Business & Economics: October 2006 Archives
I just got an email from Tradesports saying that they may not be able to process credit card deposits anymore thanks to the Unlawful Internet Gambling Enforcement Act Congress passed and President Bush recently signed. The email from Tradesports says:
We would like to inform you that due to recent legislative changes in the United States, there have been policy changes on the part of several credit card issuing banks. As a consequence, you may experience difficulties in attempting to process a credit card deposit on the Exchange.While we still process credit card deposits for members, your own credit card issuer has been highlighted to us as one through whom a deposit may possibly be rejected.
I think this is a travesty, not because I have any monetary interest but because I think the site provides an invaluable source of information for newswatchers like myself. I quite enjoy following the odds on everything from political contests to lawsuits, and I hope that the new law doesn't significantly reduce the volume (and therefore quality) of the aggregated data.
Congress needs to pass an exemption for futures markets that are really no different from the Chicago Mercantile Exchange Weather Futures.
Update:
This evening I see that the Wall Street Journal has an op-ed about political futures markets as well, but it doesn't mention the connection to the internet gambling ban. I scooped them once again!
David Leonhardt has an insightful article about the implications of rising health care costs. And they're not all bad....
The average cost of a family insurance plan that Americans get through their jobs has risen another 7.7 percent this year, to $11,500, according to the Kaiser Family Foundation. In only seven years, the cost has doubled, while incomes and company revenue, which pay for health insurance, haven’t risen nearly as much. ...Living in a society that spends a lot of money on medical care creates real problems, but it also has something in common with getting old. It’s better than the alternative. ...
Most families in the 1950’s paid their medical bills with ease, but they also didn’t expect much in return. After a century of basic health improvements like indoor plumbing and penicillin, many experts thought that human beings were approaching the limits of longevity. “Modern medicine has little to offer for the prevention or treatment of chronic and degenerative diseases,” the biologist René Dubos wrote in the 1960’s.
But then doctors figured out that high blood pressure and high cholesterol caused heart attacks, and they developed new treatments. Oncologists learned how to attack leukemia, enabling most children who receive a diagnosis of it today to triumph over a disease that was almost inevitably fatal a half-century ago. In the last few years, orphan drugs that combat rare diseases and medical devices like the implantable defibrillator have extended lives. Human longevity still hasn’t hit the wall that was feared 50 years ago.
Instead, a baby born in the United States this year will live to age 78 on average, a decade longer than the average baby born in 1950. People who have already made it to their 40’s can now expect to reach age 80. These gains are probably bigger than the ones the British experienced in the entire millennium leading up to 1800. If you think about this as the return on the investments in medicine, the payoff has been fabulous: Would you prefer spending an extra $5,500 on health care every year — or losing 10 years off your lifespan?
Yet we often imagine that the costs and benefits are unrelated, that we can somehow have 2006 health care at 1950 (or even 1999) prices. We think of health care as if it were gasoline, a product whose price and quality have nothing to do with each other.
We spend a lot on health care because extending one's life and health beyond the average is always going to be cutting edge and will require the use of sparse resources, be them equipment or a doctor's skill. As Mr. Leonhardt says at the end of his piece: despite the rising cost of health care, it's money well-spent.
Donald Luskin has a great article about why a record-setting Dow is irrelevant.
The Dow is really nothing more than a random collection of arbitrarily selected stocks — and just 30 of them. It hardly represents the overall equity market. The much broader S&P 500 is far more representative, and it behaves quite differently as a result. The proof? Easy: The S&P 500 is nowhere near all-time highs, while by sheer luck the Dow just happens to be.The stocks in the Dow are all tried and true — and tired — blue chips. They don't come close to representing the real growth potential of the American economy. The Russell 2000 Index, which covers smaller companies exclusively, does a much better job of capturing the spirit of risk-taking that is the heart of investing. And it's been making all-time highs for most of the last two years. ...
And have you ever wondered how the Dow is calculated? The movements of the index each day are calculated based on the assumption that you own an equal number of shares of each of the 30 companies. Is there anyone in the world who actually invests that way? I hope not.
Equal share numbers mean you haven't thought about how many dollars you want to put at stake in each stock. A hundred shares of Microsoft (MSFT: 28.29, -0.23, -0.8%) are worth $2,740. 3M (MMM: 76.40, +0.87, +1.2%) is a higher-priced stock, so 100 shares is worth $7,460 Do you really want to own about three times as much 3M as you do Microsoft? Maybe — but if so, you should have a better reason that just because the number of shares is supposed to be the same.
Since the dollar exposure to stocks in the Dow is a function of their price, the movements in high-priced stocks like 3M influence movements in the index more than the same percentage movement in low-priced stocks like Microsoft. Is there any rational reason why 3M should move the average more than Microsoft?
And suppose that one day 3M does a big stock split, so that its stock price falls from being three times that of Microsoft to only one-third that of Microsoft. Now, for no better reason than the stock split — an economically meaningless event — suddenly Microsoft becomes the one with three times the influence on the movement of the Dow.
And so forth and so on... but he doesn't mention the psychological effect the number has on so many people, thus taking on importance through attribution. But anyway, he's right.
If you want to keep good track of how American markets are doing, get familiar with the S&P 500 and the Wilshire 5000. Watching the rest of the world can take a bit more doing.
My wife pointed me to an upcoming set of articles by Laura T. Coffey that promises to offer tips on avoiding scams. I'm going to be keeping an eye on the column to see how it develops.
Former House majority leader Dick Armey has a great op-ed about the European perspective on competition that explains a great deal about why so little technological innovation is born in this once-great continent.
In the United States, the antitrust laws are premised on consumer harm. No consumer harm, no antitrust violation. Vibrant competition is the gold standard for U.S. authorities. Europe has a completely different take, as suggested by the fact that they require a "Commissioner of Competition." For Europe, managed competition is the ideal, with regulators taking an active role in designing the market and products that consumers ultimately can purchase. Dominant firms can compete, but not too hard. This world diminishes innovation for the sake of protecting big business, leaving consumers to bear the cost.This distinction between Europe and the United States is more than a cultural quirk. It has substantial implications for American companies trying to survive in a global economy and a significant impact on consumers. Rather than consumer sovereignty, the European market is ruled by a web of regulations that undermines the efforts of American firms trying to design better products that attract customers. ...
Rather than listening quietly to European pleas for economic cooperation, U.S. officials should take the opportunity to expound on our own version of competition, which is a world dominated by consumers, not big business operating hand in glove with regulators. In an increasingly global marketplace, the United States cannot afford to capitulate to cooperate.
I completely agree with Armey's proposed solution. Just as our government needs to do more to promote other American values abroad, our country needs to fight for economic freedom and the free-market system.
(HT: Real Clear Politics.)
