Repricing in America

I’ve been bothered in the best possible way by a comment made by Richard Davis, President and Chief Executive Officer of U.S. Bancorp. In almost a throw away fashion Richard told an audience of business executives in Orange County California, that the economy is going through a process of “repricing ” downward.

Clearly we know this to be the case in the housing industry, as those of us with houses have seen about 25% or more of the assessed value of the house disappear.  As troublesome as this has been for many people, it has not stopped there.  Just look around and you’re seeing it in the automotive business, grocery stores, and restaurants offering significant discounts. In the labor market, those getting new jobs are doing so at often dramatically lower salaries.  Everything it seems is ratcheting down, finding a new market clearing level.

This deflation, or to be more positive, repricing, has consequences which favor highly efficient, low fixed overhead companies over those with large superstructures of bureaucracies.  As we’ve seen, some companies can relieve some pressure by laying off labor, but those companies (I’m thinking GM) with lots of large buildings and large fixed expenses, can’t adjust sufficiently and quickly enough.  For these large companies, it is exceptionally difficult to accommodate to downward price adjustments, hence they fail.

Companies which do succeed in these environments are new ones.  These companies benefit by being new and not around so long as to have large fixed expenses, these are the entrepreneurs.  The best way to grow our economy is for the US to have a brisk entrepreneurial bias in its policy decisions.   In this Economy, as serial entrepreneur Ken Forbes, CEO of AppointYou in Aliso Viejo, California told me, it is easier to create a job than get one.  This is the best time for the creative among us to leverage their comparative advantage of being lean, to get their products and services into the economy and make wonderful things happen for us all.

Thomas A. Coss

  • Share/Bookmark
October 3, 2009 | Tom | No Comments »

Improving Labor Efficiency in Healthcare

This site is focused upon efficiency as a contributing solution to the cost of providing healthcare services. Efficiency alone won’t carry all the water needed to address the cost of healthcare, but it will make a profound difference in the scope and amount of services provided per dollar spent.  Last year I began a study based up some data going back over two centuries.  In the early 19th century, over 80% of the US population was involved in agriculture…. they were farmers.  By the beginning of the 20th century, that percent fell to 40%, and by the beginning of this century it fell to below 2%.  This astounding increase in per worker productivity freed people to go into manufacturing at the beginning of the 20th century, leading to an amazingly robust century of innovation and improvements in the quality of life.

In 2008 I began looking into capital investment in heatlhcare as compared to other industries and found some interesting results.  As expensive as healthcare has become, investments into improving the efficiency of the labor that provides those services has been poor.  Per worker capital investment in healthcare is about 35% lower than it is in general manufacturing.  How can we hope to lower the cost and expand the availability of healthcare if we insist on providing those services the same way they’ve always been done? 

A more detailed explanation is available here until I hear: Improving Labor Efficiency in Healthcare.

  • Share/Bookmark
September 5, 2009 | Tom | No Comments »

Texting and Everything Else You Do In Life

Last June, the Senate Judiciary Committee began hearings on texting. Included in the discussion were executives from AT&T, Verizon along with othere the focus of which was the nature of charging for text messages. Though the hearings were interesting, the real headline is in the data surrounding texting itself

In 2008 over one trillion text messages were sent in the US.  According to AT&T, texting grew from 2.4 billion in January of 2007 to over 31.1 billion in January of this year.  The direct costs per text were estimated at approximately three tenths of one cent each, with an average charge to the telephone subscriber of 1 cent per text message.  Approximately 420 text messages can fit the bandwith it takes to have a one  minute conversation.

Why is text messaging growing so much?  Well simply because it is efficient.  The text message forces the sendor to be succinct (you have only 160 characters in which to get your point across) and it can be very quickly consumed.  Over the weekend, by oldest daughter told me that she just heard a voice mail left by her sister 4 days ago.  This isn’t to say that she’s disengaged, just that voice mail is not the preferred mean of communication.  She went on to say that occassionally she’ll get text messages from her friends telling her to check her voice mail.  Texting is simple, succinct, fast, and it’s semi-perminant.  You can save a text message to refer to later on, not as easy in voicemail.

In a world in which information flows so effortlessly and at near zero cost, texting speaks more of the future than the past.  Who know that email would become “so yesterday” so soon.

Tom

  • Share/Bookmark
August 17, 2009 | Tom | No Comments »

Jared Bernstein, Chief Social Worker to V.P. Byden

Earlier this week I was listening to an interview with Jared Bernstein, Chief Economist to Vice President Biden.  The interview with Neil Cavuto of Fox News, was noteworthy by virtue the answers Jared was providing to some fairly straight forward financial questions.  This provoked me to go to Wikipedia to look into his credentials and there I found my answer.  Jared Bernstein is a handsome and articulate gentlemen, but he is in the end a social worker.  Undergraduate in music (Base), Masters in Social work and Ph.D. in Social Welfare.  The Wikipedia entry ends with : ”he has no degree in Economics”,  yet he is presented as an Economist. 

I mention this with no disrespect to Dr. Bernstein, but that words have meaning, and a Ph. D. in Social Welfare doesn’t mean a Ph.D. in Economics or that Jared knows the difference between an income statement and a balance sheet, or the cost consiquences of the policy decissions he and his boss may be suggesting.  This is deceteful and misleading.

  • Share/Bookmark
June 12, 2009 | Tom | No Comments »

Risky Thinking Surrounded by Hubris

The banking and finance industries were among the first to make extensive investments in information technology.  Perhaps no other industry has done more with detailed information technology. You can see that in your own experience of ATM’s and now web access to your accounts.  Checks clear in a matter of hours and personal credit cards are accepted virtually everywhere in the world.  If you were to think of industries in which there is an abundance of information from which sound decisions can be made, the finance industry would likely rank among the top, yet after all the detailed information across decades, the finance industry did not forsee the problems in which we now find ourself.

In the book the Black Swan, Nassim Taleb points to many failures of financial decisionmakers in their paying attention to details, in particular their propensity to depend upon exotic financial equations in providing them guidance in their decissions.  The challenge we have in Dr. Taleb’s book, is that it was first published 2 years ago and described with great clarity what we are experiencing today.  So what are we to make of this?  What does the lessons of the current financial crisis have for those seeking similar metrics for the future of healthcare, namely Comparative Effectiveness measurements.

First, this is not to suggest that we shouldn’t look into the effectiveness of new products and procedures, but it is a warning to those that place such great hope that such analysis will save money.  It may, but it very well may not.  Truth be known, medicine isn’t much better than the financial industry at predicting the future, and we don’t have nearly the data that the financial industry has.  Healthcare is arguably 20 to 30 years behind the banking and finance industry in regard to their information systems and the information they produce.  Imagine the leap of faith required to think that medicine can do better than the financial industry with less experience, less information and an eminently more complex biologic processes.  Just how are we to believe that?

Medicine profits heavily from surprise and we benefit by capitalizing on the unexpected.  I think of small and powerful things like Folic Acid during pregnancy that lowers the incidents of neuro tube defects.  Or a failed antihypertensive drug that later became Viagra and is now used with great success in the treatment of patients with pulmonary hypertension.  In what possible way could these beneifits be discovered ex ante?  In the end, it is the hight of hubrice to begin to think that we have all the data we require along with the ability to analize it, and in so doing apply Comparative Effectiveness metrics to lower costs while improving outcomes.  This, ladys and gentlemen, is what they call in Basketball a “head fake”.

  • Share/Bookmark
May 8, 2009 | Tom | No Comments »
« Older Entries