Home Ownership Affordability At 40 Year Plus Record

For the first time in more than thirty years the median monthly rental payment is the same as the principal and interest part of the median monthly mortgage payment. This is because mortgage payments have fallen from a high bubble level to something close to the pre-bubble norm since 2005 due to falling home prices and lower interest rates, while median rents have steadily increased almost every year for the last thirty years.

The median mortgage payments excludes some costs of home ownership that are included in rent, like property taxes, homeowner's insurance allocable to the structure, major maintenance costs, and home buying up front costs like closing costs and down payments that are typically greater than the security deposit and rental application fees paid by renters. So, renting isn't really no less expensive than owning.

But, the relative price of owning relative to renting has fallen in half in just half a decade. The median mortgage payment to median rent ratio was 3:1 in 1981, 1.5:1 in the mid-1990s, 2:1 in 2005, and is 1:1 now.

This is even more remarkable when you consider that stricter credit requirements and falling homeownership rates (from a near peak in homeownership rates of around 70% around 2005 to something close to 65% now) have made the ranks of those who are paying mortgages more elite, something you would think would lead to higher, rather than lower median mortgage payments. Also, the drop in homeownership has come almost entirely from the two-thirds or so of homeowners who have mortgages, not the one-third or so who own their homes free and clear. So, the proportion of people who pay mortgages now is down more than 10%. This is quite a bit more elite.

The trend in rents is equally puzzling. It certainly isn't surprising that rents have gone up as the number of people who are renting relative to the number of people who own homes has risen (an increase of roughly 1/6th from 30% of the population to 35% of the population), as new construction has ground to a halt (although presumably, more single family homes and condominiums have gone from being owner occupied to rented, picking up some of the slack), and as more affluent people who in prior years would have been homeowners revert to being renters. The surprise in the median monthly rental payment trend is that it has been rising so relentlessly over the last thirty years without any regard to prevailing economic conditions.

While the trendline for owner occupied homes has jumped up and down like the stock market, rental price trends have not changed in the slightest, despite the fact that they involve an identical commodity (sometimes the very some residence). In the time period from 1981-2011, there have been wild shifts in homeownership rates (which impact median renter income), interest rates (which impact rental real estate costs), housing prices (which impact rental real estate costs), the inventory of rental real estate, and more. The numbers are nominal rather than inflation adjusted, and at a glance actually seem to show a more gradual trend than inflation which is known for its ups and downs with the business cycle, perhaps offering proof that prices (or at least residential rents) are sticky in the rental market despite the fact that rental properties turn over and are subject to market discipline much more often than owner occupied properties. Alternately, this regular market discipline may be what makes this market, that determines a market price for a much larger percentage of the total inventory each year than the owner occupied home market, less variable.

Nominal median rents have not quite tripled in the last thirty years, while the consumer price index has risen by a factor of 2.49 in that time period. So, real rents are actually up a little less than 20% over the last thirty years - an increase of about 0.6% per year (an increase of about $4 for next year's rent relative to this year's rent after inflation for a median renter paying the current median rental income in 2011) on an annualized basis, which is pretty close to the thirty year trendline for working class incomes.

My intuition is that median rents are roughly tracking 20th percentile incomes which have been quite stable over the last thirty years - barely keeping up with inflation, rather than the variety of supply based factors that have influenced mortgage pricing. In other words, it appears that median rents are largely demand driven (i.e. driven by the ability of prospective renters to pay), while median mortgage prices are largely supply driven (i.e. driven by housing costs and interest rates), and that demand side factors have been more stable than supply side factors over the last thirty year period.

Viewed this way, the real story that we are seeing now is not rising rents, which are actually remarkably stable after adjusting for inflation and long term trends in median renter income, but falling mortgage payments caused by the housing bubble collapse and falling interest rates. It hasn't been this cheap to buy a home in a very long time, and tougher underwriting standards have prevented people from taking advantage of the more affordable prices and driving them up again.

Indeed, given how high median mortgage payments were relative to median rental payments in 1981 (an admittedly somewhat odd year when stagflation ravaged the economy), housing affordability may be at quite a bit more than a thirty year record right now. A look at housing affordability data going back to 1970, makes clear that housing affordability is at a more than 40 year low right now, surpassing the record set in 1972. It certainly isn't unreasonable to guess, however, that we are at a 45-55 year record for housing affordability.

And, as I've remarked before, before post-WWII government interventions in the mortgage market through the GI Bill, Fannie Mae and Freddie Mac, and the mortgage interest deduction, it was much harder to obtain a residential mortgage than it is today.

It may very well be cheaper to buy a home, for those who have the down payment and credit rating and regular income and low debt ratio to do it, than it has ever been in the entire modern history of the United States, although I wouldn't rule out a more affordable moment for returning veterans buying small Levittown style houses in the 1950s suburbs (historical statistics have their limits because it is hard to know how to compare situations like do it yourself house raisings on homesteaded properties and pioneer do it yourself shacks).

Data Mining In Sweden

Almost no place in the world outside Scandinavian countries like Sweden, have such comprehensive and massively cross-indexed dossiers on their citizens. For a social science or public health researcher, this is heaven.

Neuroskeptic notes a recent example of a study demonstrating a link between both bipolar disorder and schizophrenia and creative occupations (visual artists (photographers, designers, etc.) non-visual artists (musicians, actors, authors) and academics (university teachers)) in both the individual with that condition and their relatives as distant as first cousins.

Bipolar people and their relatives are more likely to be in creative professions, confirming the stereotype.  Relatives of people treated on an inpatient basis for schizophrenia, but not the individuals themselves, were likewise more likely to be in creative professions.  The odds ratio for being in a creative profession due one of the conditions is about 1.5.  Creative occupations were slightly less common in people who experienced unipolar depression and their relatives.   Unipolar depression reduced one's odds of being in a creative profession by 5-10%.  IQ was a bit lower in inpatient mental health patients and a bit higher in creative professionals.  The mental health condition-creative occupation link was even stronger after adjusting for IQ.  

A comprehensive health records data base derived from the national health care system, census records showing occupation, age, and family relationships, and military IQ test records for men (who have mandatory military service), and the huge national database, gave the study a sample size of 200,000 people with unipolar depression alone, and 100,000 people treated for bipolar or schizophrenia over a 30 year period that includes every single person who ever received treatment for any of those conditions in the entire country for the entire study period. The control group was every single adult in Sweden in that time period.  It is the ultimate in comprehensive data sets that are very rich in information for every single data point. This study looks at heredity without genotyping, but there is also a considerable amount of genetype information in the health care database that I've seen used in other studies.

Of course, the downside is that the government knows a huge amount about you and has it in a form that is relatively amenable to being used in a coordinated fashion. If any government is to be trusted with that information, it is probably the Scandinavians, who have some of the least corrupt and most competent civil services in the world. A relatively homogeneous population compared to places like the U.S. or India, also helps build trust that allowing this information to be collectivized will produce data that is used for the good of everyone. But, it isn't hard to imagine how this information might be abused in a government that operated the way that American governmental bureaucracies do.

To the extent that Americans are like Scandinavians with respect to the matter studied, this is great. They get all the Big Brother privacy costs, and we still get the benefits of stunningly comprehensive public health and social science studies. To the extent that Americans aren't like Scandinavians with respect to the matters studies, this is less good. We avoid the Big Brother privacy costs, but in exchange, have lower quality data and have to rely on relationships established with data that may not hold true in our own populations, thus leading to lower quality decision making.

Ultimately, I think the technology is going to sooner or later drive us towards the Swedish model. We will ultimately give up privacy in exchange for the knowledge that comes from wider availability of the data that is collected for useful purposes. Privacy, like an oil based economy, seems likely to be a temporary luxury and historical outlier that is sandwiched between the vast stretch of history when neither internal combustion engines powered by oil nor privacy was available (because people lived in small communities where everyone knew everyone else's business), and the future where we will run out of oil and technology will triumph over efforts to maintain privacy.

Sooner or later, rather than hiding our personal shortcomings and flaws through privacy, we will have to learn to acknowledge them and tolerate them in ourselves and others more than we do today.

Yellowstone Won't Wipe Us Out In The Near Future

The geologists, at least, unlike the economists, have some good news for once. The Yellowstone Caldera, despite repeatedly exploding into a supervolcano more castastrophic than anything on earth short of a comet, is not poised to destroy life as we know it in the Rocky Mountain West, something my son was recently curious about and we discussed.

[T]he Huckleberry Ridge eruption of present-day Yellowstone Park about two million years ago. . . was more than 2,000 times larger than the 1980 eruption of Mount St. Helens in Washington. . . . The Yellowstone eruption is one of the largest super-volcano events in history and it has happened several times. Other super-volcano sites include Lake Toba in Sumatra, the central Andes Mountains, New Zealand and Japan.

[D]espite its explosive history, it doesn't appear that Yellowstone is primed for another super-eruption anytime soon, though the slow process of volcanic uplift is taking place every day.

"The uplift of the surface at Yellowstone right now is on the order of millimeters. . . When the Huckleberry Ridge eruption took place, the uplift of the whole Yellowstone region would have been hundreds of meters high, and perhaps as much as a kilometer."

From here.

Indeed, the timing is right for climate impacts of the Huckleberry Ridge eruption to have triggered the first Out of Africa migration by hominins, specifically, Homo Erectus.

Sports Riches Don't Last

[A]pproximately 60 percent of NBA players enter bankruptcy within five years of exiting the league. For NFL players, that level stands at 80 percent.

From here.

Of course, it goes without saying that NBA and NFL players do not retire when they are old men, and that almost all have at least some college education.

Cain's 9-9-9 Plan Is A Middle Class Tax Increase

GOP Presidential candidate Herman Cain's 9-9-9 tax plan is pretty simple. It increases the tax burden of families making $50,000 a year dramatically, while greatly reducing the tax burden on people making $1,000,000 a year.

What part of this is a good idea and why is it popular with Republicans?

Perhaps he took his 6-6-6 cue card and accidentally held it upside down.

Serotonin Gene Impacts Response To Moral Dilemas

A new study, described here, shows that people with different versions of a gene related to the way the brain handles the neurochemical serotonin (5-HTTLPR) evaluate moral dilemas differently, even though the gene didn't have an impact on moral evaluations of unambiguous situations. People with two short versions of the gene tended to respond to situations emotionally, those with two long versions of the gene tended to favor utilitarian greatest good for the greatest number resolutions, and those with one of each tended to come out in between the other genotypes. People on SSRI (selective seretonin reuptake inhabitors) drugs exhibit changes in their moral judgments (also here) similar to those caused by a difference in this genotype. Other genes that influence serotonin, such as the MAOA gene also appear to influence behavior on a similar dimension.

Note that it isn't clear that one or the other version is "better" overall. Consider the following abstract:

Converging evidence suggests that the short allele of the serotonin transporter gene polymorphism increases risk for a variety of psychological disorders, including depression, anxiety, and alcoholism. Thus, the short allele is typically considered the “risk” allele, and findings related to the long allele are rarely discussed.

However, upon closer examination, findings associated with the long allele of the serotonin transporter gene share striking similarities with findings from studies of psychopathy. Here, the parallels between findings associated with the long/long genotype and findings associated with psychopathic traits in the areas of neuropsychology, psychophysiology, hormones, and brain imaging are reviewed. It is suggested that the long/long genotype may be a potential risk factor for the development of psychopathic traits.

Andrea L. Glenn , "The other allele: Exploring the long allele of the serotonin transporter gene as a potential risk factor for psychopathy: A review of the parallels in findings," Neuroscience & Biobehavioral Reviews Volume 35, Issue 3, January 2011, Pages 612-620 doi:10.1016/j.neubiorev.2010.07.005

Marshmallow Test At Age 4 Predicts Behavior In 40s

A person's ability to resist temptation, tested at age 4 when five hundred children were told they could get two marshmallows if they could wait fifteen minutes before getting the second one, has once again proven to have lifelong predictive power, this time forty years later with 59 of the original subjects, now in their mid-40s.

The middle aged adults were given a new, age appropriate test of impulse control involving refraining from pushing a button in a laboratory test in response to images displayed on a computer screen, and those who had willpower at age 4 also had it in their 40s, while those who did not have it then didn't have it later. Functional MRI scans of half of the subjects showed that resistance to temptation was related to activity in the brain's frontal lobe.

The study is one of the most notable elements of a larger effort to identify stable cognitive traits that are largely independent of IQ that impact a person's life chances in the modern world.

A cluster of traits, with one end of the scale associated with the Big Five personality trait of conscientiousness, and traits such as willpower, self-discipline, grit, initiative, personal organization, and what Steven Hsu has called the "W" factor for work ethic, have found themselves juxtaposed against the mental health condition ADHD, and traits like novelty seeking, impulsivity, and tendency to procrastinate. The way that psychologists define these traits isn't identical, but there seems to be heavy overlap between them. See, for example, prior posts here and here, here, here, here, and here.

The dopamine systems and components of the brain involved in one seem to overlap heavily with those involved in another.

Increasingly, it is becoming clear that these traits are congential or fixed in early childhood, possibly with a strong hereditary component, and are stable throughout life, although the way that they manifest at different points in a person's life varies. Whatever its etiology, the trait seems to be fixed, at least absent concerted and highly exceptional intervention, before kids even start first grade. Early childhood and elementary educators may hope to intervene and change this, but certainly for high school teachers and adults, people pretty much are what they are going to be and it seems likely that it isn't much more possible to change this trait appreciably at that point than it is to change someone's IQ at a comparable age. Indeed, impulsivity seems to be pretty stable at ages 3-4, while children may be twice as old before their tested IQs are really stable.

What Magical Powers Do These People Possess Over The PTO?

Whenever I file a trademark application with the United States Patent and Trademark Office that is marginal in its eligibility because it is generic, the USPTO always gives me a resolute "no."

But, some people apparently have better luck, such as the IT company that managed to get a trademark on the terms "gadget" and "website gadget" which were recently invalidated in a suit against Google.

Cases like these cast real doubt on the prudence of giving trademarks presumptive validity, supposedly justified because of advanced USPTO review of the marks.

Wall Street Pay Has Surged Over Last Thirty Years

Wall Street professionals have been rapidly increasing their incomes relative to everyone else. In New York City:

It shows that the average salary in the industry in 2010 was $361,330 — five and a half times the average salary in the rest of the private sector in the city ($66,120). By contrast, 30 years ago such salaries were only twice as high as in the rest of the private sector.

Financial professional income fell from the previous year, as a result of the financial crisis, in 2008 and 2009, but never below 2005 levels. There is a big increase in financial professional income from 2009 to 2010, bringing their compensation to above 2006 levels. The peak was in 2007.

The financial sector in New York City took more of a hit in employment than in pay:

The overall financial services sector was disproportionately hit by the financial crisis. The sector employs just 12 percent of the city’s work force, but accounted for one out of every three jobs lost in the recession. Some (not all) of those jobs were regained, but the comptroller’s office says the industry “is likely to experience significant job losses over the course of the next year.” In particular, the securities sub-sector of financial services “could lose an additional 10,000 jobs by the end of 2012, which would bring total job losses in the industry to 32,000 since January 2008,” the report said.

The bottom line question is what economic fundamentals, if any, justify this surge in banker pay? Or, is the surge a product of market failure?

Keynesian Economics Works

Krugman has a nice, short summary of the empirical evidence supporting Keynesian economic models. His core points, which are supported by Keynesian economic models but not leading alternative macroeconomic theories:

1. Budget deficits don't send interest rates soaring when unemployment is high.
2. Prices are sticky.
3. Monetary policy can move output and employment.
4. Austerity plans cause economic contractions.
5. Fiscal expansions (i.e. stimulus spending) in the 1930s lead to economic expansion.

Naturally, his Keynesian recommendations are basically that the Federal Reserve have an expansionary monetary policy without worrying unduly about inflation, and that Congress and the President devote more money to stimulus spending and stop worrying about the budget deficit.

Notably, cuts in civilian government employment, especially school teachers, have been a major drag on overall employment in the last two years. Government austerity plans in the United States, what Krugman calls "Hoover" style policies, are having a material negative effect on the health of the American economy.

Commercial Real Estate Loans Driving Bank Failures

CRE loans accounted for $365 million, or 82%, of the total nonperforming loans at failed banks in September. Within that group, commercial mortgages fared the worst making up $199 million, or 45%, of the total nonperforming loan pool, while construction and land loans made up $166 million, or 37% of the pool.

The residential real estate loan category had $61 million in nonperforming loans, representing 14% of the total nonperforming loan balance at the failed banks[.]

Only 4% of nonperforming loans were not real estate loans of some kind.

From here.

Colorado Congressional Districts Coming Soon

A two week trial to set Colorado's Congressional Districts for the next decade begins today in Denver District Court (the state trial court of general jurisdiction in the City and County of Denver). Colorado's General Assembly, which has a Republican controlled state house and a Democratic party controlled state senate, failed to to produce a map for the seven Congressional disticts allocated to the state that reflects the population shifts of the 2010 census, so the judge starts with a clean slate. The state school board and CU Regents are also elected from districts identical to the state's Congressional Districts. A ruling is expected about a year before next year's 2012 federal election.

Realistically, absent a really aggressive map drawing by the judge, this is very likely to be the final word and to be upheld on appeal. A bipartisan commission draws state legislative districts, but the Constitution allocates the duty to draw Congressional districts to state legislatures.

Pinker On Violence

Steven Pinker's big insight is that he see a long term decline in the amount of violence, of all kinds, that humanity experiences. His latest book is "The Better Angels of Our Nature." He is one of the foremost authorities making an empirical case that the progress of civilization is a meaningful concept. But, it is also possible that some of what he is seeing is selective marshalling of evidence. Gene Expression has devoted a couple of posts in the last few days to his thesis.

Capitalism Is Still Broken Until We Punish Downside Losses

The CEO of Gannett, Craig Dubow, is quitting for health reasons, but his golden years will be very comfortable: He stands to collect as much as $37 million in retirement and disability benefits. During his five years as CEO, Gannett’s stock price dropped from $72 to $10, and the company laid off hundreds of journalists, including people I know to have been very good journalists. I’m pretty sure that none of the fired journalists received a $37 million retirement package. I’m not even sure if collectively, all the journalists fired by Dubow’s company received $37 million.

Via The American Conservative, ultimate factual source here.

The economists are right. Incentives matter. But, in our current self-dealing big business culture, executives have reasonably great incentives from stock options to foster upside gains, but don't significantly bear downside losses so they are prone to taking the kind of risks that sooner or later destroy a company.

Some of the solution could be pretty straightforward. Pay executives the bulk of their compensation not in stock options, but in stock that they cannot dispose of until their tenure is over.

Foster Kids Frequent Identity Theft Victims

About 10%-30% of foster kids are victims of identity theft, compared to 4% of the general adult population. Often, they discover this only when they become adults and have no family resources to assist them in dealing with the issue. Colorado is among the states that has been a leader in addressing the problem, with mandatory credit checks for foster kids before their are emancipated, and on September 30, President Obama signed a law that will help the rest of the nation catch up. But, this is just one more in a litany of episode that seem to indicate that the entire foster care system is deeply flawed.

Abuse, including sexual abuse, of foster children is widespread. Many foster kids crash and burn upon reaching adulthood, since as the recent case of a teenage Denver girl who spiraled downhill and ended up homeless and dead in a park not long after leaving the system. These kids aren't being given a decent change at the financial support that they need to pursue further education.

Of course, the failures of the foster care system are not necessarily an endorsement of the orphanage system that it replaced. Foster kids who commit juvenile crime also seem to do better with trained foster parents than in juvenile lockups. One possibility might be to reduce the need for foster care by giving families more economic resources before they fall apart, since child neglect is also the handmaiden of poverty in the United States.

Almost by definition, foster children have, on average, had parents who weren't able to function and early childhoods that featured abuse or neglect. So, this is not a group of children who had great life prospects in the best of times. But, we could hope for a system that does not harm and provides more support to a group of highly at risk children than we would to children who have had upbringings unlikely to include neglect or abuse, unlikely to include totally dysfunctional parents, and likely to involve a continuing source of parental support in an era when most young adults don't leave the family home or cease to receive economic support from family for years after turning eighteen.

Shouldn't kids who were screwed over badly at least once, and deprived of their parents by state action in most cases, be entitled to an extra break, rather than held to strict libertarian standards of total self-sufficiency from the moment that they become adults?

Care for foster children makes up a trivial share of the total welfare system cost, yet they are among the most blameless for their own plights, so a more generous approach might be appropriate.

Household Income and GDP Diverge

Chart via the Calculated Risk story linked below

In Colorado, and nationally, the recession, measured as the period during which GDP declines, ended in 2009, but household income continued to fall during the so called recovery and the growth in employment from its low point has been slight.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau​ officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

The combined drop in household income, nationally, has been 9.8% for the recession and "recovery" combined. Unemployment fell from 9.5% to 9.2% in the recovery period.

It isn't entirely clear where the GDP growth is going. But, it isn't trickling down to households, so perhaps corporations are making gains instead.

The linked story doesn't make it clear, but the study referenced is actually about median household income, which makes its causes a bit more clear. The middle has been continuing to suffer during the "recovery" at the expense of those who are better off.

Jefferson and Taft Unorthodox

Neither Presidents Jefferson nor Taft adhered to common Christian orthodoxies.

Denver and Pueblo To Mail Ballots To Inactive Voters

Colorado Secretary of State Scott Gessler's request for a preliminary injunction preventing county clerks from sending ballots to validly registered voters who haven't cast a ballot in the last two years, despite the fact that state law does not require them to do so, has been denied by a Denver judge. The decision is merely preliminary, but like many preliminary rulings is probably more important than a ruling on the merits.

For most purposes, the 2011 election is one particular to each locality, particularly in Denver. School board elections and a Denver voter initiative related to paid sick leave requirements don't impact the rest of the state. But, the ruling makes it likely that something on the order of six thousand more voters in heavily Democratic Denver, and additional voters in Pueblo, will vote on Proposition 103, which increases the state income tax from 4.63% to 5.0%, and also rounds up the state sales tax, and earmarks the money for public education (K-12 or higher ed), an increase of about 15% over current spending. In a close election, this could easily make the difference between the defeat and passage of Proposition 103.

Gessler has been roundly criticized in Colorado and nationally for his efforts to prevent validly registered voters in Colorado from gaining easier access to ballots they have a right to cast anyway in the absence of clear statutory support for his stance in Colorado's election laws.

The ruling is another win for what academics call the Democracy Canon, which is the idea that laws should be interpreted to broaden rather than narrow the sufferage.

Unemployment Still Bad

Via Calculated Risk.

A third of the 4.5 million unemployed workers in the United States have been unemployed for a year or more; 45% of the 9.1% of the work force that is unemployed have been unemployed for at least six months and are no longer eligible for unemployment benefits (if they ever were eligible). Percentages of the population that are part-time for economic reasons (i.e. partially unemployed) remain near record highs as well. And, neither of those factors include people who are not in the workforce because they have given up trying to find a job. The less educated, as usual, are harder hit.

About 103,000 jobs were added to the economy in September, but that is just half the number needed to provide jobs to new entrants to the workforce as the nation's population gradually grows.

More generally, while some jobs are being created, we are nowhere near digging out of the hole created by the financial crisis. At year end, this will be the longest sustained period of net employment loss of any post-World War II recession.

Thirty four months after the employment recession started and 19 months after employment hit bottom, we still have 4.8% fewer jobs in the United States than we did when the employment recession started. Employment has been this far below pre-recession levels for 31 straight months. The only other post-war recession that every had that much of a jobs loss was in 1948 and it was at that low point for only a single month.

No other recession in post-WWII history has ever added jobs so much more slowly than it lost them in the way that we have seen in the recession from which we are trying to recover. Since it took fifteen months for the U.S. to lose jobs to reach the employment levels we are at right now, it will surely take longer than that, given current trends, to recover those jobs. This means that we will still have net job loss until sometime in 2013 at the earliest, and if we wiped out the net job losses from this recession by the end of 2014, we would still be beating the current employment recovery trend.

This is definitely bad new for President Obama's re-election campaign, which hinges on voter attitudes in November 2012 and the economy even four months from now is a fairly strong predictor of election outcomes.

Personal bankrupcies are down somewhat from last quarter but still at the levels seen prior to the Bankruptcy Reform Act of 2005.

Afghan War Ten Years Old

Ten years ago today, the U.S. started its war in Afghanistan, the longest in U.S. history, although it has not been a high intensity war compared to most that the U.S. has fought. There are currently 98,000 U.S. troops as part of an international coalition in Afghanistan, although the administration plans to reduce the count to 65,000 by the end of 2012. The administration currently plans to stay there at least another three years in a lead role and longer in a supporting role, however, and that war in Afghanistan has cost the U.S. government something on the order of $550 billion.

Deaths for U.S. troops and Afghan civilians have surged since 2009, with two-thirds of the 1,700 or so deaths in Afganistan taking place since then, a time period in which U.S. troop levels have also surged. Still, combined allied and civilian casualties from the war in 2010 (the most so far) were still no greater than, for example, those of the current Mexican drug war, and neither the number of troops deployed nor the number of casualties is anywhere close to those of our second longest war, in Vietnam. The U.S. has not instituted a draft during any part of the war, although it has called upon reserve and national guard forces to serve there.

The standard of well being for Afghan citizens by measures from infant morality, to life expectency, to literacy, to per capita income in Afghanistan are worse than any other country in the world outside of sub-Saharan Africa. Decades of war interrupted by only brief periods of relative peace under often authoritarian regimes have taken their toll, and the only viable export industry in the nation, which accounts for much of the nations total GDP is illegal opium production - Afghanistan accounts for a large share of the total world opium supply.

Feds Crack Down On MMJ

Earlier this year, Colorado banks were warned by federal prosecutors not to operate bank accounts for medical marijuana dispensaries and a few days ago, the last bank that had medical marijuana dispensary bank accounts closed the last several hundred those accounts.

Federal prosecutors in California have given notice to that state's medical marijuana dispensaries that it wants to shut them down in 45 days, even if they are fully in compliance with state law.  They've threatened criminal prosecutions for operators and forfeitures for landlords. Earlier this week, the IRS presssed the position that no legitimate business expenses of a medical marijuana dispensary are deductible.

The Department of Justice issued a policy memo to federal prosecutors in late June stating that marijuana dispensaries and licensed growers in states with medical-marijuana laws could face prosecution for violating federal drug and money-laundering laws. The Internal Revenue Service has also been scrutinizing dispensaries.

The effort to shutter California dispensaries appears to be the most far-reaching effort so far to put that guidance into action.

"This really shouldn't come as a surprise to anyone. The administration is simply making good on multiple threats issued since President Obama took office," Kevin Sabet​, a former adviser to the president's drug czar who is a fellow at the University of Pennsylvania's Center for Substance Abuse Solutions. "The challenge is to balance the scarcity of law enforcement resources and the sanctity of this country's medication approval process. It seems like the administration is simply making good on multiple statements made previously to appropriately strike that balance."

The law is reasonable clear. The federal government is within its rights (see, e.g., here). The tax deductability law, the federalism issue involved with prosecuting drug crimes when state law provides otherwise, and the propriety of the Controlled Substances Act determination that there is no medical use for marijuana, despite a wealth of evidence to the contrary, has been upheld by the courts in reported and binding precedents. But, the Obama administration made a policy decision early on to refrain from prosecuting dispensaries that were legal under state law, as they are in sixteen states, with Colorado having more dispensaries per capita than any other state.

What was President Obama thinking?

It isn't at all obvious what cause the Obama administration to change its tune. Crime overall is down overall, and there has not been any bump in crime attributable to medical marijuana operations. Destroying large numbers of jobs and small businesses in the medical marijuana industry won't help the economy. It will lower tax collections from the only industry in the nation that is begging for the right to be taxed. It will increase federal spending on law enforcement and prisons. The public is not clamboring for more strict marijuana enforcement; indeed, public opinion has never been more pro-legalization, or at least, pro-MMJ, than it is today. There have been not headline making tragedies connected to the industry.

This appears to be a move driven entirely by internal politics in the federal bureaucracy, in which drug war crusaders against the evils of the demon weed marijuana have finally managed to prevail, and is deeply disappointing.

Members of Colorado's congressional delegation have proposed a change in the law that would permit states to authorize the medical marijuana trade, but with a Republican controlled House of Representatives, the bill seems unlikely to be adopted.

Colorado Juvenile Incarcerations Down 32% In Five Years

A nationwide shift from reliance of incarceration to treatment in dealing with juvenile delinquents is paying off in Colorado.

More restrained use of incarceration for juvenile delinquents in Colorado has reduced the number of juveniles who are incarcerated in the state by 32% in five years from 1,480 in 2006 to about the 1,000 juveniles currently incarcerated. This has brought Colorado back to 1998 juvenile incarceration levels and allowed the state to close two small juvenile detention centers. Funds saved by reducing inmate counts are helping to increase funding for treatment programs rather than reducing total juvenile corrections spending.

John Gomez, state youth corrections director. . . . credited programs that identified substance abuse, delinquency and familial problems earlier with reducing the number of youths entering the juvenile justice system. . . . The decrease in the number of kids going to secure youth facilities also happened as the state moved more kids out of locked facilities and into private community-based residential programs. Youths who primarily have a substance- abuse issue are getting treatment at a community facility instead of going to detention. . . . Officials are weighing the risks that kids pose to the community and making decisions whether to send them to detention or treatment based on those assessments, Gomez said. "We don't want to over-incarcerate kids," he said.

Doug Wilson, Colorado public defender, attributed some of the reduction in detentions to a push to reduce the number of juvenile offenders with lesser offenses being sent to locked detention facilities. "Why would you put truants in there?" he said.

There has been an emphasis on identifying which kids need help when they are very young and addressing their needs before they get deeper into trouble. . . . Social workers are meeting with juvenile justice professionals to intervene with kids early[.]

In short, Colorado is doing everything that liberals have advocated for years in the juvenile justice area and it is working well.

The Waiting Place

Seuss fans will recognize the reference.

For lawyers, it happens sometimes. After several weeks of back to back hearings, and stay at the office (sometimes) until midnight motion practice, a little breather opens up where there are no drop dead deadlines in the next couple of days. I look backward and realize that there are a veritable mountain of fully briefed motions sitting on judges desks in my various cases waiting for resolution. In the complex civil litigations I find myself representing parties in when I am in court, a judge is almost never ready to rule from the bench when a hearing is completed and instead reserves a ruling for a later, sometimes lengthy and sometimes stunningly short, written opinion.

Those cases are now on hold until a judge does something and everyone involved waits around working on other cases until the judges rule. In the American court system, where there is about one judge per one hundred lawyers, each of whom manages hundreds, if not thousands, of cases per year, this can take time. In most countries the number of lawyers per judge is often an order of magnitude smaller. The briefing process is subject to strict deadlines, but the ruling on motions part of the process is not. Some cases have just recently become ready for judicial action, while others have been fully briefed since April. In still other cases, my side is finished with its part of the process, but the other side still has documents to submit.

There is still no shortage of work to do. But, the sense of dire urgency ebbs for a while. I will probably still go home after rush hour is over, but people will be awake when I get there. Yet, until there is a ruling on a pending motion in a case, it doesn't make much sense to devote a lot of effort to preparing for the next stage which may or may not happen depending upon how the judge rules. Judicial decision making at the trial court level is often much less predictable than it seems when you draft the perfectly logical and analytical briefs that you ask a judge to consider.

It also isn't necessarily the case that lawyers are chomping at the bit for faster rulings. A motion of any substance can take a month to fully brief, and run to scores of pages with exhibits in addition to the argument of the lawyers, and the arguments made can be subtle. A hearing or trial is sometimes the multiday culmination of years of preparation. We don't want judges to make rulings lightly. Lawyers with any amount of professional pride want their efforts to be taken seriously and evaluated on their merits.

But, unless your business regularly engages in litigation, or you are a lawyer who does litigation work, it is hard to appreciate the invisible costs that arise not from matters being resolved incorrectly in the end, but from a process that is long, involved, and like a murder mystery, resolves nothing until the very final page of the drama is played out. The legal theory literature on the impact of attorneys fees and litigation costs on outcomes in the court system is voluminous. But, these costs are really only the tip of the iceberg. In big ticket civil litigation, impact of prolonged uncertainty on the parties can be even greater. In "bet the company" class disputes, all other business decisions may be put on hold for both parties to the dispute.

I don't think that the solutions to address these issues, some of which are inevitable to some degree in any system, need to be radical ones. We need to invest more money in the judiciary so that its capacity to resolve matters on the merits promptly is increased. We need to back away from a one size fits all system of civil proceedure and replace it with a system that better tailors the rules to particular kinds of cases (something Colorado does better than most states).

In some kinds of cases, like personal injury cases, where a trial is usually unavoidable in some form or another, we need to shut down opportunities to short circuit the process before that trial with little substantive benefit to the parties. But, the need for preparation is especially important, because unlike a criminal lawyer who can deal with guilt or innocence first, and only put together a real sentencing presentation once the verdict on criminal liability is rendered, a personal injury lawyer need to have ever conceiveable damages scenario ready to present before it is even clear how the jury will rule on liability. Jury trials introduce an inreducible level of unpredictability into the process, so pretrial procedures to tame that risk, short of settlement, verge on futility.

In other kinds of cases, particularly commercial cases where the important decisions will be made by the judge rather than a jury at some point if the case is not settled, we need to put more of the decision making process at the front end so that the scope of the case does not balloon out of control. The procedural doctrines that defer the partial resolution of cases until trial absent extraordinary circumstances don't make sense when they pre-trial motions and the resolution of the case at trial on the merits will be handled by the same judge sooner or later. In commercial cases, the more uncertainty in a case can be contained early on, the less expensive discovery and pre-trial motion practice will be overall. The scope of discovery in a civil action is a function of the matters about which there are disputed issues of fact, so the more narrowly the issues in the case are established to be early on, the less expensive it is to litigate the case as a whole. Since civil verdicts on factual issues are extremely hard to overturn for any reason, the incentive to prepare for any and every possibility, without much regard to the cost or its likelihood of mattering at trial is immense.

Lawyers in commercial cases frequently have to engage in pretrial preparation in a Schrödinger's cat reality where different plausible interpretations of a contract or other document can make entirely different sets of facts important. Yet, in American commercial litigation practice, the judge will often make no intepretation of the key contract provisions until all of the evidence has been presented at trial, after months of discovery and motion practice. Of course, there are plenty of perfectly clear contracts out there, but those are rarely the cases that go to trial.

In family law cases, the uncertainty flows more from the substantive law than from the process. The relevant rules of law are such loose standards that the range of results that would be sufficient to be upheld on appeal is vast. One can't even hope for the averaging out of individual ideosyncracies in evaluating the facts that a panel of judges or jurors provide. A single judge hears the facts, is charged with doing the right thing at he or she sees it, and does his or her best under the circumstances to craft a workable resolution to a situation that the parties are in court to give up trying to make work. Any resolution in these circumstances leaves the judge looking like he or she was biased towards someone since there is no objective standard against which to measure a right resolution, so the parties will be unhappy unless the judge has the wisdom of Solomon.

The system isn't fundamentally flawed, but it does not a lot of thoughtful pruning and tweaking to really serve its function well.

NPR Funding As Rural Aid

Overall, Congress funds public radio to the tune of $100 million a year.

National Public Radio's central organization receives about 2% of its funds from Congress - it could survive a loss of funding as a modest bump in the road. Local public radio stations average a 10% subsidy, but this varies greatly. Urban stations, on average, receive less of a subsidy - a blow but probably survivable if push came to shove. Rural public radio stations, on average, receive more of a subsidy, and many of these stations would be at grave risk of going out of business if they lost the subsidy. Rural public radio stations are far more dependent upon Congressional support than the rest of the public radio system.

A one time endowment of $2 billion to $2.5 billion would be enough to keep public radio funded at current levels in perpetuity.

Alternately, perhaps public radio funding should be parsed into a national programming component, for which an endowment approach that insulates NPR from politics might be appropriate, an urban radio media support grant, and a rural media support grant. Parsed that way, Republicans, the party with stronger rural support, might be more inclined to back funding that is earmarked for their local rural radio stations.

Even if national programming support were lost, private contributions and a little belt tightening might take up that slack. State and local governments in urban areas, where political elites are reliable public radio listeners, might also pull together to save urban public radio stations. But, in rural areas, there is probably neither contributor nor political support sufficient to keep the network alive at current levels. Indeed, it is a fair guess that a decent share of rural listeners to NPR are driving through from one urban area to another and not locals.

IRS Declares War On Medical Marijuana

The federal tax code provides that none of the ordinary business expenses of operating a business that sells controlled substances are deductable, even though any reasonable definition of business profit (which is what the income tax imposes a tax upon) allows deductions for costs of goods sold, rent, wages and salaries, worker's compensation insurance, and so on.

The IRS ruled this week that it will apply this rule to medical marijuana dispensaries that are legal under state law, despite a policy of President Obama's Justice Department, from which it has backed away somewhat in recent months, that it will not prosecute such businesses criminally, even though the state law does not create an exception to federal law on this point.

Likewise, the administration has been slow to provide comfort to banks holding accounts for dispensaries, causing them to have to shift to a cash only business model.

All in all, this is one area where there does not seem to be enough of a coordinated policy at the top.

Delightful Foreign Words

Mental floss has twenty nine foreign words with no adequate equivalent in English in a single word.

I'll add some of my own with phonetic spellings:

* Sensei (Japanese) respected teacher; also refers to other professionals
* Senpai (先輩?) and kōhai (後輩?) (Japanese) respectively, a more senior person at a similar status level in an organization (Senpai) and more junior person (kōhai), such as upper classman and lower classman, or senior rank and file employee and new hire, who owe each other respective duties of mentorship by the senior person and support and humility from the junior person
* Otaku (Japanese) a person who is scary obsessed with a particular petty hobby (like comic books).
* Mangaka (Japanese) comic book writer
* Barista (Italian) (in the process of being adopted into English) coffee house employee (applied to workers of either gender)
* Chez (French); Casa (Spanish) the house of
* Rechtsstaat (German) a government where high level legal principles are effective in prohibiting governmental officials from abusing their authority
* Den (Swedish) he/she, i.e. a third person pronoun refering to a human being of indefinite gender
* Yemaleegin (Swedish) oh my, what a mess
* Voy yumin (Swedish) you've really made a mess of things now
* Upjidy (Korean) prematurely pushing forward to make decisions on something that haven't been sufficiently vetted or discussed or considered
* Emo-Boo (Korean) maternal aunt's husband; more generally, Korean relationship descriptors are more specific in identifying particular spots in a family tree than English language words for family relationships
* Bop/Sal (Korean) Bop is cooked rice (also more generally "food"); Sal is uncooked rice
* NEET (acronym, originally British English and adopted in many other countries, not widely adopted in American English) literally "not employed, in education, or in training", more broadly, young adults who have failed to launch and failed to land getting by living with family and working only irregularly and below their capabilities
* Szimpatikus (Hungarian) “the feeling you get when you meet a person for the first time and your intuition tells you he is a good person. You say this person’s “szimpatikus”. They seem like a decent, friendly human being. You get a ‘good vibe’ from them.”
* Whāngai (Maori) a non-blood relative child informally raised in one's household
* Giro (German sense of an Italian word from Greek) a transfer of funds in an account to another person's account initiated by the payor; a retail level version of a direct deposit or wire transfer used in lieu of a check to make a payment (historically through postal accounts)

Social Security Retirement Benefits Distributionally Close To Neutral

Via the Baseline Scenario blog.

Almost all of the progressive component of Social Security taxation and spending on a net basis comes from its diability benefits program. While the payroll tax is regressive, the benefits one receive closely align with the taxes paid in one's lifetime (they are ever so slightly progressive), so the retirement benefits from Social Security do very little to redistribute income one way or the other (and Social Security, unlike Medicare, is actually very fiscally sound on a long term basis and not contributing meaningfully to the deficit thank you very much). It is also almost surely the case that Social Security reduces government spending on a wide range of other government benefits and charitable giving burdens that would otherwise exist. And, almost no government program is as efficient in collecting taxes at a low administrative cost or distributing funds at a low administrative cost, in both cases with very low levels of fraud and abuse for a government social safety net program. Basically, Social Security's retirement program is little more than a form of forced savings.

Economy Fragile

The nation is verging on another bear stock market, there is talk of a double dip recession in the air, the employment situation is still bad, the bad debts and troubled banks discovered in the financial crisis still haven't fully come to roost and run their course yet (four years later), the European sovereign debt crisis is continuing to get worse, and Congress just barely managed to pass an omnibus bill to keep the government running until November 18 when Republicans can engage in yet another round of highly unpopular brinksmanship that have brought Congressional populatity levels and overall dissatifaction with how our government works to new lows. Despite record low interest rates, nobody is borrowing money for new major purchases.

Also, the Rockies didn't make the playoffs, the Broncos chances are not looking great at this point in the season, and there is no parking anywhere near the Denver courthouse.

Iran Takes Naval War To U.S.A.

According to Iran's state run news agency (really!):

[In] the same way that the world arrogant power is present near our marine borders, we, with the help of our sailors who follow the concept of the supreme jurisprudence, shall also establish a powerful presence near the marine borders of the United States[.]

From here.

I'd wondered if the Iranians were going to pick on someone their own size and harass Canada, but it would be absurd to think of Canada as "the world arrogant power."

Actually, of all the nations in the world that could potentially be hostile to the United States in naval combat, only Russia and China clearly have more capable navies than Iran, and North Korea is roughly comparable (although it has longer range missiles, a greater demonstrated willingness in recent history to resort to military force, and at least comparable coastal submarine resources).

But, most of Iran's naval strength lies in its high concentration of low tech coastal submarines and tiny but heavily armed attack boats in the Persian Gulf, combined with a willingness to be reckless, ruthless and suicidal in warfare. So, Iran's Navy is all but impotent outside the Persian Gulf and its immediate vicinity. Iran's "blue sea navy" is negligable and frankly a lot less threatening to the security of the United States than a covert operative suicide bomber. A naval ship can't take you by surprise in the age of spy satellites, radar, patrol aircraft, sonar and electonic evesdropping, and its weapons probably have ranges of several miles to thirty miles, with almost no "over the horizon" capabilities. A trip half way around the world at the speed of a car stuck in rush hour traffic doesn't do much for the element of surprise either.

The Iranian naval mission to the U.S. is simply a feeble publicity stunt.

Iran's main military threats are its ability to disrupt the Persian Gulf oil trade, its ability to participate strategically in the international oil trade, its ability to develop nuclear weapons, its ability to threaten Israel, Turkey and other Middle Eastern allies if it can obtain medium range missiles (particularly if nuclear weapons are a possibility), and its ability to support various foreign insurgencies and deadly covert operatives.

While chemical and biological weapons, which Iran may have devoted resources to developing, have been much touted as weapons of mass destruction on a par with nuclear weapons, in point of fact, unlike nuclear weapons, neither has a historical record of being more deadly than conventional warfare, and there are no game changing developments in either kind of warfare that are just over the horizon. A long range Iranian drone aircraft would pose more of a threat than Iranian chemical weapons developments.

For a country that has been the subject of massive international trade sanctions for most of the last three decades, Iran's economy is surprisingly functional and its regime appears to be one of the most secure non-monarchies in the Islamic world. It's unique mix of theocratic authoritarianism and limited democracy has allowed it to survive its most recent political crisis over contested Presidential elections, play an important behind the scene role in Iraqi politics, and achieve the same kind of success that the Soviet style Communists, African single party states, and other authoritarian regimes like the Baathists did in keeping a lid on suppressed ethnic divides that run deep in a nation that has many substantial and regionally concentrated ethnic minorities and minority language populations. Were Iran's current regime to collapse at some point, it isn't clear that the nation-state would emerge in one piece, and an Afghan or Iraqi style civil war by ethnic and regional factions vying for control is a plausible possibility.

Why Isn't Air Travel Governed By Admiralty Law?

In most material respects, air travel presents the same special legal concerns for substantially the same reasons as the aspects of travel by boat on the sea and navigable waters that gave rise to admiralty law.  The analogies were quite clear, and quite a bit of air travel pomp and circumstance (e.g. the title of the person who flies the plane and the understanding regarding his or her authority on that plane) consciously copy those of sea travel.  So, why hasn't admiralty been formally adopted as the governing law of air travel?

Part of the issue is that admiralty has grown arcane, rather than keeping up with modern trends, and even more importantly, not many lawyers are familiar with it.  Surely, the lack of lawyer familiarity also fostered the path dependent route by which the modern law of the air was developed.  The rise of the legislatively enacted statute, the Presidentially negotiated treaty, and governance by regulation rather than statute, all at the expense of common law innovation, surely played a part as well.

The one big substantive difference is that while sea travel historically involved long trips outside the authority of any land based court, air travel typically involves short trips from one land jurisdiction to another, and telecommunications mean that authorities on land are never truly unavailable or distant.  There is no need for an air crew to provide all of the elements of state authority for an extended period of time.
Does admiralty have anything to offer the law of the air, or visa versa?

Rapist Cornerback Perrish Cox Not That Bright

[F]ormer Denver Broncos cornerback Perrish Cox, who is charged with two counts of rape. . . The woman said she passed out at Cox's apartment in September 2010 and found out later that she was pregnant but didn't recall ever having sex. In court documents, she said she must have been drugged because she had only a few drinks that night.

DNA testing concluded Cox was the father.

What did he tell with the Lone Tree, Colorado police and the alleged victim?

[In] three of four taped interviews with Cox . . . he repeatedly said he did not sexually assault the alleged victim and that he never had sexual contact with her.

Two of the recordings are interviews with police. One was a conversation between the alleged victim and Cox that was taped surreptitiously with the help of Lone Tree police. . . . "I never raped anybody," he told police. "I swear I never touched her." . . . A fourth interview recorded after his arrest — in which he again said he had not had sex with the woman — was excluded from Cox's trial because of issues concerning when the prosecution turned it over to the defense. However, written statements from that recording, previously entered into discovery, will be allowed.

Cox had tried to exclude one of the interviews from evidence on the grounds that "repeatedly called him a liar and yelled at him" in the interview room.  Clearly, the police were just telling the story the way it was when they called him a liar.

He faces two years to life in prison, and given his initial story to the police, it is unlikely that Judge in conservative Douglas County will show much leniency.

Not surprisingly, the Broncos cut Cox "just before the start of this season," said he was ready for the trial to be over and no one else has signed me. On one point Cox is clearly correct:

"I know the reason why is because of this case," Cox said.

The case is set for a six day trial in a couple of weeks, but I don't think there is much doubt about the outcome of the trial when a DNA test shows that he got the woman pregnant and his consistent story has been that he didn't have sex with the woman.  If he tells that story again at trial, there is a good chance that he will be the rare criminal defendant to face perjury charges that stick as well.

If there is ever a case where it makes sense for a criminal defendant to waive a trial, plead guilty, with or without a plea agreement, confess, apologize, and throw oneself on the mercy of the court, this is it.  As it is now, there is no redeeming reason to give him any break at all in his sentencing, and life in prison is a very long time.

From here.

Should An Irresponsible Lawyer Cost You Your Life?

The transcript of the oral arguments in the U.S. Supreme Court case of Maples v. Thomas have been posted.

In this death penalty case, the death row inmate's collateral state level appeals in Alabama were terminated because his two out of state counsel in New York City left their large law firm with no forwarding address or withdrawal from the representation, and as a result, the notices to them were returned to sender, and they didn't receive actual notice of a critical deadline. His local counsel, who had agreed to a limited representation consisting of nothing more than sponsoring a motion to admit the out of state counsel pro hac vice, seeing that out of state counsel were listed on the certificate of service and having no actual knowledge that their notices were not received, ignored the copy he received. The inmate was unaware that any of this had happened until after the deadline had passed and the prosecutor told him in a letter basically advising him to file a federal habeas corpus action. The State of Alabama successfully opposed any extension of time to meet the deadline based on the improper conduct of the death row inmate's lawyers and won in the Alabama and federal courts through the 11th Circuit (arguably the most conservative in the country on criminal justice issues).

The U.S. Supreme Court in this case has to decide if this screw up by the death row inmate's lawyers mean that the inmate can lose the right to have his appeal considered on the merits.

Justice Scalia, in oral argument vehemently argued that the inmate should be bound because the local counsel received actual notice. The liberal justices clearly saw this case as one where relief should be granted. Justice Thomas was silent, but often tracks Justice Scalia in such matters.

Justices Alito, Kennedy and Roberts seem to be the swing votes in this case. Justice Kennedy, in particular, seemed to be entertaining the notion that the State had a constitutional duty to waive its objections to an extension of time to file the appellate documents in this case.

Both liberal and conservative justices also asked, without receiving a substantive reply, how often death row inmates don't appeal a defeat that allow for their execution.

In a few months, we'll know if the U.S. Supreme Court has taken a hard line that limits the ineffective assitance of counsel defense to almost nothing (which is close to the current status quo), in the interests of finality, or if it will make an exception in this relatively clear cut case.

The issue goes more generally to the global question of how one can have a pure adversary system, where clients are bound by the actions of their lawyers (even their mistakes), in which there is also constitutional right not just to the assistance of counsel, but to the effective assistance of counsel. The clash is particularly great in death penalty cases where a malpractice suit against the ineffective lawyer is not an even plausibly effective remedy in the way that it might be if this were a civil case or a criminal case where the inmate had some hope of eventually being released and enjoying the fruits of a malpractice judgment.

Mark Sherman, at the Associated Press, thinks that the Supreme Court is likely to grant relief in this case, based upon statements made by Justices Roberts and Alito in oral arguments.

Juvenile Recidivism Stunningly High

A new think tank report from the Annie E. Casey Foundation states that juvenile recidivism rates are very high: "Within three years of release, roughly three-quarters of youth are rearrested; up to 72 percent, depending on individual state measures, are convicted of a new offense." Recidivism rates for adults released from prison tend to hover at rates a little under 50% in three years.

The report also describes other problems with the current system of juvenile incarceration. Juvenile corrections facilities are expense, juvenile inmates are often exposed to violence and abuse ("In nearly half of the states, persistent maltreatment has been documented since 2000 in at least one state-funded institution. One in eight confined youth reported being sexually abused by staff or other youth and 42 percent feared physical attack according to reports released in 2010."), and lowering juvenile confinement rates doesn't seem to increase crime rates ("States which lowered juvenile confinement rates the most from 1997 to 2007 saw a greater decline in juvenile violent crime arrests than states which increased incarceration rates or reduced them more slowly.")

The inverse relationship between juvenile violent crime rates and juvenile confinement coupled to high reoffense rates of incarcerated juveniles and a possible mechanism of abuse in these facilities suggest an "academy of crime" characterization of the facilities.

But, the high recidivism rates also suggest that alternative explanation that most states limit juvenile detention to the most dangerous individuals that the absence of a link to juvenile violent crime rates in states that reduced their juvenile incarceration rates may be due to better discrimination between high risk and low risk juveniles.

Hat tip to the Sentencing Law and Policy Blog.

The Things Kids Do

My dog ate my homework may be a cliche, but when your homework involves using gumdrops and toothpicks to make molecules, sometimes "my sister ate my homework" is a genuine problem.

501 posts in 2011

The division of my blogging into two separate blogs, this one and Dispatches From Turtle Island (see the link in the sidebar) with the latter reserved essentially for science blogging, and this blog for everything else, that I began in late May, has worked out swimmingly. My blogging has been divided roughly equally between the two blogs and the division gives each blog more focus.

I'd also planned to reduce my total blogging pace from sixty posts a month that I had been making at Wash Park Prophet alone before the division, on average, to a significantly reduced number of posts for the two blogs combined. This part of the plan didn't really work out. There are just too many interesting things going on in the world to discuss so the total number of posts remains about the same.

U.S. Tax Rates Still Low By Global Standards

Economics is all relative. Incentives depend upon who is better relative to someone else, not absolute rates. Clearly, when it comes to taxes, the United States compares favorably to its international competitors with low income tax rates by global standards. Simply put, the case that U.S. tax rates are too high is not supported by any objective measure. And, since U.S. tax rates are already lower than its competitors, it is unlikely that reducing U.S. tax rates will improve its economy relative to them.

Colorado Baristas Work Cheap

The going rate of pay for baristas in Colorado is at the low end nationally.

An Alanis Morissette Moment For A Great Scientist

If Alanis Morissette had know about today's bittersweet award of a Nobel Prize in Medicine to Ralph M. Steinman(for “his discovery of the dendritic cell and its role in adaptive immunity”), who died the Friday before the award was announced today, Ms. Morissette probably would have included him in her song.

I share the sentiment that while "[a]ccording to the present rules the Nobel can only be awarded posthumously when the Laureate dies after the announcement", "I hope that sense will prevail and the award will stand."

Private Sector Drug Market Not Paradise

One of the most compelling arguments against health care reform, and against going further than Obama's health care reform bill did to give government a larger role in the market, is that markets prevent shortages, rationing and convenience. Except, sometimes they don't.

A failure of pharmaceutical companies to deliver the quantities of drugs that people need have lead to shortages in 213 separate drugs in 2011, something that has been on the increase since 2004, and caused at least fifteen deaths.

The shortages involve a wide range of medications: cancer chemotherapy agents, anesthetics, antibiotics, electrolytes needed for nutrient solutions, and dozens more. One drug currently in short supply is used in critically ill patients to bring down soaring blood pressure. . . .

Most drugs in short supply have been older generic drugs, which are generally less profitable. Hospitals are most affected, because many scarce drugs are intravenous forms, not pills dispensed in bottles.

But actually, officials at the Food and Drug Administration say only 11 percent of shortages happen because a company decides to stop making an unprofitable drug. Most shortages, they say, occur because something goes wrong in the manufacturing process that halts production.

The problem today is there are fewer companies making essential drugs. So when one manufacturer stops producing, there may be only one other supplier – and it can't keep up with demand. . . . Whatever the tangled causes, all those involved believe drug shortages are the new normal in U.S. medical care.

Needless to say, shortages of essential drugs that cause deaths shouldn't be the new normal.

Just as government intervenes to regulate utitilies not only to prevent them from securing monopoly profits but also to assure the security of the electrical grid, it looks like some sort of efforts needs to be undertaken to insert enough slack into the distribution chain for prescription drugs to prevent a routine stumble in a manufacturing process at a single factory from causing patients to suffer.

The actual impact of a drug going generic, which is that just one or two companies start to produce a generic version and face little or no competition in doing so, in contrary to the intuition that sees the price drop as a drug goes from being protected by patent to losing patent protection as being primarily driven by a shift from a monopoly market to a market with many competitors. Instead, it is largely due to a shift from sales by a company that has to pay drug developers to sales by a company that does not.

The rising tide of drug shortages is also not due to "Obamacare." None of the provisions of the bill that could conceivably apply to this problem have taken effect yet, and the current trend of rising drug shortgages began before President Obama took office. In 91% of the cases, the problem is that drug manufacturers are just screwing up the process of making drugs.

Drug Distribution Doesn't Look Like Econ 101

America's not best in the world private sector dominated health care system is also having trouble getting some of the giants of the industry to play nice with each other when it comes to providing drugs to customers in a convenient way. For example, Anthem Blue Cross and Blue Shield, one of the largest private health insurers in Colorado, and equally important, my health insurer, has decided to cease to do business with Walgreens, one of the largest pharmacy chains in Colorado, and equally important, my pharmacists, effective January 1, 2012.

Actually, the dispute is even more arcane. Individual health insurance companies, like Anthem, don't actually negotiate directly with individual pharamacies. They outsource the job of negotiating with pharmacies on behalf of their insureds to pharmacy benefits managers (PBMs), an industry that is has even fewer competing firms than the health insurance market does. Anthem uses a PBM called Express Scripts as do other some major health insurance companies.

I'm not in a great position to say who is at fault in this breakdown of negotiations. Express Scripts may have a legitimate plan to control health care costs by doing business with fewer vendors and extracting a better deal from the vendors that remain, or may have a legitimate concern about the quality with which Walgreens is filling prescriptions. Then again, it could be that Express Scripts is insisting that Walgreens offer it discounts that prevent it from making a profit while knowing that the fewer vendors its plans to use can't handle the work as a negotiating ploy, or it could be that Walgreens is insisting on making a far above market rate profit knowing that the size of its chain gives it more leverage than pharmacies with First Scripts. Neither company has made any reasonable effort to tell me what issues are driving a failure to reach a deal that will have the effect of imposing a significant inconvenience on me, in addition to no doubt, a higher cost of health care in the coming year.

According to a July 7, 20011 press relief from the pharmacy lobbying organization the National Community Pharmacists Association (NCPA):

Walgreens recently announced that beginning January 2012 it would no longer participate in Express Scripts’ pharmacy networks. Walgreens reportedly made this decision because Express Scripts reimbursements to its national chain of pharmacies are so low under the terms of the proposed new contract that the retail pharmacy giant thought it more reasonable to risk losing an estimated $5.3 billion in annual revenue generated from prescriptions filled by members of health plans that Express Scripts manages. . . . NCPA sees ominous consequences for patients, health plans and community pharmacies in Express Scripts’ windfall profit-driven negotiating position. Regardless of how this impasse is resolved, it should spotlight how small business community pharmacies and their patients are regularly steamrolled by pharmacy benefit managers (PBMs) like Express Scripts. If a provider with the clout of Walgreens can be forced into a virtual contract stalemate that risks disrupting existing patient/pharmacist relationships and reducing patient access to care, it’s easy to see how much more inequitable PBM contracts can be for an independent community pharmacy “negotiating” with a billion-dollar corporation. . . . Express Scripts’ reported posture in these negotiations seems to encapsulate three of the major PBMs’ most egregious business practices that put PBM profits before patients and the pharmacies that provide their care.

First, optimizing PBM profits by squeezing pharmacy reimbursement rates to the point that the viability of small community pharmacies is placed at risk. This practice jeopardizes patient access to close-to-home care and has clinical repercussions such as increased risk of non-adherence (patients not taking medications as prescribed by their doctors). Clearly, if Walgreens concluded that Express Scripts’ pharmacy reimbursements are financially unsustainable, the tipping point has long ago been reached for small pharmacies. Express Scripts and its PBM brethren need to immediately discontinue retail “spread pricing” – the practice of marking-up pharmacy claims filled at retail to generate PBM profits.

Second, scheming on generic drugs. Beyond the reimbursement disagreements with Walgreens, Express Scripts is reportedly seeking the right to unilaterally change the definition of “brands” and “generics.” This is a favorite PBM contracting scheme that is designed to further increase PBM windfall profits. Previously, it was solely inflicted upon unsuspecting health plans and their members. Walgreens obviously sees this scheme for what it is.

If only health plan sponsors were aware of the financial impact these types of PBM schemes have on their potential generic savings, they too would reject them out of hand, opting instead for contract language that precisely defines a brand and generic drug. With so many blockbuster drugs coming off patent over the next two years, health plans have an unprecedented opportunity to leverage huge generic savings – assuming the big PBMs don’t retain those savings as undeserved profit.

Third, pushing restricted pharmacy networks that will increase PBM profits and reduce the number of pharmacies available to provide patient care. Media reports indicate that Express Scripts plans to limit patient access to care by pushing forward with restricted access pharmacy networks. This allows PBMs to reduce the number of pharmacies available to patients so that that the PBMs can squeeze pharmacies for more profit per claim. Of course, this will mean that patients will suffer as a result. Long-standing relationships with local pharmacists would be disrupted and patients may have to drive further to get their prescriptions filled.

There is a financial impact to health plans as well. Restricted access networks, with their associated longer driving distances to obtain medications, help PBMs like Express Scripts sell heath plan sponsors on herding their members into PBM-owned mail order pharmacies that dispense generic drugs 10 to 13 percent less frequently than at community pharmacies. In 2010, Express Scripts’ mail order service had the lowest generic dispensing rate of the three largest PBM-owned mail services – costing its health plan clients millions of dollars in unrealized generic savings. Research finds that for every 1 percent increase in generics utilization, a health plan can save 2 percent.

According to a June 21, 2011 report by New York Times:

If the companies do not settle their dispute, people whose prescription benefits are handled by Express Scripts will not be able to get their prescriptions filled at the biggest drugstore chain in the United States, and Walgreens will give up about 7 percent of its annual revenue.

The announcement on Tuesday follows a similar contract fight a year ago between Walgreens and the CVS Caremark Corporation that was resolved less than two weeks after it became public.

The impasse with Express Scripts overshadowed news that Walgreens’ net income climbed 30 percent in its third quarter.

Express Scripts is the second-largest pharmacy benefits manager in the United States, and it expects to handle at least 750 million prescription claims in 2011. Walgreens said about 90 million of those prescriptions would be filled at its stores.

Express Scripts, which is based in St. Louis, said that it had been preparing for Walgreens’ departure and that more than 50,000 other pharmacies participated in its network.

These accounts appears to suggest, at least, that disputes are pretty much purely over prices and profits. Certainly, if the rant boards on the Internet are any indication, Walgreens, which has a face to face relationship with its customers, is winning the grass roots P.R. war against Express Scripts, which is one reason that they pharmacy lobby is looking for relief from PBM practices in Congress. Customer service is not an Express Scripts forte.

It also worth noting that the customer inconvenience isn't necessarily catastrophic:

There are still many pharmacies that will remain in the network including but not limited to:

a. Walmart

b. Sams Club

c. Costco

d. CVS

e. Target

f. Kroger, etc.

In metro Denver, the average additional drive time for an Anthem customer wouldn't be that great - often the extra drive would be considerably less than a mile.

To a significant extent, it appears that what Express Scripts wants to do, as much as anything else, is to establish that it isn't going to continue the long standing practice of most health insurance companies of including essentially all major providers in the area and the vast majority of doctors who haven't affirmatively gotten cross-wise with health insurers for a specific reason or simply not bothered to get themselves credentialed. Instead, it wants to make the threat of ejection from a network a credible threat for any provider, even one who has done nothing specifically wrong (thereby increasing its bargaining power), and to have more of a restricted network without actually going to the point of full vertical integration a la Kaiser. In other words, these negotiations have broken down because Express Scripts seems to be engaging in strategic behavior that will support a change in its business model, rather than the usual tactical skirmishing over details of a contract that gets renegotiated from time to time in the ordinary course. Walgreens may be an attractive target for the initiative from Express Scripts, because as one of the more profitable chains it does business with, as a whole, and hence may be able to give in, even if the concessions make the pharmacy business in isolation unprofitable or nearly unprofitable.

The success Walgreens had with its grass roots P.R. offensive with CVS Caremark in 2010, had no doubt emboldened it somewhat in this similar negotiation with Express Scripts this year, which is now more than three months old, and is about three months away from the January 1, 2012 drop dead date when the current agreement between Express Scripts and Walgreens expires.

Part of the problem in this situation may be similar to that in the drug manufacturing business. There aren't many pharmacy benefit managers in Colorado, so they face less competition and the industry as a whole is prone to more systemic risks of melt downs.

Retail pharmacies are the closest to the perfect competition ideal of the links in the pharmaceutical deliver and financing chain, although this is still skewed, because most health insurance companies require patients to pay the same amount for the same drug no matter where it is filled, so pharmacy price competition exists only in periodic negotiations with health insurance companies and in the relatively thin market of pharmacy sales to people who don't have health insurance that includes drug coverage.

Also, the potential for price competition between retail pharmacies is somewhat illusory because they all buy the drugs that they sell to customers from a single manufacturer in the case of drugs that are still protected by patents, and from just one or two manufacturers, in many cases, in the case of generic drugs. The way that a pharmacy is run is also quite regulated, so there isn't a huge variation in operating costs, other than costs of good sold, from one pharmacy to another.

As the parties negotiate over what reimbursement rate a PBM will pay to a pharmacy, everybody knows what the only price is town for that same drug is on a wholesale basis, and have a very long timeline of managerial accounting data that inform the costs of the pharmacy business other than cost of goods sold. The price set by the PBM effectively fixes the pharmacy profit, subject to only slight adjustment with managerial innovation by the pharmacy, which is something of a culture shock to a retailer who is used to balancing profit and sales volume tradeoffs when dealing with the general public in other goods and services.

One a one time basis, squeezing pharmacies can reduce drug costs. But, ultimately, excessive profits from pharmacies are a pretty insignificant source of rising prescription drug costs, which are mostly driven by drug makers, mostly for prescription drugs that are under patent, and by the choices that physicians make in what drugs to prescribe. Pharmacies basically compete with each other for market share, not on price.

Thus, pharmacies are squeeze between oligopolies that verge upon being monopolies on both sides. For individual pharmaceutical consumers the amount of choice involved is even more limited. A doctor has prescribed a drug based on medical necessity, that is often made by just a single supplier, or perhaps two or three, and sometimes simply isn't available at any price. An employer has chosen a health insurance company and even if the employee can choose more than one plan option with the employer, it isn't unusual for all of the plans to come from the same health insurance company, or at least from insurance companies that all use the same pharmacy benefit providers. For all but the oldest and least expensive generic drugs it is almost unheard of for a pharmacy to be able to deliver a drug for less than the health insurance set co-pay, because reduced retail drug prices is one of the things that insureds receive in exchange for paying health insurance premiums.

Despite the absence of any substantive government regulation of prices in the health care market, the consumer experience of the prescription drug market is that price fixing is the norm, and that price competition is the rare exception. When was the last time you saw a 15% off sale for cholesterol pills or oral contraceptives?

Petty Observations

* The inappropriately low speed limit (25 miles per hour on a stretch that should be 35 miles per hour), on Alameda Boulevard between University and Cherry Creek South Drive in Denver is most annoying. So is a similar inappropriate low speed limit on 1st Avenue between Downing and University. Both strips of road are speed traps apparently maintained by the affluent neighbors can't handle the cognitive dissonance associated with the fact that an arterial road happens to run through their neighborhood.

* The capacity of noise cancelling headphones to eliminate low level background noise, the rumbles and hums of dishwashers, ceiling fans, distant trains thumping along train tracks, and the munching and crumbling in the background, that you weren't even consciously aware was there is quite miraculous. They really work better that I would have expected them to work.

* Why does the Cherry Creek farmer's market end when the harvest season begins?

* After several years with a smart phone, I am thoroughly sick of it. I want a dumb phone that does nothing but talk and text. For my druthers, I'd prefer it if it didn't have e-mail, internet access, applications, voice mail, call waiting, or conference calling either. In fact, voice mail and answering machines are, in general, inventions that tend to reduce the quality of modern life. Oh, how I long for the days when human beings put notes on little pieces of paper with only the essentials or gist of what they had to say.

* Why do people let their pairs of dogs go wild on soccer fields full of kids practicing on a weekday afternoon? They are so threatening. But, every dog owner I've ever met seems to be under the insane delusion that their perfect pet could never scratch, claw, bite or push someone, or the dog owner thinks that other people would appreciate it.