Bubbles: Are They Back?

First, an economy-threatening bubble does not just sneak up on us. Often the discussion of bubbles implies that we need some complex measuring tools to uncover an economy-threatening bubble that’s lurking in some far corner of the data.

This is absurd on its face. If a bubble is large enough to threaten the economy, it is hard to miss. This was true of both the stock bubble in the 1990s and the housing bubble in the last decade.


In the case of the housing bubble, inflation-adjusted house prices had risen by more than 70 percent above their long-term trend. This unprecedented run-up in house prices occurred at a time when rents were essentially moving in step with the overall rate of inflation, suggesting that there was no major shift in the fundamentals of the housing market. Furthermore, vacancy rates were already at record highs even before the bubble burst, providing clear evidence that house prices were not being driven by a shortage of housing.


Should we be concerned about a bubble now? Stock prices and housing prices are both high by historical standards. The ratio of stock prices-to-trend corporate earnings is more than 27-to-1; this compares to a long-term average of 15-to-1.

House prices are also high by historic standards. Inflation-adjusted house prices are still well below their bubble peaks, but are about 40 percent above their long-term average.

In both cases, these markets are high, although in ways that are at least partly explained by the fundamentals of the market. In the case of stock prices, the profit share of GDP is almost 30 percent above its trend level. If this persists, then the ratio of prices-to-earnings is much closer to the long-term average. Of course, a big cut in the corporate tax rate increases the likelihood that a high-profit share in GDP will continue.


The run-up in house prices also seems less disconcerting when we consider there has been a parallel run up in rents. While rents have not increased as much as house prices, they have been substantially outpacing the overall rate of inflation for the last five years. Low-interest rates would also help to explain house prices being above long-term trends, as they justify a higher ratio of sales prices-to-rents.

Here also, there is a risk that higher rates could send prices tumbling. This could be an especially bad story for moderate-income homeowners, since the bottom tier of the housing market has seen the largest price increases over the last five years.

But even in a bad story, where for example higher interest rates send both stock and house prices back towards their trend levels, we don’t have to fear an economic collapse and probably not even a recession. The high stock market is not driving investment, which remains very modest despite near record-high after-tax profits. Housing construction has come back from its post-crash lows, but is roughly in line with its long-term average share of GDP.

Why American doctors keep doing expensive procedures that don’t work

Some reasons we have one of the least efficient healthcare systems among the richest countries:

The stent controversy serves as a reminder that the United States struggles when it comes to winnowing evidence-based treatments from the ineffective chaff. As surgeon and health care researcher Atul Gawande observes, “Millions of people are receiving drugs that aren’t helping them, operations that aren’t going to make them better, and scans and tests that do nothing beneficial for them, and often cause harm.”
Of course, many Americans receive too little medicine, not too much. But the delivery of useless or low-value services should concern anyone who cares about improving the quality, safety and cost-effectiveness of medical care. Estimates vary about what fraction of the treatments provided to patients is supported by adequate evidence, but some reviews place the figure at under half.
Naturally that carries a heavy cost: One study found that overtreatment — one type of wasteful spending — added between $158 billion and $226 billion to US health care spending in 2011.
While virtually all doctors support evidence-based medicine in the abstract, clinicians and medical societies seek to maintain their professional and clinical autonomy. Physicians are sensitive to being second-guessed, even when their beliefs about how well treatments work are based on their own experiences and intuitions, not rigorous studies.
Politicians, who recognize that the public holds them in much lower regard than physicians, are hesitant to challenge the belief of many Americans that “doctor always knows best.” The American faith in markets leads to a cultural discomfort with government-imposed limits on the supply or consumption of medical technology...
Every health care system has to wrestle with tradeoffs among access, innovation, cost control, quality and the efficiency of resource allocation. Other countries, including the UK, may require a favorable cost effectiveness ratio before a treatment is placed on the national formulary — meaning that some treatments, such as some cancer drugs, won’t be recommended for routine funding if they are too expensive relative to their clinical benefits.
Many Americans would bridle at that kind of explicit rationing. Despite concerns about the rising cost of health care, for instance, Medicare routinely covers treatments that produce small benefits at significant social cost. In contrast to the British approach, Medicare generally covers treatments deemed “reasonable and necessary” — a definition that doesn’t include analysis of comparative effectiveness or cost in relation to other treatments...

Damage Bigly

... The sweeping tax bill gives a huge tax cut to corporations and to wealthy individuals, and will add roughly $1 trillion over the next ten years to the federal deficit. It will widen further the already enormous gulf between the very wealthy and the rest of America. And it sets the stage for an attempt by Republicans in Congress in 2018 to shrink the federal deficit by cutting benefits to a large number of Americans through reductions in Social Security, Medicare, and other social programs.
However, the harm to the judicial branch and Trump’s personal imprint on it are considerably greater when one considers the lower courts. By mid- December, Trump had appointed twelve judges to the US Court of Appeals, one level down from the Supreme Court, the most this early in any presidency since Richard Nixon’s. Virtually all of them are from the right. At the level of district or trial courts, Trump’s nominations have included figures like thirty-six-year-old Brett J. Talley, who has never tried a case and was unanimously rated “not qualified” by the American Bar Association. This proved too much even for Chuck Grassley, the Republican chairman of the Senate Judiciary Committee, who refused to confirm him.
Meanwhile, a new proposal is being circulated by a right-wing legal scholar to expand the number of appellate judgeships (now 179) by two- or threefold, and to increase the number of district judges as well, with the avowed purpose of “undoing the judicial legacy of President Barack Obama.”2 In short, while the courts have served as an occasional constraint upon Trump during his first year in office, he is moving quickly to reshape the judiciary so that, in the long run, it may prove to be less independent and less constraining than it has been.

Conflict in the Dem. Rep. of Congo Leads to World's Worst Refugee Crisis

... Last week a joint Ugandan and Congolese military operation killed more than 100 militants of a supposedly Islamic group. It is said that the group was responsible for killing 14 UN Peacekeepers in early December. The attack on the UN Peacekeepers was one of the worst such ever attacks in the history of the UN and it briefly called attention to this part of Central Africa.
Unknown to most, the Democratic Republic of Congo is currently also experiencing one of the world's worst refugee crisis. According to Internal Displacement Monitoring organization 1.7 million people have been forced to flee their homes in 2017 because of the conflict in the Congo. This makes the Congo's internal displacement greater than those in Yemen, Syria or Iraq.

You shouldn't have to give up your right to sue to get a job

Arbitration can be an effective tool to resolve contract disputes without going to court. But employers shouldn’t be able to force workers into arbitration in contravention of worker protections established in federal laws and regulations, and they certainly shouldn’t make getting a job contingent on giving up the right to seek redress in the courts. Unfortunately, both have become regular occurrences, but a case now being briefed before the Supreme Court can — and should — fix that.
People or companies entering into an agreement on equal footing, and in circumstances in which they have other options, have a perfect right to decide that they would rather settle potential disputes through arbitration instead of the courts. But people desperate for work, especially in an economy as weak as it was when Hobson was hired in 2008, are not on equal footing with the company offering jobs. And if employers routinely require applicants to sign away legal rights to be considered for a job, then the employees have no other real option even in a robust economy. That is an egregious practice. People should not have to forgo their fundamental right to seek redress through the courts in order to work for a living.

World Bank to cease financing upstream oil and gas after 2019

I have no idea how important the World Bank was for financing oil and gas projects, so this may be mostly symbolic. But I think it's likely that this is a sign of change.

The World Bank will no longer finance upstream oil and gas projects after 2019, apart from certain gas projects in the poorest countries in exceptional circumstances,...

The Police Murder of Daniel Shaver

David French, on the murder of Daniel Shaver, by a police officer who was then acquitted. Supposedly the police officer's bodycam video wasn't released until after the verdict (it's graphic, and infuriating), for what reason, I don't know. This is the kind of thing that decimates trust in police and the courts.

Essentially, what the police told an innocent, law-abiding, intoxicated American was this: Follow my highly-specific, very strange instructions or die. There was no need to make him crawl. The police were in command of the situation. At no point is there a visible weapon. I have seen soldiers deal with al Qaeda terrorists with more professionalism and poise. When a man is prone, his hands are visible, and your gun is trained upon him, he is in your power.


I’ve written about this before. Juries time and again acquit frightened cops, regardless of whether the cop botched the situation or whether his fear was objectively reasonable. I wrote this after the Philando Castile verdict:

'Legally, it’s not enough for an officer to show that he was actually afraid for his life. He has to show that “a reasonably prudent person” would also have the same fear. Clever defense lawyers twist this standard into a line of argument that goes something like this: The officer was afraid, and he can explain to you the reasons why he was afraid. Therefore, it was reasonable that he was afraid. But real fear isn’t always reasonable fear.'

That’s especially true when the police — through their own incompetence — create their own fear. Philando Castile was shot even as he followed his killer’s instructions. Shaver died trying his best to comply with a highly unusual, complicated set of commands while under extreme duress. Scared cops still need to be competent cops, and members of the public shouldn’t face death because a police officer can’t keep his emotions in check.

Finally, I know that police have a dangerous job, but they’re not at war. As I noted above, it’s infuriating to see civilian police exercise less discipline than I’ve seen from soldiers in infinitely more dangerous situations. Not one of the men I deployed with would have handled a terrorist detention the way these officers treated American citizens.

Only 60 Years of Farming Left If Soil Degradation Continues

Generating three centimeters of top soil takes 1,000 years, and if current rates of degradation continue all of the world's top soil could be gone within 60 years, a senior UN official said on Friday.
About a third of the world's soil has already been degraded, Maria-Helena Semedo of the Food and Agriculture Organization (FAO) told a forum marking World Soil Day.
The causes of soil destruction include chemical-heavy farming techniques, deforestation which increases erosion, and global warming.