Is Warren Buffett a hypocrite?

While visiting with my conservative drinking friend last Friday, I was informed that conservative talk radio was all over Warren Buffett for his alleged hypocrisy in arguing for increased income taxes on the rich while at the same time his company Berkshire Hathaway was engaged in tax litigation with the IRS in order to avoid paying almost a billion dollars of corporate income tax.  My friend and I quickly got into a heated argument as I tried to explain that those positions are not inconsistent because Buffett’s argument for increased taxes is a personal opinion whereas Berkshire’s IRS litigation against paying taxes is a corporate position.  Without resorting to discussions of logical fallacies, I suggested to my friend that as a stockholder in Berkshire I would be pissed if Buffett let his personal opinion regarding higher personal taxes to control his corporate actions regarding Berkshire’s payment of taxes.  Not surprisingly, my friend wasn’t buying that.

When I got home, I decided to see what stirred up this matter, and sure enough there was an article in the Huffington Post.  I’ve read that conservative radio tends to draw its stories from the Huffington Post and The Drudge Report, so the recent spate of Buffett stories tends to confirm that connection.  In its article, the Huffington Post pointed out a new example of Buffett’s alleged hypocrisy – i.e., one of Berkshire’s subsidiaries, NetJets, apparently hired a “squadron” of K Street lobbyist to secure favorable tax treatment in Congresss for private jet companies, of which NetJets is the biggest.

This example is equivalent to the Berkshire tax litigation with the IRS and is flawed for the same reason – i.e., Buffett’s personal views regarding personal income tax shouldn’t influence the actions of Berkshire and its subsidiaries.  Obviously, they should pay as little in tax as the law requires, and they should not be precluded from legally lobbying for lower taxes. 

Wearing two hats – one corporate and one personal – does not make Buffett a hypocrite.    

 

 

 

Apple and Amazon go at it

I just finished reading the Steve Jobs biography by Walter Isaacson, and one of its chapters concerned Apples’ move into e-book publishing.  As with much of his career success, Jobs was able to move Apple into e-book publishing by refusing to accept the prevailing orthodoxy, which at the time was the wholesale pricing – i.e., the publishers sold e-books for an agreed price and then the booksellers would sell the e-books for whatever price they wanted. 

The problem with wholesale pricing was that the world’s largest bookseller, Amazon, was selling virtually all e-books at $9.99 regardless of what its wholesale cost was, even if the e-books were sold for a loss.  Amazon’s rationale for this pricing was to get Americans hooked on e-books and increase the sales of Amazon’s Kindle. 

That makes sense, but the publishers were concerned that Amazon was becoming too powerful.  Thus, they were receptive to Jobs’ entreaties two years ago to develop an alternate marketing mechanism through Apple’s iBookstore.  Together, they developed and adopted a method called agency pricing in which a publisher set the retail price and the iBookstore sold the e-books at that price, keeping 30% for itself. 

That makes sense, too, but the federal government has some questions.  According to an article in the NT Times, the Justice Department is preparing to bring collusion charges against Apple and the publishers.  The article goes on to say:

• There is general agreement among them, however, that it is vitally important to publishers that the agency model is kept in place.  If it were to disappear, then it would be a boon to Amazon, said Mike Shatzkin, chief executive of the Idea Logical Company, which advises book publishers on digital change, adding that it would be “essentially bad news for just about everybody else in the book business.  Ultimately, that would mean that the price of books is going to come down and the amount of money that authors can earn is going to come down.  This is ultimately going to deflate the book business and consolidate power in the hands of a single retailer.”

The key statement above is that agency pricing was adopted to drive up the price of books, and although agency pricing may be a reasonable concept by standing alone, it is not something that five major publishers can collude to adopt. 

Sounds like the government has a good case.  

 

 

Sunday Book Review #65 – Steve Jobs by Walter Isaacson

Although Steve Jobs and the company he founded, Apple, are two of the most significant icons of my time, I knew little about them prior to reading this book.  They always seemed elitist because their products seemed to have been designed for a niche that was willing to pay a lot more for something that was only a little better.  Because I didn’t like elitists, I tried to marginalize them.  But after reading this book, I find it impossible to marginalize Jobs.  As Isaacson concludes in the final chapter, “History will place him in the pantheon right next to Edison and Ford.”

Jobs reminds me of a friend I went to high school with.  My friend was not the sharpest tool in the shed and had minimal personal skills, but he was strong-willed and obsessively focused.  He and a partner created a health-food product, with the partner doing most of the creating and my friend doing most of the marketing, and they ended up millionaires.  That is precisely what happened with Jobs.  He founded Apple in the 90s with Steve Wozniak, with Wozniak being the genius who created the Apple computer and Jobs being the genius who was able to successfully bring it to market.

But Jobs was not a mere marketer who leeched off Wozniak.  In the mid-90s, both Jobs and Wozniak left Apple, with the result that the company almost foundered and Wozniak failed at starting his own computer company.  Only Jobs thrived – he joined with Pixar to produce a thriving animated movie studio and founded a successful computer company called NeXT.     

In 1997, Jobs returned to Apple to save the company he had founded.  Within short order, he ensured Apple’s revival by shepherding the revolutionary development of the Mac, iPod, iTunes, iPhone, and iPad.  Jobs was not a typical CEO, but rather played an invaluable role in virtually every aspect the product development.  By the end of the decade, Apple was the most valuable company in the world, with a market value in excess of $500 billion.

Isaacson does not sugarcoat Jobs’ lack of personal skills.  Throughout his life, Jobs was a self-described “asshole,” and he excuses this character flaw as a part of his DNA.  Isaacson is not so generous, however, and he opines that much of Jobs’ “asshole” behavior hurt his effectiveness much more than it helped.

Isaacson indulged Jobs by including in the book’s last chapter a lengthy “legacy” written by Jobs.  Not surprisingly, Jobs believed that his legacy was “to build an enduring company where people were motivated to make great products.”  He contrasted himself from entrepreneurs who are out to make a quick buck and then cash in.  Unfortunately, it is also not surprising that Jobs’ self-described legacy does not include his family or all of the personal relationships that he failed to give any priority.  All of which reminds me of the adage to use things and love people instead of loving things and using people.  I think Jobs got it backwards.  Even as he was dying of pancreatic cancer, he seemed to put a higher priority on Apple products than he did on his kids.

In October 2003, Jobs gave a commencement address at Stanford University that Isaacson thinks was one of the best ever, especially the following passage:

• Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life.  Because almost everything – all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important.  Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose.  You are already naked.  There is no reason not to follow your heart. 

Jobs’ was raised a Lutheran, but he started questioning Christianity at the age of 13 because he couldn’t imagine why God would allow the starving children in Biafra.  In his own words, “The juice goes out of Christianity when it becomes too focused on faith rather than living like Jesus or seeing the world as Jesus saw it.  I think different religions are different doors to the same house.  Sometimes I think the house exists, and sometimes I don’t.  It’s a great mystery.”

The book ends with an especially poignant comment on religion by Jobs:

• “I’m about 50-50 on believing in God,” he said.  “For most of my life, I’ve felt that there must be more to our existence than meets the eye.”  He admitted that, as he faced death, he might be overestimating the odds out of a desire to believe in an afterlife.  “I like to think that something survives after you die,” he said.  “It’s strange to think that you accumulate all this experience, and maybe a little wisdom, and it just goes away.  So really want to believe that something survives, that maybe your consciousness endures.”  He fell silent for a long time.  “But on the other hand, perhaps it’s like an on-off switch,” he said.  “Click!  Any you’re gone.”  Then he paused again and smiled slightly.  “Maybe that why I never liked to put on-off switches on Apple devices.”

In either event, Jobs lived his life consistent with his philosophy that “the journey is the reward.”

Right-to-Work laws

Indiana has become the 23^rd state in the U.S. to adopt a right-to-work law.    A Wikipedia chart reveals that virtually all of those 23 states are red, Republican states, while most of the so-called “free collective bargaining” states are blue, Republican states. 

Yesterday, the NY Times posted a blog entry by Andrew Rosenthal titled, “The War on Organized Labor.”   According to the entry, “Slowly but surely, across the country, Republican governors and state legislatures are making progress in their war against labor unions, especially ones that represent public employees.” Rosenthal concedes that, “Unions will reduce a company’s profits somewhat, because they get higher wages for workers,” but counters that “economists have found that unionization has a minimal impact on growth and employment.”

Rosenthal also laments the spread of Wisconsin-style assault on public-employee unions from Wisconsin to Arizona, where Republican lawmakers are pushing a bill that would ban collective bargaining for public-sector employees.  In an effort to provide a balanced analysis, Rosenthal provided the following quote from someone who opposed public-employee unions:

• Proponents of the anti-union laws have told me it’s reprehensible for public employees to negotiate over wages, benefits and working conditions when their employer is the government to which we all pay taxes. When I ask, how is that different from negotiating with any employer, the answer I generally get is “it just is.”

Rosenthal concludes his blog entry by noting:

• Unions have over-reached in many ways, clinging to wage-and-benefits agreements that are simply untenable in today’s economy. But they are fundamental to maintaining fairness for workers. And governors in many states, including New York, have managed to get concessions from public employee unions without outlawing them.

I’ve previously argued that unions in some companies are necessary to provide a counter-balance to unscrupulous employers, and I think Rosenthal ignores the strongest argument against right-to-work laws – i.e., they allow so-called free-riders, those who benefit from the union advocacy without paying for that advocacy.  Although the power of unions to severely damage a business needs to be minimized, I don’t think the law should employ a divide & conquer strategy against union representation.

Double taxation

I confess that because I was preoccupied with a Happy Hour, I missed President Obama’s State of the Union address.  But prior to the address, I heard that a major part of the address was the so-called Buffett rule, which focuses on the fact that some secretaries paid taxes at a higher rate than their bosses.  I agree with this criticism of the American tax code.

Mitt Romney recently disclosed that his tax obligation was less than 14% even though he made about $20 million a year.  Based on news reports, President Obama was prepared to highlight that many secretaries not only paid taxes at a higher rate than 14%, but also had to pay social-security taxes of more than 7%, which the multimillionaires were not required to pay on the bulk of their income.

I agree that rich people should not be allowed to pay reduced income-tax rates simply because their income comes from capital gains.  The argument that such a tax amounts to double taxation doesn’t make sense.  Just because someone pays taxes on earned income doesn’t mean that additional income earned on that income shouldn’t be taxed.  America’s tax system is based on levying a tax on each transaction (e.g., sales tax is assessed every time your car is sold), and that is completely consistent with taxing a person on earned income and then taxing them again when those assets are used to generate capital gains.  The tax rate on capital gains should be at least at much, if not more, than the tax rate on earned income.  This concept would also work with estate taxes, where there is a tax on income earned and then another tax on the assets when they are tranferred to a beneficiary.  

To suggest that people will be reluctant to invest their capital because capital gains will be fully taxed is ludicrous.  That’s like saying you will decide to stop earning income above $250k just because the marginal rate on income over $250k is increased to 40%.

Was Mitt Romney a vulture capitalist?

If you Google “vulture capitalist,” the first entry contains an image of Mitt Romney.  That’s an indication of the publicity generated by Rick Perry’s charge against Mitt Romney. 

According to Perry, Romney was a predatory investor during his years with Bain Capital investment firm.  An article in the Houston Chronicle said that Perry claimed as governor of Texas to have created one million jobs rather than “destructing businesses or destructing jobs” the way Romney had with his investment firm. 

Defenders of Romney charge that Perry is verging on being a Republican heretic for attacking full-throated capitalism or what they prefer to call venture capitalism.  As with most disputes, this one can be ameliorated if we agree on some definitions.

According to Investopedia, a vulture capitalist is:

1. A slang word for a venture capitalist who deprives an inventor of control over their own innovations and most of the money they should have made from the invention.
2. A venture capitalist who invests in floundering firms in the hopes that they will turn around.

I don’t think the Investopedia definitions remain accurate in the public perception.  Perry was quoted in the LA Times as defending his “vulture capitalist” accusation by saying:

• “We’re trying to lure more venture capitalists into my home state every day,” the Texas governor said, “but the idea that you get private equity companies to come in and, you know, take companies apart so they can make quick profits and then people lose their jobs, I don’t think that’s what America’s looking for. I hope that’s not what the Republican Party’s about.”

In the public perception (and Perry’s), a vulture capitalist is someone like Edward Norton in the movie “Pretty Woman” or Gordon Gekko in “Wall Street.”  These miscreants, sometimes called corporate raiders, would buy-up struggling companies and sell-off the assets.  By contrast, a venture capitalist, according to Wikipedia, is someone who provides capital to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc.

According to an article in USA Today, a Wall Street Journal analysis indicated that, while Romney was in charge, Bain made most of its money on companies that were successful (most noteworthy – Staples), and therefore it wasn’t a “vulture capital” firm.    But I would be interested to know whether Bain also made money on companies that did not survive.   If it did, then Bain and Romney would qualify as vulture capitalists. 

Not that there is anything wrong with that.  Bankruptcy lawyers deserve to earn a living, and dead or dying assets need to be put out of their misery.

The Sage of Omaha speaks

Although Warren Buffett is a Democrat, he is one of my all-time favorite public persons.  I aspire to have a value system as sound as his.  He acquired his value system from his dad, and he calls it his “inner scorecard.”

Buffett is sometimes called the Sage of Omaha, and he made news a few weeks ago when he suggested that rich Americans should pay more taxes.  He argued that most rich Americans would accept this sacrifice as their patriotic duty to help America out of its fiscal mess.  Cynical Republicans in Washington, led by Senators John Thune of SD and Mitch McConnell of KY, responded by introducing a bill that allows the federal government to accept voluntary contributions from such patriotic Americans.  McConnell declared that he was calling Buffett’s bluff.

This week, Buffett is on the cover of Time magazine, and in the accompanying article, titled “Warren Buffett is on a Radical Track,” he calls McConnell’s bluff by declaring that he will match dollar-for-dollar any contributions to the federal government that congressional Republicans make, and in the case of McConnell, who is worth $30 million, Buffett will pay 3-1. 

Buffett’s challenge to McConnell was all over 24-hour news yesterday, but it is merely a snippet in the excellent Time article.  Although Don Imus complained on his show this morning that Buffett should get off the stage, I couldn’t disagree more.  America needs his values and wisdom more than ever.  Among his most sagacious comments were the following:    

1. Shared sacrifice.  Shared sacrifice, to Buffett, means not just higher taxes for the rich–who often pay extremely low rates on money made by moving money around–but also curbs on short-termism. He’d like to see speculative-trading gains taxed at much higher rates. He believes CEOs of publicly bailed-out institutions should be on the hook for everything they own if their institutions go bust. He’s only half joking when he says he’d like to see private schools banned so that rich families would be forced to invest in the public K–12 system. (No Buffett in Omaha has ever gone to a private school, he notes proudly.) And he’s for a complete overhaul of health care, which he calls “a tapeworm in America,” one that cuts corporate competitiveness far more than taxes do.  It’s the opposite of the Darwinian capitalism embraced by many prominent conservatives who believe the market is the only means to distribute the economy’s assets. “The market system rewards me outlandishly for what I do,” Buffett says, “but that doesn’t mean I’m any more deserving of a good life than a teacher or a doctor or someone who fights in Afghanistan.”  He doesn’t want to stop bond traders from making their billions: “Capitalism has unleashed more human potential than any other system in history.” But, he says, “we need a tax system that essentially takes very good care of the people who just really aren’t as well adapted to the market system but are nevertheless doing useful things in society.” Bond traders and corporate raiders of the world, take note: your higher taxes should subsidize bridge builders and child-care workers.
2. A frugal lifestyle.  Aside from his indulgence in private air travel (he named his first jet the Indefensible), he estimates his personal yearly expenses to be no more than $150,000.
3. Income inequality.  His worry that in this era of late-stage capitalism, the next generations won’t be as lucky as he has been. The problem of inequality is likely, he says, to get worse. When people can’t climb up the ladder, it’s bad for the economy–and for his companies. He doesn’t believe that the U.S. can innovate its way quickly back to a 1950s level of shared prosperity, nor does he think education will entirely close the gap. “The truth is that there will always be a bottom 10% in terms of capacity,” he says. “Someone in America who has a 90-point IQ is qualified for many fewer jobs today than he was 100 years ago.”
4. Income redistribution.  And his views on wealth redistribution–which are basically the opposite of the trickle-down theory–go back even further, echoing those of another Nebraskan, progressive Democrat William Jennings Bryan, who believed that “if you legislate to make the masses prosperous, their prosperity will find its way up and through every class that rests upon it.”
5. The influence of his first wife, Susie.  She was “a great giver,” he says, “and I was a great taker.”….  Seven years on from Susie’s death, Buffett is still coming to terms with it all. When I ask if he regretted being apart from her in her final years, he insists, “We didn’t live that separately. We were as connected in the last years of her life, perhaps more connected, than we’d ever been. We had exactly the same view of the world. We just didn’t want to go about it in the same way.” He tells me about her interview with Rose, the only major one she ever granted, which was done with his encouragement, because he wanted the world to better understand the woman who was most important to him.  Then his cheerful face crumples, and he bursts into tears. “Her death is–it’s just terrible. It’s the only thing that’s really up there,” he says, his voice shaking. “I still can’t talk about it.”
6. Future prospects for the American economy.  Buffett believes that once the housing market recovers, the U.S. economy will be back on track. “Once we get back to a million housing starts per year”–the current tally is 685,000–”I think pundits will be surprised just how fast unemployment will come down in this country.”…  But Buffett insists his optimism isn’t emotional but quantitative: he focuses not on media headlines about America’s inevitable decline or cheerleading about innovation and education but on the underlying data. Basic demographics favor the U.S. over nearly every other rich country in the world. And with corporate America so lean and inventories so low, the growth engine, in his view, has to kick in soon.
7. Government regulation.  Unlike many liberals, he’s not a great believer in regulation as a curb for corporate excess. He doesn’t want to crush Wall Street’s animal spirits or control market volatility or cap executive pay by force; better tax policy would take care of all that, in his view. He’s not worried that rising inequality is going to result in social unrest, at least in Middle America. “I drove by Occupy Omaha, and there was maybe one guy there,” he says. “I just don’t think this is a country that has the tinder for social instability. I mean, the classic test of that was actually the 2000 election. If you think about it, half the people in America felt that they were screwed, and the next day, they all went to work.”  But on taxes and the debilitating growth of partisan politics, he doesn’t mince words. He was horrified by the debt-ceiling debacle this summer and shocked that Republicans were willing to play a game of political chicken with the goodwill and faith put in the world’s reserve currency.

Every year around this time, Buffett issues a lengthy letter to his Berkshire shareholders, of which I am one.  I look forward to reading the letter because it contains, not only Buffett’s view of what has happened and what is going to happen with the American economy, but also his wisdom on life.  The article in Time magazine serves as a perfect complement to the shareholder letter because it benefits from a skilled writer’s perspective.

Do we still need labor unions?

During the Meet the Press presidential debate last Sunday, several Republican candidates were asked if labor unions were worthwhile.  As I briefly noted in a blog entry:

• “The best they could do is concede that some unions provide training and do some community service.  I think that is a shocking position.  Although unions are often harmful, I am not ready to argue for their elimination.”

I think the issue is worth an expanded discussion.

It is common knowledge that labor unions have been in dramatic decline in America for many years, with the exception of public-employee unions.  Unionized workers comprise only 12.4% of the American workforce, with 7.6% in the private sector and 36.8% in the public sector.  The most common explanation for the decline of unionization in the private sector is that globalization of the economy makes it difficult for unionized businesses to compete with nonunionized businesses. In the past, unionized Ford could compete against unionized GM, but they both have trouble competing with nonunionized Toyota or Hyundai.  By contrast, unionized public-sector employers don’t have to compete economically; they can simply pass on their compensation costs to the taxpayers. 

But working for increased compensation is only one of the objectives of unionization.  Another major benefit is that it protects individual employees from unfair or arbitrary treatment.  As someone who has worked for large private-sector employers, I realize that most such employers have developed formal processes and procedures to prevent its management from taking arbitrary, mean-spirited, capricious, or petty actions against employees, but I am also aware that these employers jealously guard their power to take action “at-will.”  An employee at-will can be immediately terminated for good cause, or bad cause, or no cause at all.

I have heard horror stories about how difficult and expensive it is to get rid of an ineffective teacher, but I also have heard horror stories about how a good employee was unfairly terminated by a mean-spirited, petty manager.  Employment at-will is amenable to some jobs and careers, but other times it would be more appropriate for employees to have enhanced security and due process.      

So, I’m not ready to relegate unions to the scrap heap.  I am not convinced that all employers will be driven by competition to treat employees fairly.  Some will abuse their right to terminate at-will, and the employees of such companies should have the right to demand some protection.

Doctor-owned hospitals under ObamaCare

When I had my knee replaced a couple of months ago, my doctor assigned me to Methodist Texsan Hospital, a shiny, new hospital with all private rooms near Crossroads Mall.  I had been to the hospital a few years ago for a heart evaluation when it was brand new and was known as Texsan Heart Hospital. 

The hospital name change, as well as a change in ownership and mission, was precipitated by ObamaCare.  The original Texsan Heart Hospital was co-owned by a corporation and 70 physician-investors.  Under ObamaCare, Medicare would not do business with physician-owned hospitals that were opened after 1/1/11 or expanded effective immediately (3/23/10).  Although Texsan Heart Hospital remained eligible for Medicare patients (60% of its business) because it was built in 2004, ObamaCare would create significant limitations on its ability to expand in the future, and apparently its owners decided avoid those limitations by selling the hospital to Methodist.

Nancy Pelosi famously said that we needed to pass ObamaCare to find out what was in there, but the law’s attack on physician-owned hospitals was not a hidden item.  Within a week of the passage of ObamaCare, healthcare websites were reporting on its effect on physician-owned hospitals:     

• “After President Obama signed healthcare reform legislation last week, there was much joy for Democrats (at least for Democrats). For physicians who own hospitals, it meant upheaval.  As of now, there are about 260 physician-owned hospitals in the U.S. About 58 are undergoing construction and expansion plans, with an estimated $5 billion that has been expended or financed. With healthcare reform, those projects are frozen, going nowhere, or in the midst of confusion.  The new law restricts existing physician-owned hospitals from adding beds, procedure rooms, ORs and especially reduces funding for Medicare patients. Most of the physician-owned hospitals have an average of 2 % doctor ownership.  At least 28 new hospitals were scheduled to open by August 1, 2010, and another 74 are in the planning stages to open after that date. Dozens are trying to meet a Dec. 31 deadline to “grandfather” in some new hospital expansion plans or allow some new facilities. While some new hospitals may be approved, Molly Sandvig, executive director of Physician Hospitals of America, the advocacy group for physician-owned hospitals, says it doesn’t seem current hospitals meet the complicated standards imposed to carry out billions of dollars in construction projects.”

Almost lost amongst all those numbers is the fact that doctors owned an average of only 2% of the hospitals.  That makes you wonder whether the doctors were involved to contribute money or patients.

In November 2010, USA Today reported on the hospitals that were frantically trying to beat the end-of-year ObamaCare deadline:

• “They are on a tight deadline. The health care overhaul law closes the door on future physician-owned hospitals, requiring new ones to be open and certified by Medicare by Dec. 31. Otherwise, they’ll be barred from taking part in Medicare, the health program for the elderly, as well as other federal health programs. That would be a fatal blow to most hospitals because about half of their revenue comes from those programs….  Besides barring new doctor-owned hospitals after this year, it prohibits the 269 existing institutions from expanding unless they meet stringent conditions….  To get the OK to expand, doctor-owned hospitals must be located in states with a shortage of hospital beds, and in counties that are growing 50% faster than the overall state, among other requirements. They could also ask permission to expand if they see more Medicaid patients than other hospitals in their county.”

The USA Today article noted, however, that lobbyists for physician-owned hospitals were biding their time until the House Republicans took control.  Already leading Republicans in Congress, like Joe Barton and Jeb Hensarling, were suggesting that existing physician-owned hospitals should be allowed to grow. 

Well, a year later, the Republicans have finally acted.  According to news reports earlier this week in the NY Times and the website FierceHealthcare, congressional Republicans, while passing a law to hold down payroll taxes and extend unemployment benefits, inserted a provision to allow under-construction physician-owned hospitals to be completed and existing ones to expand.     

All of this leads to the question – Why was ObamaCare so tough on physician-owned hospitals?  As I noted above, physicians have a 2% ownership interest in these hospitals, so one might suspect that their ownership is intended to provide money-paying patients, not significant ownership equity.  And the NY Times article confirms this:

• “Numerous studies have found that when doctors have a financial stake in a hospital, they tend to order more tests and procedures, raising costs for Medicare and other insurers.”
• “The Congressional Budget Office said allowing the spread and expansion of these types of facilities would increase federal spending by $300 million over 10 years.”

But this amount of money is considered nominal in Washington.  The real opposition to physician-owned hospitals is coming from the lobby for non-profit community hospitals, who argue that “physician-owned hospitals tend to focus on narrow, profitable specialties, such as orthopedics and cardiac care, while leaving important but money-losing services, such as emergency departments and burn units, to community hospitals.”  

What’s a conservative to think about all of this?  Although some say the physician-owned hospitals are cherry-picking the profitable aspects of the hospital industry, I say that is the nature of capitalism.  The Postal Service doesn’t like UPS and FedEx cherry-picking either, but that is how the American economy works.

But I am more persuaded by the argument that physicians should not have an economic incentive to over-treat or over-utilize.  Most experts agree that over-utilization is one of the biggest drivers in the increasing medical costs, and I don’t think building a wall that prevents doctors from profiting from their prescription for ancillary services will do serious damage to free-market principles.

What’s going on at NISD?

I recently blogged about an individual, Will Hurd, who competed with me for the Republican nomination in the 23^rd Congressional District.  My posting was prompted by a newsletter from the Northside Independent School District (NISD) that announced Hurd and six other NISD graduates as “2011 Pillars of Northside.”

The point of my posting was that (a) Hurd has been a media darling in our campaign despite the dearth of his qualifications to effectively serve, and (b) his “darling” status appeared to continue with those who selected the NISD pillars because he again appeared incredibly unqualified.

Upon further reflection about darling status, I think that the practice is egregious because, among other things, it enables a so-called nonpartisan group, whether the media or the NISD, to surreptitiously insert its political values in the place of merit.

What does the selection of the diverse 2011 Pillars suggest about NISD?  The following were selected:

• Will Hurd, Class of ‘95, is an African-American who was a Texas A&M campus politico, served nine years in the CIA, and recently took a job with a CIA-connected international strategic advisory firm in Washington, D.C.
• Drs. Celina and Marina Suarez, Class of ’99, are Hispanic identical twins who are geologists who discovered a previously unfound dinosaur.
• Charles Cantu, Class of ’57, was the first Hispanic to become a full-time law professor and is currently the Dean at St. Mary’s law school in San Antonio.
• Major Woodrow Halstead, Class of ’90, was an assistant district attorney for ten years in Bexar Country, and in addition to being a part-time lawyer in the Army Reserves, he has a full-time civilian job to “represent wounded warriors in the military Disability Evaluation System.”
• Dr. Paul Barton, Class of ’90 is an anesthesiologist and Christian missionary who lives with his pediatrician wife and their four sons in El Salvador.
• David Henderson, Class of ’93, is an African-American lawyer who works as an assistant district attorney, specializing in family violence and victim protection.  His profile asserts, “In 2010, he won the International Toastmaster championship, outspeaking 30,000 entries from 115 countries.”  Suggestion to NISD – verify that statement.

You might infer that, based on my description of these individuals, a dominant factor in the selection of this group is not merit, but rather ethnic diversity.  Such an inference is certainly reasonable because awardees – three Hispanics, two African-Americans, and two Anglos - are much more diverse than the NISD study body.  Even more revealing, the qualifications needed to receive the award appear to be severely diluted.  Surely, a school district with 100,000 students has developed more accomplished grads.

But the drive for ethnic diversity is not what most troubled me about the list of Pillars.  I am more concerned about the lack of career diversity.

A couple of years ago, at a college graduation in Arizona, President Obama warned the kids that there is more to life than making money and that they should consider doing something worthwhile, like public service:

• “Now, in the face of these challenges, it may be tempting to fall back on the formulas for success that have been pedaled so frequently in recent years.  It goes something like this:  You’re taught to chase after all the usual brass rings; you try to be on this ‘who’s who’ list or that top 100 list; you chase after the big money and you figure out how big your corner office is; you worry about whether you have a fancy enough title or a fancy enough car.  That’s the message that’s sent each and every day, or has been in our culture for far too long — that through material possessions, through a ruthless competition pursued only on your own behalf — that’s how you will measure success.  Now, you can take that road — and it may work for some.  But at this critical juncture in our nation’s history, at this difficult time, let me suggest that such an approach won’t get you where you want to go; it displays a poverty of ambition — that in fact, the elevation of appearance over substance, of celebrity over character, of short-term gain over lasting achievement is precisely what your generation needs to help end.”

NISD certainly took President Obama’s message to heart because none of its seven Pillars appear to have created a job or even received a private-business pay check.

As conservatives often note, the public-servant types can only do as much as the private sector can afford to pay for.  If we have all our best and brightest going into public service, then our private sector will be held back.

Ironically one of the Pillars, assistant district attorney/champion speaker David Henderson, asserted that one of his proudest accomplishments was a high school project to “develop and present a new business model for a McDonald’s franchise.”  That is precisely my point.  Wouldn’t it be wonderful if Henderson had actually done something to grow San Antonio’s private sector instead of becoming an assistant district attorney/champion speaker?  But if he had, would NISD have recognized his accomplishment?