Category: Economics

Corporate Fraud Index “Is the Highest in Over 40 Years”, Portending Economic Woes

(p. A2) Manipulation of earnings from Corporate America is on the rise, an ominous omen for the U.S. economy.

That is the conclusion of new research on accounting fraud, using a technique that flagged Enron as an earnings manipulator several years before the energy company’s spectacular 2001 implosion.

Unless you study accounting, you have likely never come across the M-Score, which is the number underlying both the Enron episode and the economywide concern now. The “M” is for manipulation, and uses a company’s financial statements to determine whether it is engaging in manipulation.

. . .

“We think this is a measure of misinformation in the economy,” said Dr. Beneish. The new aggregate measure was published in a December [2022] paper, and the latest data—compiled in March [2023] and shared with The Wall Street Journal—shows that the collective probability of fraud across major companies is the highest in over 40 years.

For the full commentary, see:

Josh Zumbrun. “Signs of Fraud Flash Warning for Economy.” The Wall Street Journal (Saturday, March 25, 2023): A2.

(Note: ellipsis, and bracketed years, added.)

(Note: the online version of the commentary has the date March 24, 2023, and has the title “THE NUMBERS; Accounting-Fraud Indicator Signals Coming Economic Trouble.”)

The December 2022 paper mentioned above is:

Beneish, Messod D., David B. Farber, Matthew Glendening, and Kenneth W. Shaw. “Aggregate Financial Misreporting and the Predictability of U.S. Recessions and GDP Growth.” The Accounting Review (Dec. 2022), DOI:10.2308/tar-2021-0160.

Government Contractor UNOS Is 15 Times More Likely to Lose or Damage Transplant Organs as Private Airlines Are to Lose or Damage Luggage

(p. A24) Where Tonya lives in California, the wait for a kidney from a deceased donor is up to 10 years. Tonya, like many on dialysis to treat kidney failure, knows the odds of her surviving the wait are slim; the median survival time for patients on dialysis is five years.

. . .

Everyday Americans are doing their part, signing up to be organ donors, but the organizations in charge of organ recovery (known as organ procurement organizations, or O.P.O.s) have been plagued with inefficiencies and abuses, and the contractor that runs the national system — the United Network for Organ Sharing (UNOS) — has been failing to oversee them.

The organ procurement system is made up of 56 organizations, each with a monopoly in its jurisdiction. When someone dies and can donate an organ, O.P.O.s are supposed to go to the hospital, talk to the person’s family and manage the process of transporting donated organs to those in need, but all too often they have failed to show up — literally.

. . .

Tonya asked the government to hold these organizations accountable, and naïvely, we thought it would be that simple. Our efforts would surely get Tonya a kidney.

She did everything she could to push for change, everything that our government asks of concerned citizens: She wrote an opinion essay; appeared in a government video; wrote letters to members of the Biden administration, including the Centers for Medicare and Medicaid Services (C.M.S.) administrator Chiquita Brooks-LaSure and the head of the Health Resources and Services Administration, Carole Johnson; worked with members of Congress, including Representative Katie Porter; and even testified before the House Oversight Subcommittee on Economic and Consumer Policy in May 2021.

There she told the committee she would die without the federal government’s urgent action. A year and a half later, on Dec. 30, 2022, Tonya died of complications from kidney failure.

. . .

After the video Tonya and I made, in 2020 the Trump administration finalized a rule bringing accountability to the forefront, and the Biden administration has inherited it. This is a good start: The new rule changes the metrics by which O.P.O.s are evaluated and requires that they face decertification for failure to perform. But the rule would not replace a single failing organ contractor until 2026, which is not acceptable.

. . .

To make matters worse, in the Biden administration’s 2023 budget, the C.M.S. requested flexibility to recertify failing O.P.O.s so they can keep their contracts even after 2026. If we allow failing O.P.O.s to keep operating, then we essentially nullify the reform we’ve worked so hard for and ensure further delays and more deaths.

. . .

When the Senate Finance Committee finally began investigating, it found that UNOS has systematically failed to provide oversight. At the committee hearing, doctors and transplant professionals testified that they have been afraid to criticize UNOS publicly, for fear it will retaliate against their patients. Also at the hearing, Senators Elizabeth Warren, Charles Grassley and Rob Portman called out another mind-boggling fact: From 2014 to 2019, UNOS was 15 times as likely to lose or damage an organ in transit as an airline is a passenger’s luggage.

For the full commentary, see:

Kendall Ciesemier. “She Feared the Organ Donation System Would Kill Her. It Did..” The New York Times (Wednesday, February 1, 2023): A24.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Jan. 28, 2023, and has the title “Tonya Ingram Feared the Organ Donation System Would Kill Her. It Did.”)

Regulators Are Bad at Monitoring Unhealthy Banks

(p. A26) Silicon Valley Bank’s failure looks a bit like an S.&L. crisis in miniature. Like its 1980s counterparts, S.V.B. grew extremely rapidly, had many assets parked in fixed, long-term bonds, and was done in when inflation caused the Fed to raise interest rates, raising the cost of keeping deposits.

Like the S.&L.s, Silicon Valley Bank was heavily concentrated. It catered to start-ups for whom an S.V.B. account was a matter of status. One tech savant who had recently changed jobs (aren’t they always switching jobs?) told me that in his experience, roughly two thirds of start-ups banked with S.V.B. (the bank claimed that nearly half the country’s venture capital-backed technology and life science companies were customers).

. . .

The regulators clearly failed to monitor S.V.B.’s unhealthy mismatch of assets and liabilities.

. . .

Once you take risk out of a part of a bank’s operations, it is hard to let market principles govern the rest.

. . .

In past bank failures, uninsured depositors did not lose all — 10 to 15 percent was typical. And in this episode, there wasn’t any systemically bad asset à la mortgages in 2008. Given that the risk was contained, and that the Federal Reserve provides liquidity to banks facing runs (and provided emergency liquidity this week), allowing uninsured depositors of banks that fail to suffer a haircut might have been healthier for the system in the long run.

For the full commentary, see:

Roger Lowenstein. “The Bank Rescues Just Changed Capitalism.” The New York Times (Thursday, March 16, 2023): A26.

(Note: ellipses added.)

(Note: the online version of the commentary has the date March 15, 2023, and has the title “The Silicon Valley Bank Rescue Just Changed Capitalism.”)

Tighter Zoning Laws Resulted in More Racial Segregation

(p. A22) Across the New York City suburbs, a thicket of local zoning laws thwarts the building of all but the most expensive single-family homes.

In some parts of Scarsdale, in Westchester County, new homes must be built on lots of at least two acres. In most parts of the village of Muttontown, on Long Island, new homes must be at least 2,000 square feet. The Town of Oyster Bay, also on Long Island, requires that some guest apartments, known as accessory dwelling units, be occupied only by family members or domestic servants.

These zoning laws are among the most restrictive in the country. They severely limit the state’s housing supply, making the entire region less affordable. And they are rooted in Jim Crow.

For much of the 20th century, towns surrounding New York City used a stomach-churning mix of racial covenants and restrictive zoning laws to shut out Black Americans and others considered undesirable from thriving suburbs. The federal government supported this system in myriad ways, including by denying government backing for mortgage loans in Black neighborhoods, a practice known as redlining, which hardened segregation and sharply restricted the ability of Black Americans to secure mortgages and buy homes. After World War II, the government greatly expanded its role in residential segregation by backing large suburban developments across the United States like Levittown, on Long Island, on the condition that they exclude Black buyers.

The Fair Housing Act of 1968 made racial discrimination in housing illegal. But communities were still allowed to enact and maintain zoning laws that had the same effect. By this time, prices had risen, and the generous postwar federal subsidies that made it possible for white Americans to buy suburban homes — but which had largely been denied to Black Americans — were no longer available. Even if a suburb might no longer be allowed to overtly ban Black families, limiting development to large and expensive homes could achieve a similar goal.

As a result, the tighter zoning laws became associated nationally with increased racial segregation, as well as a diminished housing supply.

For the full commentary, see:

Mara Gay. “To Cut New York Housing Costs, Ease Suburbs’ Zoning Laws.” The New York Times (Thursday, Feb. 23, 2023): A22.

(Note: the online version of the commentary has the date February 21, 2023, and has the title “The Era of Shutting Others Out of New York’s Suburbs Is Ending.”)

Yale Economist Says Stagnant Japan Would Benefit from Mass Suicide of Elder Citizens

A growing number of so-called “progressives” are advocating an end to economic growth. I do not believe that most of them understand how much more suffering and death the world will experience if their advocacy succeeds. (I remember decades ago seeing a beautiful but troubling Japanese movie with my friend Hajime Miyazaki, in which the loving, aging matron of a starving family was willingly carried up a mountain by one of her sons and left there so the other members of her family would have more to eat.)

(p. A1) In interviews and public appearances, Yusuke Narita, an assistant professor of economics at Yale, has taken on the question of how to deal with the burdens of Japan’s rapidly aging society.

“I feel like the only solution is pretty clear,” he said during one online news program in late 2021. “In the end, isn’t it mass suicide and mass ‘seppuku’ of the elderly?” Seppuku is an act of ritual disembowelment that was a code among dishonored samurai in the 19th century.

. . .

(p. A10) Given Japan’s low birthrate and the highest public debt in the developed world, policymakers increasingly worry about how to fund Japan’s expanding pension obligations.

. . .

In Japanese folklore, families carry older relatives to the top of mountains or remote corners of forests and leave them to die.

. . .

In broaching euthanasia, Dr. Narita has spoken publicly of his mother, who had an aneurysm when he was 19. In an interview with a website where families can search for nursing homes, Dr. Narita described how even with insurance and government financing, his mother’s care cost him 100,000 yen — or about $760 — a month.

For the full story, see:

Motoko Rich and Hikari Hida. “Scholar Suggests Mass Suicide for Japan’s Old. Does He Mean It?” The New York Times (Monday, Feb. 13, 2023): A1 & A10.

(Note: ellipses added.)

(Note: the online version of the story has the date Feb. 12, 2023, and has the title “A Yale Professor Suggested Mass Suicide for Old People in Japan. What Did He Mean?”)

Famine Among the Inuit Led to “The Occasional Killing of Children Who Would Otherwise Starve”

Are we fundamentally better than the Inuit? Or has economic growth allowed us to have higher standards of behavior so we never must commit “the occasional killing of children who would otherwise starve”? In my Openness book I argue that people treat each other better when they live in a system of innovative dynamism that creates economic growth.

(p. 15) Peter Freuchen spent the winter of 1907 alone in the dark. A junior member of a Danish scientific expedition to northern Greenland, he was, in his own words, “just past 20, full of a lust for novel adventures,” and so, “like a fool,” he volunteered to spend the season manning a remote weather station. As wolves slaughtered his dogs and the icy condensation of his breath caused his cabin’s frozen walls to creep inward, his thoughts turned “sterile and unattractive” and he began having extended conversations with his cutlery. But the ordeal did not break him, for Freuchen had fallen in love with the Arctic.

Freuchen is the subject of Reid Mitenbuler’s “Wanderlust,” an attempt to reconcile the contradictions of, as Mitenbuler writes, “a highly sociable person who, somewhat inexplicably, was drawn to some of the most isolated places on Earth.” Mitenbuler paints Freuchen as the rare explorer who saw the world’s remote corners not as territory to be conquered but as a place to call home. Although narratively clumsy, it is a charming portrait of a man who traveled the world with an open mind, whose natural warmth never faltered in the cold.

As an explorer, Freuchen distinguished himself not through feats of heroism but by actually giving a damn about the people he met during his travels. After visiting Greenland on several lengthy expeditions, he came to stay in 1910, founding a trading post in Thule, in the island’s far north, in partnership with his friend Knud Rasmussen. He met the Inuit on their own terms, learning their language and eating their food, working alongside them to survive in an environment where one had to grow used to the reality of famine, starvation and even the occasional killing of children who would otherwise starve.

For the full review, see:

W. M. Akers. “The Land of Frozen Poop Chisels.” The New York Times Book Review (Sunday, March 5, 2023): 15.

(Note: the online version of the review has the date February 26, 2023, and has the title “Frozen Poop Chisels and Amputated Toes: A Life of Arctic Adventure.”)

The book under review is:

Mitenbuler, Reid. Wanderlust: An Eccentric Explorer, an Epic Journey, a Lost Age. New York: Mariner Books, 2023.

Allow Entrepreneurial Competition in Medicine by Ending Obamacare’s Ban on Physician-Owned Hospitals

(p. A17) A tiny paragraph in the enormous Affordable Care Act prohibits physicians from building or owning hospitals. Any existing physician-owned hospital built before 2010 is prohibited from growing beyond the size it was when the bill passed. This law limits competition, defies common sense and is likely contributing to higher prices for Medicare and reduced access to treatment for millions of Americans.

. . .

. . . recent research affirms the power of American entrepreneurship to lower costs and improve quality. Doctors, whether at the bedside or the forefront of scientific innovation, are well-suited to reimagine healthcare operations, lower costs and improve the quality of care.

Specialty physician-owned hospitals focused on cardiology and cardiac surgery were found to deliver higher-quality care than nonprofit hospitals, with lower rates of hospital readmission or mortality for high-risk surgery. Physician-owned specialty hospitals for orthopedic procedures, such as hip and knee replacements, offered lower costs and higher quality than nonprofit counterparts.

. . .

Healthy competition drives job creation, innovation and long-term economic growth. The federal government doesn’t prohibit plumbers from owning plumbing companies, radio hosts from owning radio stations or farmers from owning farmers markets. It’s time to reopen the free market in healthcare and let the power of competition do its work.

For the full commentary, see:

James Lankford and Brian J. Miller. “End ObamaCare’s Ban on Physician-Owned Hospitals.” The Wall Street Journal (Tuesday, Feb. 21, 2023): A17.

(Note: ellipses added.)

(Note: the online version of the commentary has the date February 20, 2023, and has the same title as the print version.)

State Bureaucracies Did Not Nimbly and Effectively Spend Massive Pandemic Crisis Funds

(p. A1) . . . when the Biden administration gave Mississippi $18.4 million in mid-2021 to hire public health workers — part of $2 billion in grants to bolster the Covid work force at state and local health agencies nationwide — it appeared that help had, at long last, arrived.

But as of January [2023], 18 months later, Mississippi had spent just $3.6 (p. A14) million of its grant — less than a fifth. Its attempts to hire epidemiologists, nurses and other soldiers in the war against Covid had largely fallen flat. The state has lost one in 224 residents to Covid-19, one of the nation’s worst death rates, including 122 people in tiny Scott County alone.

Mississippi’s woes are an acute example of a larger public health failure that is reprised nearly every time a major health threat grabs headlines. The problem, experts say, is that Congress starves state and local health agencies of cash for even basic needs in quiet times. Then, when a crisis hits, it floods them with millions or even billions of dollars earmarked to battle the disease of the moment. And the sluggish machinery of Capitol Hill often ensures that most of the aid arrives only after the worst of the crisis has passed.

The $2 billion in Covid hiring grants is the latest example. Nationwide, states and localities had spent only $371 million of the money by December, or about 19 percent, according to the Centers for Disease Control and Prevention, the conduit for the funds.

. . .

The record is replete with other such fumbles.

Six months after the World Health Organization declared the H1N1 influenza pandemic over in mid-2010, states and localities had used just a third of the $1.4 billion in federal funds they had received to combat it. The outbreaks of the Ebola virus in 2014 and the Zika virus in 2016 also led to funding windfalls, but health experts say most of the money arrived late.

For the full story, see:

Sharon LaFraniere. “In Mississippi, Covid Millions Left Unspent.” The New York Times (Monday, Feb. 13, 2023): A1 & A14.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the same date as the print version, and has the title “Why Mississippi, a Covid Hot Spot, Left Millions in Pandemic Aid Unspent.”)

“The 1619 Project” Shows How Government Policies “Discriminated Against African-Americans”

(p. A15) Hulu’s series “The 1619 Project” blames economic inequality between blacks and whites on “racial capitalism.” But almost every example presented is the result of government policies that, in purpose or effect, discriminated against African-Americans. “The 1619 Project” makes an unintentional case for capitalism.

The series gives many examples of government interventions that undercut free markets and property rights. Eminent domain, racial red lining of mortgages, and government support and enforcement of union monopolies figure prominently.

The final episode opens by telling how the federal government forcibly evicted black residents of Harris Neck, Ga., during World War II to build a military base. The Army gave residents three weeks to relocate before the bulldozers moved in, paying below-market rates through eminent domain. After the war, the government refused to let the former residents return. Violation of property rights is the opposite of capitalism.

For the full commentary, see:

David R. Henderson and Phillip W. Magness. “‘The 1619 Project’ Vindicates Capitalism.” The Wall Street Journal (Tuesday, Feb. 21, 2023): A15.

(Note: the online version of the commentary has the date February 20, 2023, and has the title “‘The 1619 Project’ on Hulu Vindicates Capitalism.”)

The commentary quoted above is related to Magness’s book:

Magness, Phillip W. The 1619 Project: A Critique. Great Barrington, Massachusetts: American Institute for Economic Research, 2020.

Communist China Fails Again at Flailing Efforts to Centrally Plan Fertility

(p. 1) In China, a country that limits most couples to three children, one province is making a bold pitch to try to get its citizens to procreate: have as many babies as you want, even if you are unmarried.

The initiative, which came into effect this month, points to the renewed urgency of China’s efforts to spark a baby boom after its population shrank last year for the first time since a national famine in the 1960s.

. . .

Many young Chinese adults, who themselves were born during China’s draconian one-child policy, are pushing back on the government’s inducements to have babies in a country that is among the most expensive in the world to raise a child.

. . .

(p. 12) Efforts by the ruling Communist Party to raise fertility rates — by permitting all couples to have two children in 2016, then three in 2021 — have struggled to gain traction. The new policy in Sichuan drew widespread attention because it essentially disregards birth limits altogether, showing how the demographic crisis is nudging the party to slowly relinquish its iron grip over the reproductive rights of its citizens.

“The two-child policy failed. The three-child policy failed,” said Yi Fuxian, a researcher at the University of Wisconsin-Madison who has studied Chinese population trends. “This is the natural next step.”

Sichuan, the country’s fifth-largest province with 84 million people, lifted all limits on the number of children that residents can register with the local government, . . .

For the full story, see:

Nicole Hong and Zixu Wang. “Public Is Wary Of China’s Push For Baby Boom.” The New York Times, First Section (Sunday, February 26, 2023): 1 & 12.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “Desperate for Babies, China Races to Undo an Era of Birth Limits. Is It Too Late?”)

Elon Musk Got Rich the Old-Fashioned Way, He EARNED It

(p. B4) Elon Musk is tired, his back hurts and his mom wants him to get some sleep.

. . .

A self-described nanomanager, Mr. Musk has long waded deeply into the weeds of the companies he runs, including SpaceX and Tesla Inc., green up pointing triangle routinely working late into the night and sleeping little. His tenacity has led to superhuman-like accomplishments, such as landing space rockets and making electric cars sexy.

. . .

Since taking ownership of Twitter Inc. in late October [2022], Mr. Musk’s workload has exploded to more than 120 hours a week from as much as 80 hours before, he told investor Ron Baron in November at a conference.

“I go to sleep, I wake up, I work, go to sleep, wake up, work—do that seven days a week,” Mr. Musk said.

. . .

Even before buying Twitter, Mr. Musk wasn’t a “chill, normal dude,” as he once joked on “Saturday Night Live.” Mr. Musk has said he usually goes to sleep around 3 a.m. and typically gets six hours of shut-eye before waking and immediately checking his phone for any new emergencies.

These days, Mr. Musk has said he is sleeping at Twitter headquarters in San Francisco. He has even provided beds for employees.

. . .

Concerns about Mr. Musk’s health had circulated a few years ago, ignited by photos of him that appeared to show a new scar on his neck. In 2020, he confirmed he had two surgeries, the first a failure, to address neck pain.

His pain, Mr. Musk has said, traces to a birthday party thrown years ago by his second wife that was attended by a sumo wrestler.

Mr. Musk took to the ring and—according to him—managed to throw the 350-pound opponent, resulting in an injury to his spine. “It cost me smashing my c5-c6 disc & 8 years of mega back pain!” Mr. Musk said on Twitter last year.

. . .

Entrepreneur Arianna Huffington at one point in 2018 pleaded with Mr. Musk to take better care of himself.

. . .

He responded with a tweet sent at 2:32 a.m.: “Ford & Tesla are the only 2 American car companies to avoid bankruptcy. I just got home from the factory. You think this is an option. It is not.”

For the full story, see:

Tim Higgins. “Musk’s Frantic Schedule Comes at a Personal Cost.” The Wall Street Journal (Monday, Feb. 6, 2023): B4.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story was updated February 5, 2023, and has the title “When Does Musk Sleep? He Speaks of Limits to Fixing Twitter, Back Pain.”)