Free Markets – Page 26 – artdiamondblog.com

Federal Subsidies for “Those Who Choose to Live Far from a City”

Source of graphic: the online version of the Omaha World-Herald article quoted and cited below.

(p. 1A) WASHINGTON — Opponents of federal air travel subsidies make two points: that subsidized airports are relatively close to regular commercial air service and subsidized flights are used by only a few people a day.
Both are true in Nebraska.
For example, U.S. taxpayers spend nearly $1.4 million a year so that fewer than two dozen travelers a day, on average, can fly out of Grand Island rather than drive the 100 miles to Lincoln.
Taxpayers also chip in $748,635 annually to maintain two daily flights from Alliance to Denver, even though only about a half dozen people a day board the planes.
. . .
(p. 2A) Groups such as Taxpayers for Common Sense and Citizens Against Government Waste say that although the subsidies might have made sense 30 years ago, to prevent communities from losing air service overnight, people know what they’re getting into today if they choose to live far from a city with regular air service.
It’s a matter of prioritizing public spending, said Steve Ellis, vice president of Taxpayers for Common Sense.
“People have the right to food and clean water,” Ellis said. “We don’t need to make sure it’s a chicken in every pot and air service in every community.”

For the full story, see:
JOSEPH MORTON. “Rural travel subsidies still up in the air.” Omaha World-Herald (Sunday, February 24, 2008): 1A & 2A.
(Note: ellipses added.)

Federal spending on Essential Air Service
——————————————————————————–
Year   # of communities    Total funding for subsidies *
1998   101   $50
1999   100   $50
2000   106   $50
2001   115   $50
2002   123   $113
2003   126   $101.3
2004   140   $101.7
2005   146   $101.6
2006   151   $109.4
2007   145   $109.4
2008   142   $125
*Figures in millions
Source of data: Government Accountability Office; U.S. Department of Transportation
Source of version of table above: very slightly modified from the online version of the Omaha World-Herald article quoted and cited above.

Wal-Mart Designs Health Care Around the Needs of Consumers

“Alicia Ledlie, senior director of health business development for Wal-Mart, said walk-in medical clinics would look like the mockup behind her, in a warehouse in Bentonville, Ark.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. C4) Moving to upgrade its walk-in medical clinic business, Wal-Mart is set to announce on Thursday plans for several hundred new clinics at its stores, using a standardized format and jointly branded with hospitals and medical groups.
. . .
Walk-in medical clinics are a growing industry, with numerous competitors that include big-box retailers, drugstores and even grocery chains around the country. Industry executives say 1,500 to 1,800 clinics will be open by the end of the year.
Propelled by the drugstore chains CVS and Walgreens, by far the biggest sponsors of the clinics to date, more than 700 clinics have opened in the last 15 months. But the business model is unproven so far.
Few, if any, clinics are profitable, according to industry analysts, and only a handful have broken even on daily operations. Most have been open a year or less, and executives say it takes up to three years for a clinic to become profitable enough to recover start-up costs.
Medical societies are inclined to be skeptical of the clinics. The American Academy of Pediatrics opposes them, saying they add to fragmentation in the health care system.
Dr. Edward Zissman, a pediatrician in central Florida, said he had qualms about hospitals that hook up with the clinics. “Putting their name on a product that I don’t think has the highest quality,” he said, “is going to cost them dearly with physicians.”
The American Academy of Family Physicians and the American Medical Association have set forth principles for clinics to observe, including sending patients’ medical record to their doctors and finding doctors for patients who do not already have them. Most states require varying degrees of physician supervision of the clinic nurses. Clinic operators say they are complying.
Many patients have said they like the convenience of the walk-in clinics’ weekend and evening hours, the short waiting times to see a nurse practitioner, and the posted price lists for a limited menu of care like tests and prescriptions for sore throats and ear infections and seasonal flu shots.
. . .
“The clinics are the latest big example of how you could think about consumers and what their needs are, rather than a health care system exclusively designed around the needs of providers,” said Margaret Laws, director of an innovations program at the California Health Care Foundation, an independent group that finances health policy research.

For the full story, see:
MILT FREUDENHEIM. “Wal-Mart Will Expand In-Store Medical Clinics.” The New York Times (Thurs., February 7, 2008): C4.
(Note: ellipses added.)

“The design of the Wal-Mart medical clinic is intended to look like a doctor’s office, complete with the usual medical hardware.” Source of caption and photo: online version of the NYT article quoted and cited above.

Hitler’s Critique of American Materialism

Here are some musings by Hitler, in which he compares Germany under Hitler’s National Socialism, with America. The musings are dated August 1, 1942, and are quoted in the article cited below:

(p. 3) I grant you that our standard of life is lower. But the German Reich has 270 opera houses – a standard of cultural existence of which they over there have no conception. They have clothes, food, cars and a badly constructed house – but with a refrigerator! This sort of thing does not impress us.

For the full story, see:

MARC D. CHARNEY. “Ideas & Trends; Well, at Least He Liked Our Cars.” The New York Times, Section 4 (Sun., April 3, 2005): 3.

The Free Market Works

The story quoted below tells how outsourcing high-tech jobs to India has bid up the salaries of high-tech Indian engineers, thereby reducing the appeal of further outsourcing. Marvelous how the market works!
Another lesson from the story applies to forecasting: mechanical extrapolation of current trends is inferior to prediction that takes account of predictable changes in prices (in this case, salaries).

(p. A15) Around the century’s turn, when U.S. companies first began flooding to India for its cheap labor, pundits warned that the subcontinent could increasingly rob the U.S. of high-end white-collar jobs. Debate was especially sharp in Silicon Valley, then in a slump, because India annually turns out nearly 500,000 engineering graduates.
. . .
Several years on, the forces of globalization are starting to even things out between the U.S. and India, in sophisticated technology work. As more U.S. tech companies poured in, they soaked up the pool of high-end engineers qualified to work at global companies, belying the notion of an unlimited supply of top Indian engineering talent. In a 2005 study, McKinsey & Co. estimated that just a quarter of India’s computer engineers had the language proficiency, cultural fit and practical skills to work at multinational companies.
The result is increasing competition for the most skilled Indian computer engineers and a narrowing U.S.-India gap in their compensation. India’s software-and-service association puts wage inflation in its industry at 10% to 15% a year. Some tech executives say it’s closer to 50%. In the U.S., wage inflation in the software sector is under 3%, according to Moody’s Economy.com.
Rafiq Dossani, a scholar at Stanford University’s Asia-Pacific Research Center who recently studied the Indian market, found that while most Indian technology workers’ wages remain low — an average $5,000 a year for a new engineer with little experience — the experienced engineers Silicon Valley companies covet can now cost $60,000 to $100,000 a year. “For the top-level talent, there’s an equalization,” he says.

For the full story, see:
Pui-Wing Tam and Jackie Range. “Second Thoughts: Some in Silicon Valley Begin to Sour on India; A Few Bring Jobs Back As Pay of Top Engineers In Bangalore Skyrockets.” Wall Street Journal (Tues., July 3, 2007): A1 & A15.
(Note: ellipsis added.)

Entrepreneur Calls 2008 “The Year of the Spaceship”

Burt Rutan’s current design for WhiteKnightTwo, carrying the smaller SpaceShipTwo spaceship. Source of image: http://www.techno-science.net/?onglet=news&news=4993

(p. A18) Virgin Galactic, the company that hopes to fly well-heeled tourists to the edge of space by the end of 2009, provided a peek Wednesday at the craft that will take them there.
During a news conference at the American Museum of Natural History in Manhattan, Richard Branson, the British entrepreneur whose Virgin Airways is the parent company of the project, said 2008 would be “the year of the spaceship.”
Mr. Branson showed models of two vehicles, both created by the airplane designer Burt Rutan. WhiteKnightTwo, a two-fuselage, four-engine plane, is designed to ferry a smaller spacecraft, SpaceShipTwo, high into the sky and release it. The pilot of SpaceShipTwo will then fire the craft’s rocket engine, which burns a combination of nitrous oxide and a rubber-based solid fuel, shooting the vehicle to an altitude of more than 62 miles into the realm of black sky.

For the full story, see:
JOHN SCHWARTZ. “Built to Fly Into Space With the Greatest of Ease (They Hope).” The New York Times (Thurs., January 24, 2008): A18.

Artist’s rendering of SpaceShipTwo spaceship. Source of image: http://www.techno-science.net/?onglet=news&news=4993

Media Futures Market Achieves “Astonishing Accuracy”

The passage below is quoted from a WSJ summary of an article that appeared in the July 9-16, 2007 issue of The New Yorker:

(p. B8) The most successful media prediction market is the Hollywood Stock Exchange. According to a study by Harvard Business School professor Anita Elberse, the markets’ forecasts of box-office performance are off by 16% on average. That’s astonishing accuracy for an industry which, despite all kinds of attempts to predict what will work, assumes that the vast majority of its product will fail at the box office.

For the full summary, see:
“The Informed Reader; Marketing; What’s the Next Big Thing? Prediction Markets Answer.” Wall Street Journal (Mon., July 2, 2007): B8.

Non-Market Health Care Pricing Results in Health Care Shortages

(p. A22) When my Labrador retriever became acutely lame, we were able to locate a veterinary orthopedic expert in Atlanta within 48 hours who was able to repair a ruptured tendon within one week. But my prospects of identifying an endocrinologist who can care for my daughter’s diabetes when she turns 18 are much less promising.
The limited number of endocrine specialists is a not a consequence of limited demand — everyone is aware of the epidemic of diabetes we are facing. There are also shortages of generalists and other specialists, and the reason is the absence of market signals — i.e., market-based prices — for influencing the supply of physicians in various specialties.
The roots of this problem lay in the use of administrative pricing structures in medicine. The way prices are set in health care already distorts the appropriate allocation of efforts and resources in health care today. Unfortunately, many of the suggested reforms of our health care system — including the various plans for universal care, or universal insurance, or a single-payer system, that various policy makers and Democratic presidential candidates espouse — rest on the same unsound foundations, and will produce more of the same.
. . .
One important lesson of the 20th century is that, while markets are far from perfect, more choices are available when people are able to use free markets to interact with each other. Markets may not get the prices exactly correct all the time, but they are capable of self- correction, a capacity that has yet to be demonstrated by administrative pricing.
It tells you something when the supply of and demand for specialist veterinary care is so easily matched when the prices of these services are established on the market — while shortages and oversupplies are common for human medical care when the prices of these services are set by administrators in the public sector. Will health-care reformers — and American citizens — get the message?

For the full commentary, see:
Robert A. Swerlick. “Our Soviet Health System.” Wall Street Journal (Tues., Jun 5, 2007): A22.
(Note: ellipsis added.)

Market Prices Send “the Right Signal to the Customer to Save Energy”

In the passage quoted below, the “commission” refers to China’s “National Development and Reform Commission.”

(p. A6) The commission estimates China’s energy efficiency is about 10% below that of developed countries because of obsolete technology. But many experts say Beijing’s policy priorities are a bigger obstacle.
Worries about social unrest and inflation led Beijing to put the brakes on pricing overhauls, at tremendous cost to state refiners PetroChina Co. and China Petroleum & Chemical Corp., known as Sinopec.
“Market prices are a very important and key issue because they send out the right signal to the customer to save energy,” said Yang Fuqiang, vice president of the Energy Foundation in Beijing.

For the full story, see:
David Winning. “Why Energy Efficiencies Prove Elusive in China.” Wall Street Journal (Tues., Nov. 6, 2007): A6.

Why We Need Some Savvy Entrepreneur to Start a Garage-Rating Business

“Henry Schneider found few competent, honest mechanics.” Source of caption and photo: online version of the NYT commentary quoted and cited below.

(p. C1) . . . , Mr. Schneider drove home to Connecticut and undertook a devilish little test.
Over the next few months, he took the Subaru to 40 garages, loosening the battery cable and draining some coolant before each visit. He even wrote himself a script and memorized it, to make sure he was telling every garage the same thing. “We bought the car recently, and we should have had it looked at before we bought it, but we didn’t,” he would say. “It hasn’t started a few times. Can you check that out?” He also asked for a thorough inspection.
Mr. Schneider was trying to answer a question that has occurred to pretty much all drivers who have ever been given the unsettling news that a car needs more repairs than they had expected: Does it really? Or is the garage just looking to make some extra money off me?
. . .
At only 27 of the 40 garages did mechanics tell Mr. Schneider that he had a disconnected battery cable, the very problem to which he had pointed them by saying his car didn’t always start. Only 11 mentioned the low coolant, a problem that can ruin a car’s engine. Ten of the garages, meanwhile, recommended costly repairs that were plainly unnecessary, like replacing the starter motor or the battery. (Tellingly, his results were in line with what the Automobile Protection Association found when it performed its experiments in Canada.)
In all, only about 20 percent of the garages deserved a passing grade. “And that’s with a pretty low bar,” Mr. Schneider told me. “I’m even allowing them to have missed a blown taillight that should have been caught.”
. . .
. . . , Mr. Schneider didn’t set out to study cars. His original goal was to examine the health care system. But he couldn’t very well give himself a heart murmur and then visit 40 cardiologists.
“It turns out it’s hard to get objective measures of people’s bodies,” as Thomas Hubbard, a Northwestern University professor who has also studied the economics of reputation, put it. “It’s a lot easier to get objective measures of people’s cars.”
. . .
Until some savvy entrepreneur starts a garage-rating business, the best solution may be the oldest one: asking for a recommendation from someone who is knowledgeable enough to distinguish between good service and bad. Just remember that a lot of people don’t know quite as much about cars — or their mechanic — as they think they do.

For the full commentary, see:
DAVID LEONHARDT. “ECONOMIC SCENE; When Trust In an Expert Is Unwise.” The New York Times (Weds., November 7, 2007): C1 & C9.

(Note: ellipses added.)

“Schneider sabotaged his dad’s old station wagon to test the honesty of mechanics.” Source of caption and photo: online version of the NYT commentary quoted and cited above.

Mexico Supplies United States Aerospace Industry

Source of map: online version of the WSJ article quoted and cited below.

(p. A2) Mexico has felt the downside of globalization in recent years as cheaper Asian manufacturers of everything from electronics to auto parts have undercut the advantages provided by looser North American trade barriers.
Now, Mexican officials are turning to another sector they hope will put down deeper roots: The booming North American aerospace industry.
Mexico has moved to make it even easier for foreign companies to do business south of the border. Already, big names in aerospace such as Goodrich Corp. of the U.S. and Bombardier Inc. of Canada have set up facilities there.
The nation offers proximity and easy reach at a time when aerospace giants are under pressure to hit deadlines and deliver new aircraft to customers. Aerospace officials also say they are impressed by Mexico’s deep talent pool. And if Mexico successfully bolsters its aerospace industry, it will demonstrate that skills burnished servicing the automotive sector can be transferred to higher-end industries.
. . .
Mexico’s biggest advantage may be its location. For years, major aerospace manufacturers such as Boeing Co. have farmed out a growing share of their work to suppliers in Japan, China and elsewhere. But these arrangements can make it a challenge to get finished components back to the companies’ main factories for final assembly. The choice often boils down to waiting weeks for delivery by ship or paying for costly space on a cargo jet.
With demand for new jetliners and other aircraft at record levels, however, companies are under greater pressure to cut shipping time and increase production. Many U.S. aerospace companies already have built up considerable capacity in Mexico to feed the industry’s production hub in Southern California.

For the full commentary, see:
JOEL MILLMAN and J. LYNN LUNSFORD. “THE OUTLOOK; Mexico Seeks a Lasting Share Of Aerospace Boom.” The Wall Street Journal (Mon., November 26, 2007): A2.
(Note: ellipsis added.)

Southwest Airline Manages Risk Through Oil Price Hedges

Source of graphic: online version of the NYT article quoted and cited below.

(p. C1) Southwest Airlines, in danger for much of this year of losing its quirky dominance in the domestic airline industry, could soon be standing, once again, head and shoulders above the competition.
Better service? Happier and more productive workers?
Not this time. The reason for Southwest’s rapidly increasing advantage over other big airlines is much simpler: it loaded up years ago on hedges against higher fuel prices. And with oil trading above $90 a barrel, most of the rest of the airline industry is facing a huge run-up in costs, and Southwest is not.
Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years.
Other major airlines passed on buying all but the shortest-term insurance against high fuel prices, allowing Southwest executives a bit of schadenfreude.

For the full story, see:
JEFF BAILEY. “An Airline Shrugs at Oil Prices.” The New York Times (Thurs., November 29, 2007): C1 & C10.

‘A Southwest Airlines worker fueled a plane. Southwest’s chief said the hedges against rising fuel costs “bought us time to retool our company.”” Source of caption and photo: online version of the NYT article quoted and cited above.