Wednesday, March 20, 2019

Create a Bust to Reduce Deficits

You may have seen the news that we had record-setting trade deficits last year...and next week, we’ll have another Bureau of Economic Analysis report. President Trump campaigned on how bad the trade deficit was—and now it’s worse—and he may be his own worst enemy. When he provided a major tax cut, that caused the economy to surge in the short-term. Some other steps may have helped grow the US economy. Many economists say that imports increase when the domestic economy improves. People spend more in a good economy. And proportionally that means they’re spending more on imported goods. And depending on how the rest of the world is doing, exports may not rise in a good economy. Thus, the deficit (exports - imports) will increase in boom times.

The US trade deficit shrinks in bust periods.



You can see that deficits were low (up on the chart because it’s in the negative range on the axis) back during the recession, and basically continued to increase through the recovery and ongoing ‘bull’ economy.

Maybe his push for tariffs is a way to cool the economy and reduce the level of imports. Maybe his restrictions on immigration is similar. The labor pool is tightened without immigration—we now have more job openings than we have unemployed—and that will restrict how well businesses can grow. If so, both efforts may work on reducing the trade deficit.

However, it’s the wrong focus if that’s what he’s trying to do.

Wednesday, March 13, 2019

Wrong Report Card for US Chamber of Commerce

I’ve often taught that one of the hidden wastes in Lean Thinking is that we’re measuring the wrong things. The result is that we dedicate resources and set priorities in areas that aren’t strategically or tactically important. Recently the US Chamber of Commerce realized the same thing and even admits that perhaps it contributed to congressional gridlock. The result of its congressional metrics: not only gridlock, but no pushback on a White House administration that’s taken anti-business positions on immigration, free trade (i.e. tariffs and trade treaties), utilizing shutdowns which adversely impacted businesses with government contracts, and hindering agencies designed to help businesses (e.g. Export-Import Bank).

In 2008, the US Chamber endorsed 38 Democratic legislators and by 2016 that number was a literal handful (5). But no money was given to their campaigns by the Chamber or its political action affiliates. The number of Republican endorsements was basically unchanged. Until recently, the criterion for endorsement was voting consistent with Chamber recommendations at least seventy percent of the time. Now they include some bipartisan action elements.

The Chamber has answered the question on whether their criteria was sufficient to encourage bipartisan work to reduce congressional gridlock. But it might be the wrong question.

The question might be whether the US Chamber is supporting long-term pro-business policies.

For example—and its the only one I’m taking the time to research—the Chamber opposes the Medicare Prescription Drug Price Negotiation Act, a bill that lifts the ban on the Center for Medicare/Medicaid Services (CMS) from negotiating drug prices. On the surface, negotiation is a good thing; it’s a business thing. Look what’s happening in healthcare now: no price list; variable pricing—just search for journalists’ analysis of how medical charges differ for the same service (like a box of tissues) by 300 percent or more. Take a look at the seminal work of Steven Brill’s “Bitter Pill”. Even with the move in the last 15 years towards higher deductible policies to encourage consumer/patient involvement in treatment choices, we cannot make informed choices. We’ve all suffered ‘sticker shock’ when we’ve looked at our Estimate of Benefit statements and the subsequent invoices. We may not have panicked totally because insurance companies negotiate discounts with service providers (thank you). But the list prices are high. When was the last time you asked your doctor, nurse, physician assistant, lab tech, “How much is this going to cost? What are some less expensive options?” And you got a specific answer. The provider group with whom I’ve had experience who answers this question: pharmacists. I find they often suggest alternatives.

If the CMS could negotiate prescription drug prices, goverment expenditures could be reduced and this would help our deficits. It would reduce budgetary constraints for other pro-business agencies like the Export-Import Bank and the Small Business Administration.

So why is the Chamber opposed to this particular act? They posit that if the government pressures pharmaceutical companies and distributors to reduce prices for it, that will inflate prices for businesses who provide health coverage for their employees. This is the balloon paradigm, that pressure in one area causes expansion in another. Maybe pricing doesn’t work that way. Does it in your business? Or do you scramble to find efficiencies? I suppose one could argue that since the rest of the industrialized world has negotiated prescription drug prices (through their—socialistic!?—national health services), this international pressure has inflated US prices to the point that people flock across the Canadian and Mexican border to buy lower-priced drugs. Minnesota once considered a bill to allow import of Canadian drugs. So if a legislator is in favor of the Medicare..Price Negotiation Act, are they really anti-business and therefore not worthy of a Chamber endorsement?

The US Chamber is measuring the wrong things on their legislative scorecard because they are measuring the wrong things on their legislative positions.

Note: this Act has been proposed in Congress for a long time, maybe first introduced in 2007, long before the Affordable Care Act. It just keeps getting re-introduced.