Separation of Church and State

Vaclav Klaus, EU President-elect, is an economist trying to figure out what we are giving up to slow climate change which is driving the fundamentalists nuts:

As the global financial crisis takes hold, perhaps people are starting to wonder whether the so-called precautionary principle, which would have us accept enormous new taxes in the guise of an emissions trading scheme and curtail economic growth, is justified, based on what we actually know about climate.

Using credit history to price hospital care

One of the most popular posts on this site has been the use of credit history to price car insurance. It is a high quality data set (relatively few errors) that can be accessed instantly (only with your permission) for a variety of uses. Credit history is is a good predictor of behavior, from the likelihood that you will get into a car accident to the likelihood of losing your cell phone.

Now hospitals are using credit scores to determine what to charge patients:

In the hospital business they call it a "wallet biopsy." A growing number of medical centers are using sophisticated software that digs into patients' finances to help determine whether they will receive free or discounted care.

This allows hospitals to avoid giving free care to patients who falsely claim to be indigent.

EXTRA CREDIT: how could a non-indigent patient defeat this price discrimination scheme?

Re-distribution of health

Obese people in Canada have right to two airline seats, for the price of one.

The high court declined to hear an appeal by Canadian airlines of a decision by the Canadian Transportation Agency that people who are "functionally disabled by obesity" deserve to have two seats for one fare.

"It's Up to You" Pricing in Retail

We previously blogged about Radiohead's decision to offer its new CD online at a price the consumer could decide and about the results of the offer.

Here's a story about a retail store in Seattle that makes the same offer on its eclectic mix of goods: "From whimsical holiday plates to obscure albums to hundreds of other items, the customer determines the price for everything."

How's it working out? Not so good - the store is closing. Surprisingly, the landlord doesn't offer a pay what you want policy for the rent.

In case you didn't think you needed a Plan B

Our Plan B contest still has one week. No one has entertained the idea of moving to a prosperous state (Tennessee) and seceding from the Union:

Asked why he expected the U.S. to break up into separate parts, he said: "A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles."

Just when you thought it couldn't get any worse

Using jargon-free, simple prose, Susan Woodward and Bob Hall explain why the populist impulse to help homeowners is almost exactly wrong:

The main support that the government has offered so far is to guarantee modified mortgages, so that the government, not the lender, bears the cost of a default after modification. Subsidizing defaults will do some additional damage, as a good policy would discourage defaults, not subsidize them. Another questionable policy is a moratorium on foreclosures. Houses deteriorate rapidly when occupied by people who think they are going to be evicted. Policies that do not encourage true home ownership, where occupants have full incentives to take care of the houses they live in, risk additional deterioration to the housing stock. Nonetheless, several states have adopted moratoriums and there is talk of a long moratorium imposed by the federal government.

Loans are cheap; why isn't anyone buying them?

The Economist reports that ever since Secretary Paulson decided that it was a bad idea for the Treasury to buy bad loans at high prices, demand for loans has fallen, and this has lead to a fall in the price for loans.

DISTRESSED markets tend not to react well to offers of salvation being abruptly withdrawn. Holders of toxic mortgage-backed securities had pinned their hopes on the American government’s plan to buy large piles of the stuff through auctions as part of the Troubled Asset Relief Programme (TARP). The decision on November 12th to abandon that approach in favour of direct capital injections has left them shattered. The ABX index, which is linked to residential mortgages, is plumbing new depths. Spreads on the CMBX index, which is tied to securities backed by loans for offices, shopping malls and so on, have been exploding (see chart).

John Mauldin suggests that there artificial restraints may be preventing funds from buying these cheap loans:

Today, many highly rated loans are selling for 80 cents on the dollar. There is nothing wrong with the collateral or the corporation which owes the money; there is just no one with ready cash to buy the loans. I asked my friend why he doesn't buy them, since they offer very good returns.

The problem is that his fund, and most other CLOs, have covenants in their offering documents that prevent them from buying debt at less than 85 cents on the dollar. That covenant is a good thing in normal markets, as it prevents possible mischief by the manager, but right now it means that a lot of opportunity is being missed.

Test Your Civic Literacy

About 125 million Americans cast ballots in the presidential election. How many of them do you think were actually moderately well-informed? If you take a look at the results of the Intercollegiate Studies Institute's recent survey of American civic literacy, you might be a little concerned.

The Institute selected a random sample of 2,508 American adults and gave them a 33-question civics quiz. A few highlights from the results:

• Seventy-one percent of Americans fail the test, with an overall average score of 49%.
• Fewer than half of all Americans can name all three branches of government.
• Only 24% of college graduates know the First Amendment prohibits establishing an official religion for the United States.

And, it's not like the people we are voting for are any better. On average, public office holders scored 44%, five percentage points lower than non-officeholders.

Take the quiz to test your civic literacy.

What did we learn from the Great Depression?

Those who ignore history are condemned to repeat the mistakes of the past:

• MONETARY POLICY IS KEY
  
• GET THE SMALL THINGS RIGHT

He also took steps to strengthen unions and to keep real wages high. This helped workers who had jobs, but made it much harder for the unemployed to get back to work. One result was unemployment rates that remained high throughout the New Deal period.

Today, President-elect Barack Obama faces pressures to make unionization easier, but such policies are likely to worsen the recession for many Americans.

• DON’T RAISE TAXES IN A SLUMP
• WAR ISN’T THE WEAPON
• YOU CAN’T TURN BAD TO GOOD

In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

Stress free shopping

Sony has your best interests at heart:

Jay Vandenbree, the company’s president for consumer sales, discussed its new rule that bans retailers from discounting Sony’s Alpha digital camera line, its more expensive televisions and some other high-end products.

Mr. Vandenbree said that by having the price for these products be the same at all retailers, Sony had eliminated stress for buyers.