Tuesday, September 13, 2011

When Generations Collide

Fact: Equity prices have wallowed for ten years and counting.
Fact: Financial market turmoil has wiped out retirement accounts.
Fact: Young people are experiencing an unemployment rate twice the national average.
Fact: Consumer deleveraging is likely to persist indefinitely, at least until employment rates and income levels rise.

Where once a young person could find employment, embark on a career and expect to retire comfortably, that social expectation no longer exists. Instead, young people and people near or at retirement find themselves competing for jobs in an economy that simply isn't meeting their demand.

The Perspectives article "Age and the Workplace" considers the evidence for this emerging generational conflict. The supporting numbers extend beyond months and quarters to encompass years and decades. Even if the economy were to turn, the trends in place won't alter anytime soon.

For companies and government to remain competitive, corporate strategy and public policy must address this powerful new social dynamic.

Read "Age and the Workplace" here.

Friday, September 2, 2011

Deleveraging and Consumerism in Health Care

Consumer deleveraging has instigated a changed mindset.

Although many economists would argue that the debt removal process has much further to go, consumer downsizing thus far has substantially altered behavior. Note, for example, depressed sales in big ticket items.

If consumers, by living more within their means, develop a greater respect for risk, then their approach to health care will likely change as well.

Prior to 2008, in the riskless world of super-sized SUVs and flat-screen TVs, carefree lifestyles repudiated value-based decision making. Today's risk-averse world could easily nurture opposite inclinations that endure.

For health care, the process of payers offsetting responsibility to consumers constitutes (potentially) a similar effect. At least one can hope that government will begin to discern its own approach to value, rather than dictate one to others.

Consumers, by already starting down the road of personal responsibility, should in fact consume health care more efficiently (and responsibly) than they otherwise would have in years past.

In health care's next phase, expect a more balanced approach to risk and return in combination with a general trend towards consumerism to establish a value equation that eliminates years of built-in inefficiency.

Read "Alternative Themes in Health Care" here.

Tuesday, August 30, 2011

Bad Consequences

"Bad consequences often follow even the best-intended government action," notes a commentary in Perspectives. Although Hurricane (and later, and more damaging, Tropical Storm) Irene may cost billions, the financial burden could have been worse—much worse.

In yet another example of government intending to protect the less fortunate but doing the exact opposite, the state of Florida in 1993 established two insurance funds to offset planned rate hikes by private insurers. Nearly 20 years later, both funds, despite having become the insurer and reinsurer of first resort, lack anything close to adequate capitalization.

Had Irene barreled into Florida, its impact could have forced a federal government bailout amounting to billions of dollars.

The fact that Florida remains at continuous hurricane risk only adds to the future cost.

What's more, Florida's subsidized insurance overwhelmingly favors the wealthy, those folks most likely to own waterfront properties. In classic big bank fashion, it evokes "heads I win, tails you lose".

The alternative, an environment advocating personal responsibility, would put risk and return into proper balance, and eliminate unnecessary cost.

Read "Case Study: Florida Catastrophic Insurance Funds" here.

Tuesday, August 23, 2011

Individuals Taking Charge

"Government needs to foster an environment of resiliency, innovation, and risk taking, and enable a population willing to commit time, labor and money," notes a Perspectives article. "It cannot shield success from failure."

Beyond malicious bankers and politicians, we all need to look hard in the mirror to realize the full extent of blame for the 2008 financial crisis. For decades now, the United States has been losing its sense of risk and return.

Today, most people believe simply that the economic system will heal itself and things will get better. In times past, folks distrusted system solutions as infringements on personal freedom, and endeavored to take direct control of their own livelihoods.

Entitlement programs such as Social Security and Medicare have accelerated this moral shift from responsibility to dependency, and, at the same time, skewered financial judgment. Had consumers possessed better acumen it's unlikely they would have closed their eyes to downside risk to the extent they did throughout the housing boom.

The United States now confronts the difficult task of rediscovering and affirming individual responsibility. Failure to do so damages the nation's future competitiveness, especially against China, India and other emerging countries and their brands of capitalism and democracy.

We can begin by putting consumers more in control of health care, breaking apart massive concentrations of capital (institutions, for example, that are too-big-to-fail), and reforming the tax code to emphasize long-term investment and business building.

The fact that we can no longer afford top-down measures provides some hope that the shift away from dependency will begin sooner than later.

Read "A Deeper Problem in the Credit Crisis" here.