundits were declaring the Republican majority permanent. So these are Democrats who, despite their relative conservatism, have shown some commitment to their party and its values.

Now, however, they face their moment of truth. For they can’t extract major concessions on the shape of health care reform without dooming the whole project: knock away any of the four main pillars of reform, and the whole thing will collapse — and probably take the Obama presidency down with it.

I'll bet he was gritting his teeth when he typed that.  My attitude toward the Blue Dogs is a wee bit less charitable than that at the moment, and when he's not writing for public consumption I'll bet Krugman's is too.  The Dogs may be centrists, but someone needs to remind them that they're still supposed to be centrist Democrats.  It's time to fish or cut bait.

Paying the Piper

| Sun Jul. 26, 2009 4:49 PM EDT

Matt Yglesias is pessimistic today about the chances of serious healthcare reform:

David Leonhardt has another in a growing series of great David Leonhardt pieces on the nutty and dysfunctional nature of “fee-for-service” medicine in which doctors are paid for doing stuff rather than for treating illness.

The problem, however, is that to totally change how medical professionals get paid would be a big disruptive change, and I see no sign that the public really wants such a change....Opting for the Barack Obama approach where you focus on reassuring people that the status quo won’t change too much seems like a smart play, even though the case for changing things a great deal is very strong.

Generally speaking, this is true.  It's hard to get people to accept the inherent risk of a major change unless they're personally dissatisfied with the status quo.

But this particular issue strikes me as quite different.  After all, how many patients know how their doctors are paid?  How many would care if their doctors were paid a straight salary rather than fee-for-service?  Would any of them be upset if they learned their doctor was switching from one compensation plan to the other?

I doubt it.  Conservatives could undoubtedly gin up some scaremongering talking points on the subject, but fundamentally this isn't something that would be hard to sell to the public.  There are plenty of other complicated issues related to how doctors are compensated1, but I'm not sure that public rebellion is one of them.  As Leonhardt says, this is mostly doctor vs. doctor stuff.

1Oh yes, it's complicated.  Fee-for-service is a problem because it motivates the entire medical industry to order lots of tests and procedures even if they have marginal value.   Boo!  Then there's capitation, where doctors are paid a set annual fee for every patient they take on regardless of how much medical attention they need.  Ordering tests and followup visits eats into the bottom line, so they have an incentive not to overtreat.  Hooray!  But would you want to see a doctor who was highly motivated to offer as little service as possible?  I didn't think so.

Paying doctors a straight salary seems like the best middle ground.  But that just pushes the problem up a level: maybe individual doctors get a salary, but how do you set overall compensation for the medical group or hospital?  And what about physicians in private practice?  You can't very well pay them a salary when they work for themselves, so does private practice go away?  And what about bonuses?  Should doctors be paid more based on some kind of formula for productivity and general wonderfulness?  Would you care to propose such a formula so the rest of can all laugh at it?

Anyway: complicated.

Adjusted for Inflation

| Sun Jul. 26, 2009 12:42 PM EDT

In the Washington Post today, David Brown says that as treatment for heart attacks has gotten better, it's also gotten more expensive:

Over the same period, the charges for treating a heart attack marched steadily upward, from about $5,700 in 1977 to $54,400 in 2007 (without adjusting for inflation).

I continue not to understand why anyone would write this.  Why not this instead?

Over the same period, adjusted for inflation, the charges for treating a heart attack marched steadily upward, from about $20,000 in 1977 to $54,400 in 2007.

Technically, Brown's wording is correct.  But it's not helpful, since most people don't have even a vague notion of how much cumulative inflation there's been since 1977.  The revised wording, however, is helpful: it gives people a correct impression of how much more we spend treating heart attacks these days.  Namely, two to three times as much as 30 years ago.

This wasn't just a slip of the keyboard.  Brown and his editor obviously made a deliberate decision to use nominal figures even though this doesn't give the average reader a very good idea of how much costs have actually risen.  I'd sure like to hear their explanation for why they made this decision.