Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the eight most fascinating ones I read this week.
1. Important history of health-care mandates
Sarah Kliff writes in the Washington Post about what happened when Washington state made it illegal for health insurers to deny customers for pre-existing conditions (popular) but didn't make it mandatory to buy health insurance (unpopular):
In 1993, Washington state passed a law guaranteeing all residents access to private health-care insurance, regardless of their health, and requiring them to purchase coverage.
The state legislature, however, repealed that last provision two years later. With the guaranteed-access provisions still standing, the state saw premiums rise and enrollment drop, as residents purchased coverage only when they needed it. Health insurers fled the state and, by 1999, it was impossible to buy an individual plan in Washington -- no company was selling.
Should the mandate portion of the Affordable Care Act be repealed while still outlawing the deniability of customers with pre-existing conditions, this might be the new reality for insurers like UnitedHealth (NYSE: UNH ) and WellPoint (NYSE: WLP ) .
According to a Gallup poll, Americans tend to think that their hometown is doing pretty well economically -- and the rest of the country is doing poorly:
|In the city or area you live in||10%||39%||35%||15%||1%|
|In your state||7%||30%||39%||22%||1%|
|In the U.S.||5%||20%||44%||30%||2%|
|In the world||2%||11%||41%||41%||5%|
3. Deficit d'oh
Good news if you're worried about the budget deficit. According to Pew Research, most Americans are, too:
[T]he budget deficit stands out as one of the fastest growing priorities for Americans, rising 16 percentage points since 2007 and ranking third with 69% calling it a top priority. Only the economy and jobs, ranking first and second at 86% and 82% respectively, have registered bigger increases over this period.
But press Americans on what they'd cut from the budget, and it's a different story:
But even given that preference, there was not a great deal of support for decreases in spending across a range of issues ... the number of Americans favoring increases still outnumbered those favoring decreases on 15 of 18 issues tested. In addition, a substantial number are willing to see spending held steady. ... About two-thirds or more said "no" to proposals for taxing employer-provided health insurance plans, raising the gasoline tax, reducing federal funding to states and raising the contributions the Medicare recipients pay into the program.
4. Big, bold, and mostly wrong
TFC Financial Management published (link opens PDF file) a response to big, bold headlines pronouncing major economic shifts. The rebuttal: Most of these calls have terrible records if you take the time to remember them:
In 1992, Francis Fukuyama, in a widely publicized book, The End of History and the Last Man, argued that in liberal democracy, the world had achieved the end point in sociocultural evolution and had reached the final form of human government. In early 2000, The Atlantic magazine reviewed the then just-published trendy book, The Dow at 36,000, in which the reviewer did not seem to find much fault with the book's title assertion.
Dial back to 1979: with inflation at 12-13%, bonds yielding 11%, mortgages priced at 12%, single life annuities paying 13%, and individual savings pouring into high-yielding money market funds, Business Week's cover proclaimed, "THE END OF EQUITIES." Then, as has been the case more recently for almost the last decade, the flight from stocks to the fixed income side of the risk spectrum seemed a steady, self-evident phenomenon.
Counter to No. 4: Harvard professor Dani Rodrik writes a chilling hypothetical history of what the world may face given the myriad risks we're staring down. He envisions:
Over the next few years, the world economy slumps into what future historians will call the Second Great Depression. Unemployment rises to record-high levels. Governments without fiscal resources are left with little option but to respond in ways that will only exacerbate problems for other countries: trade protection and competitive exchange-rate depreciation. As countries sink into economic autarky, repeated global economic summits yield few results beyond empty promises of cooperation.
Few countries are spared the economic carnage. Those that do relatively well share three characteristics: low levels of public debt, limited dependence on exports or capital flows, and robust democratic institutions. So Brazil and India are relative havens, even though their growth prospects are severely diminished as well.
"A remote scenario?" he concludes. "Perhaps, but not remote enough."
6. Young, wild, and broke
The Economic Policy Institute shares a depressing fact:
The typical American family saw its net worth fall 39 percent after the collapse of the housing bubble, according to newly released Federal Reserve data. Younger families were hardest hit, with those in the 35-44 age group -- the age when families start getting serious about saving for retirement -- experiencing a 54 percent drop between 2007 and 2010.
7. Rules of thumb
Philip Stephens in the Financial Times argues, quite persuasively, that economic beliefs of all flavors have taken on a cult-like religious following. He adds a rule of thumb: "[T]he fervour with which economists propagate this or that theory is usually in inverse proportion to the evidence."
8. Explain it to me: Europe
Big banks including Bank of America (NYSE: BAC ) , Citigroup (NYSE: C ) , and JPMorgan Chase (NYSE: JPM ) had their credit downgraded by Moody's yesterday, in part because of exposure to Europe's faltering economy. Want to learn more about Europe's disaster? The Federal Reserve of St. Louis has an excellent eight-minute video explanation. Watch it here.
Enjoy your weekend, Fools!