GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 12

[Ted Striker]

I don't have any links but have read anecotal evidence that alot of the software services that have been offshored to India have taken hits in terms of quality.

I'm all for reducing costs and improving efficiency, but I think there is a point where focusing exclusively on the numbers and bottom line becomes counterproductive. Often the qualitative experience is suppressed in favor of the quantitative, paper based result.

Certainly airline deregulation in the US is one example of a success.

But the best firms that can reduce costs are usually the big, cookie cutter chains, that can leverage variable costs on huge scales and control supply chains, like Wal-Mart of McDonald's. Personally I think these chains are the bane of my entire existence, and take the heart and soul out of living.

[DanS]

I would give the Indians time on the quality. Japanese cars were crappy at one time too.

For the health care example, I was focusing on India's comparative advantage of location--they're awake and working when we are either asleep or playing. More a focus on quality than costs.

[TCO]

Couldn't they have sold power to California and just subsidized the PNW users?

You go, conference man!

P.s. I will be up in Washington to visit family coming in from overseas, and a woman, and maybe do some interviewing. I'll give you a call to see if you want to break bread.

[el freako]

Originally posted by DanS

http://www.bea.gov/bea/dn2/gposhr.htm#1994-2001

A couple of years ago, Roland pointed out that the US spends a lot on health care, which at that time I agreed with. I'm surprised by looking at those numbers, though, as it's roughly in line with what is produced in Europe--5.8% of GDP. Of course, then you've got to do 1.4x to account for the size of US economy. Maybe I'm not counting enough and he'll set me straight tomorrow. And maybe he would like a piece of those legal services.

Edited liberally, since I was looking at the wrong table and other stuff.

Originally posted by DanS
Also, housing as a %-age of GDP hasn't moved much over the last 10 or 15 years. Where's that bubble again?

DanS,

Those figures you are quoting are the value-added generated in those industries (total value-added=GDP).
Value-added in the housing sector would probalby be imputed rent etc.

As I am sure you are aware value-added has very little to do with total spending.

And the EU's economy was 97% the size of the US's in 2001 not 71% :rollseyes:

[DanS]

Well then what table should I be looking at for spending?

Re the 1.4x, I was putting it into a per capita basis (or whatever)...

[HershOstropoler]

GP:

"This is true. But very hard for the stakeholder weenies to embrace. watch Roland get all spun up about this. he wants a Euro-style economy full of sinceures and office politics and similar silliness. I know."

You know ****. Funny twist-attempt, but the only point I've made about this is that most comparisons in this regard are crap, and that it's for employers and employees, not the nannystate to settle this. But if you insist, let's have a debate on labour market institutions/regulations.

Dan:

"A couple of years ago, Roland pointed out that the US spends a lot on health care, which at that time I agreed with. I'm surprised by looking at those numbers, though, as it's roughly in line with what is produced in Europe--5.8% of GDP."

Well healthcare spending is about 15 % of GDP in the US, 8-10 % in Europe. So if you believe the fluffy PPP conversions for GDP/capita, you spend twice as much per capita as we do.

To add to what Ef said, I'm not sure how the BEA breaks down that set of figures, but part of health services should be government created (the 5.8 % is just private sector). Also I assume the 100.000 $ something legal costs per doctor appear under legal services, for example....

"Also, housing as a %-age of GDP hasn't moved much over the last 10 or 15 years. Where's that bubble again?"

On the asset side, not so much the output side.

[Ted Striker]

Tag Herr Rechtsberater-Hapsburg

[HershOstropoler]

Hello Herr Flugsicherheitsdesaster. Shouldn't you be asleep ?

[Ted Striker]

I keep forgetting that one, had to look it up again, your composita is too hard core for my neanderthal brain.

You are right, I should be asleep.

[HershOstropoler]

Composita are good for you. Can turn you into a crazy psychiatrist or philosopher.

[Sten Sture]

(edit: please ignore the rash of spelling errors - I was edumakated in Amerika)

On US productivity, the tech boom and leveraging equity prices higher:

(that sounds as enthrawling as the slope of Britney's yield curve)

In partial response to Colon's posts several pages back, but also as a general posit, I would contend that the gains in US productivity were only indirectly because of the technology improvements, but were due to job cuts in the manufacturing and service industries in a vain attempt to bolster flagging relative equity performance.


I haven't examined the raw data to see if any of this can be supported so feel free to disparage my remarks with vigor...


In the mid and late 90s when US productivity was showing its most profound growth, new technologies, and the successful implementation of recent technologies were being given credit for driving productivity growth. This credit was being improperly tranmutated to technology industries by the popular media because of the share appreciation of technology stocks. In effect, investors thought that productivity gains were being driven by sales at Microsoft instead of staff cuts at Ford.

In reality, the technology and telecom industries did enjoy some productivity improvements, but the source of the spectacular gains in worker productivity came from industries whose relative stock performance was falling behind the hyperappreciation of rapid growth companies.

In the mid to late 90s, growth stocks consistently outperformed value stocks by a significant margin. Value stock companies, representing a much larger portion of domestic production than growth companies, were enjoying decent top-line sales growth, but were having difficulty expanding bottom-line margins enough to attract capital at the same level as the small hyper-growth companies.

One of the main ways these value companies tried to push bottom-line margins was to reduce staffing. Curiously, staffing reductions at value companies further reinforced the market perception that value companies should be avoided, exacerbating the p/e gap between value and growth stocks.

Another way the value companies attempted to improve their relative stock performance was to increase leverage by increasing borrowings, buying back stock, or occasionally a combination of the two. These efforts were met with very limited success as market forces generated sufficient natural sellers to overwhelm attempts to bolster value company stock prices.


If the Fed had kept money tighter during this time, it may have discouraged borrowing by value companies, but it would have had little effect on the expensive growth companies that were not borrowers in the debt markets. An area where it may have had an impact was in the telecom space where companies borrowed extensively for 3G licensing and laying fiber. Since both of those outlays were percieved to be essential for continued existence by telecoms, it is speculative to believe that marginally higher borrowing costs would have significantly affected company behavior in this space.

[Ted Striker]

Sten,

I pretty much agree with your last post, couldn't have summed it up that eloquently, but I have been thinking those things over the past 5 years.

WITH VIGOR.

[el freako]

Originally posted by DanS
Well then what table should I be looking at for spending?

I can't find a table specifically related to this, but....


I can create one using data I have at hand (specifically OECD in figures 2002 which has health spending as % of GDP in 1999 for the member countries, and data I have for GDP at PPPs)


United States:
Total Health Spending: $4,290 per head (13.0% of GDP)
Public Health Spending: $1,880 per head (5.7% of GDP)
Private Health Spending: $2,410 per head (7.3% of GDP)

European Union:
Total Health Spending: $2,010 per head (8.6% of GDP)
Public Health Spending: $1,500 per head (6.4% of GDP)
Private Health Spending: $510 per head (2.2% of GDP)

Japan:
Total Healh Spending: $1,850 per head (7.4% of GDP)
Public Health Spending: $1,430 per head (5.7% of GDP)
Private Health Spending: $430 per head (1.7% of GDP)

As you can see the discrepancy is in private spending on healthcare - it's pretty damning that the US's spending on Medicare and Medicaid (which covers only the old or poor) is around the same share of GDP as Europe's or Japan's universal systems (and the universality of those systems probably accounts for much of the difference in private spending between the US and them as well).

[Sten Sture]

I wonder if 90% of the States Utd private health care spending is for plastic surgery in metro LA??? Striker?

El f and others - any thoughts about the 'comparibility' of those numbers? If the public spending is similar, does that argue against further nationalization of healthcare in the US? If we spend 5.7% for just the poor and elderly - shouldn't we be able to cover everyone for the same cost? Are we just that inefficient with our delivery, and if so why can't we get it right? Or are we giving every elderly patient new hips and kidneys???

[TCO]

Originally posted by el freako


I can't find a table specifically related to this, but....


I can create one using data I have at hand (specifically OECD in figures 2002 which has health spending as % of GDP in 1999 for the member countries, and data I have for GDP at PPPs)


United States:
Total Health Spending: $4,290 per head (13.0% of GDP)
Public Health Spending: $1,880 per head (5.7% of GDP)
Private Health Spending: $2,410 per head (7.3% of GDP)

European Union:
Total Health Spending: $2,010 per head (8.6% of GDP)
Public Health Spending: $1,500 per head (6.4% of GDP)
Private Health Spending: $510 per head (2.2% of GDP)

Japan:
Total Healh Spending: $1,850 per head (7.4% of GDP)
Public Health Spending: $1,430 per head (5.7% of GDP)
Private Health Spending: $430 per head (1.7% of GDP)

As you can see the discrepancy is in private spending on healthcare - it's pretty damning that the US's spending on Medicare and Medicaid (which covers only the old or poor) is around the same share of GDP as Europe's or Japan's universal systems (and the universality of those systems probably accounts for much of the difference in private spending between the US and them as well).

What is damning? Should we cut medicare? Or do you want us to have socialized medicine?