Japanese fishing trawler sunk by giant jellyfish Telegraph

Gold May Be Making a Short-Term Top DoctoRx

Right-Wing Unleashes Racism on Rep Cao Matt Yglesias

Why Are Banks Holding So Many Excess Reserves? Alea

Rick Bookstaber to join SEC Ed Harrison. This is very cool!

IMF exploring insurance levy on banks Reuters

G20 ministers agree on nothing EuroIntelligence

Phys Ed: Why Doesn’t Exercise Lead to Weight Loss? New York Times. The very existence of this article is an indictment of what passes for exercise physiology in the US. The information presented here has been known for at least a decade (and BTW, it is also misleadingly incomplete, it suggests exercise is less effective that it can be. This case study was a particularly poorly designed, but nevertheless common protocol). No wonder Americans have trouble losing weight. They get bad advice.

Paranoia Strikes Deep Paul Krugman, New York Times

Cash For Craters Bill Dahl

For brave investors, Zimbabwe could be the ultimate turnaround story Ambrose Evans-Pritcard

Obama has lost sight of the centre Clive Crook, Financial Times

Job cuts ‘will continue even as the economy starts to recover’ Independent

Economists Seek to Fix a Defect in Data That Overstates the Nation’s Vigor Louis Uchitelle, New York Times

Antidote du jour. I particularly like this one:

Well it turns out that the public is not so easily swayed. A BBC survey of 29.000 people in 27 countries found that significant majorities, even in the US, thought more regulation and reform was needed to rein in capitalism gone amok. Only 11% said it was fine as is. By contrast, 23% of the total deemed it to be “fatally flawed”:

Drug companies are masters of this art. At Pfizer, which sets the gold standard for drug selling methods, each salesman markets only three drugs in his territory. So if a doctor is a candidate for more than three, he has more than one salesman calling on him. The scripts are highly refined, with a 15 second pitch that rolls into a one minute pitch that rolls into a longer chat if the drug detailman can get the time. All drug companies keep current records on how much each doctor is buying of each drug. Another tactic is “You aren’t prescribing as much of XXX as your peers are….”

They also give lots of little goodies (pens, notepads, desk toys). There is ample research that shows that giving even minor gifts is effective (doubters please read Robert Cialdini’s classic, Influence: The Art of Persuasion). And drug companies do all kinds of small scale research on existing drugs (as in this has no medical benefit, it’s just a sales tool, but those studies no doubt get lumped in the R&D total) to give the salesmen something fresh to talk about with existing drugs.

Salesmen must also adhere very strictly to their sales pitches (unlike most other types of sales, where the reps have latitude and develop their own approaches) because the products are regulated (if a rep exaggerated the efficacy of a drug, that would be a regulatory violation). Many drug companies like to hire former military personnel, since they find they will comply with instructions but also be persistent.

And that’s before we get to TV ads, something I particularly despise….

So why the strict controls? Salesmen are permitted to pitch drugs ONLY for uses approved by the FDA. But doctors can prescribe drugs any way they fit. If some doctor had a theory that Viagra would treat schizophrenia, he’s free to give it to a patient for that reason. That sort of prescription is called an “off label use.” The biggest buyers of cannulas (plastic tubes, basically, to provide or remove fluids during surgery) is plastic surgeons for liposuction, and that is off label.

Now there are legit off label uses. For instance, many autoimmune diseases are pretty obscure. Most of the research is done on the most common one, rheumatoid arthritis, so a doctor might look and see if there were any new developments or treatments for RA and might use them on a patient that had scleroderma. But that still means it is absolutely not kosher to market them for unapproved uses.

So why is prosecutor Michael Loucks up in arms? Pfizer has in the past pled guilty to criminal charges for just this sort of behavior, paid substantial fines, and engage in the very same conduct on other products right on the heels of the 2004 settlement. Moreover, Pfizer has a new instance of alleged illegal drug sales practices. And as a Bloomberg story discusses, Pfizer has plenty of company.

It seems pretty clear, given its recidivist behavior, that even multi-hundred million dollar fines are no deterrent. In other words, it still must pay, even after the big fines, for Pfizer to flout the law. I bet they even have a financial analysis worked up on the tradeoff.

Maybe it’s time for the prosecutors to haul out RICO charges….

From Bloomberg:

Prosecutor Michael Loucks remembers clearly when lawyers for Pfizer Inc., the world’s largest drug company, looked across the table and promised it wouldn’t break the law again…Loucks was head of the health-care fraud unit of the U.S. Attorney’s Office. One of Pfizer’s units had been pushing doctors to prescribe an epilepsy drug called Neurontin for uses the Food and Drug Administration had never approved…

New York-based Pfizer agreed to pay $430 million in criminal fines and civil penalties, and the company’s lawyers assured Loucks and three other prosecutors that Pfizer and its units would stop promoting drugs for unauthorized purposes.

What Loucks, who’s now acting U.S. attorney in Boston, didn’t know until years later was that Pfizer managers were breaking that pledge not to practice so-called off-label marketing even before the ink was dry on their plea.

On the morning of Sept. 2, 2009, another Pfizer unit, Pharmacia & Upjohn, agreed to plead guilty to the same crime. This time, Pfizer executives had been instructing more than 100 salespeople to promote Bextra, a drug approved only for the relief of arthritis and menstrual discomfort, for treatment of acute pains of all kinds.

For this new felony, Pfizer paid the largest criminal fine in U.S. history: $1.19 billion. On the same day, it paid $1 billion to settle civil cases involving the off-label promotion of Bextra and three other drugs with the U.S. and 49 states.

“At the very same time Pfizer was in our office negotiating and resolving the allegations of criminal conduct in 2004, Pfizer was itself in its other operations violating those very same laws,” Loucks, 54, says. “They’ve repeatedly marketed drugs for things they knew they couldn’t demonstrate efficacy for. That’s clearly criminal.”

The penalties Pfizer paid this year for promoting Bextra off-label were the latest chapter in the drug’s benighted history. The FDA found Bextra to be so dangerous that Pfizer took it off the market for all uses in 2005…

Since May 2004, Pfizer, Eli Lilly & Co., Bristol-Myers Squibb Co. and four other drug companies have paid a total of $7 billion in fines and penalties. Six of the companies admitted in court that they marketed medicines for unapproved uses…

In January 2009, Indianapolis-based Lilly, the largest U.S. psychiatric drug maker, pleaded guilty and paid $1.42 billion in fines and penalties to settle charges that it had for at least four years illegally marketed Zyprexa, a drug approved for the treatment of schizophrenia, as a remedy for dementia in elderly patients.

In five company-sponsored clinical trials, 31 people out of 1,184 participants died after taking the drug for dementia — twice the death rate for those taking a placebo…

“Marketing departments of many drug companies don’t respect any boundaries of professionalism or the law,” says Jerry Avorn, a professor at Harvard Medical School in Boston… “The Pfizer and Lilly cases involved the illegal promotion of drugs that have been shown to cause substantial harm and death to patients.”…

“It’s an unbearable cost to a system that’s going broke,” says Avorn, who heads the pharmacology economics unit of Brigham and Women’s Hospital in Boston. “We can’t even afford to pay for effective, safe therapies.”

About 15 percent of all drug sales in the U.S. are for unapproved uses without adequate evidence the medicines work, according to a study by Randall Stafford, a medical professor at Stanford University in Palo Alto, California….

In pushing off-label use of drugs, companies find ready and willing partners in physicians. Under the fragmented system of medical regulation in the U.S., it’s legal for doctors to prescribe FDA-approved drugs for any use.

The FDA has no authority over doctors, only over drug companies, regarding off-label practices. It’s up to the 50 states to oversee physicians.

“I think the physician community has to take some ownership responsibility and do their own due diligence beyond the sales and marketing person,” says Boston’s former U.S. Attorney Michael Sullivan….

Pharmaceutical companies have showered doctors with cash to persuade them to use drugs off-label, according to their guilty pleas.

Pfizer’s marketing program offered doctors up to $1,000 a day to allow a Pfizer salesperson to spend time with the physician and his patients, according to a whistle-blower lawsuit filed by John Kopchinski, who worked as a salesman at Pfizer from 1992 to 2003.

“By ‘pairing up’ with a physician, the sales representative was able to promote over a period of many hours, without the usual problems of gaining access to prescribing physicians,” Kopchinski says. “In essence, this amounted to Pfizer buying access to physicians.”

This is an excellent article, and the examples above are only the tip of the iceberg of the conduct it describes.

Preface: If you are a Christian or Jew, the importance of the Bible is probably obvious. If you are not, please consider passing this essay on to people of those faiths who you know.

If you are an atheist and believe that religion is crazy, please remember that some 85% of the American population identifies itself as Christian and millions more identify themselves as Jewish, and that most people make decisions and process information based on their beliefs and emotions.

The head of Goldman Sachs literally said he’s doing “God’s work” with his banking activities.

The head of Barclays also recently told his congregation that banking as practiced by his company was not antithetical to Christian principles.

Are they right? Is big banking as practiced by the giant banks in harmony with Christian principles?

Do Justice

Initially, the Bible does not counsel us to ignore the breaking of laws by the the powerful.

In fact, the Bible mentions justice over 200 times — more than just about any other topic. The Bible asks us to do justice and to stand up to ANYONE — including the rich or powerful — who do injustice or oppress the people.

There have been widespread, credible allegations that Goldman Sachs and other giant banks have broken the law (see this, for example).

Indeed, one of the first things God asks of us is to do justice:

He has told you, O man, what is good; and what does the Lord require of you but to do justice, and to love kindness, and to walk humbly with your God? (Micah 6:8)

While many churches and synagogues have become obsessed with other issues, many have arguably ignored this most important of God’s demands of us. As pointed out by a leading Christian ministry, which rescues underage girls trapped as sex slaves in third world countries:

In Scripture there is a constant call to seek justice. Jesus got upset at the Pharisees because they neglected the weightier matters of the law, which He defined as justice and the love of God . . . Isaiah 58 complains about the fact that while the people of God are praying and praying and praying, they are not doing anything about the injustice.

Should Christians just pray for justice and leave the rest to God?

That’s not what the Bible asks us to do. Instead, Hebrews 11:33 tells us that we are God’s hands for dispensing justice, and God uses us to “administer justice.”

We have to “walk our talk” and put our prayers into action.

God demands that we do everything in our power to act as “God’s hands” in bringing justice. And as Saint Augustine reminds us, “Charity is no substitute for justice withheld.”

Please reflect on the following Scripture:

The Lord looked and was displeased that there was no justice. He saw that there was no one, He was appalled that there was no one to intervene. (Isaiah 59:15-16)

This is the only place in the Bible where the word “appalled” is used for the way God feels — in other words, the only thing which we know God is appalled by is if people are not doing justice.

There are hundreds of other references to justice in the Bible, including:

• Blessed are they who maintain justice . . . . (Psalm 106:3)

• This is what the LORD says: Maintain justice and do what is right . . . . (Isiah 56:1)

• This is what the LORD says: Do what is just and right. (Jeremiah 22:3,13-17)

• Follow justice and justice alone. (Deuteronomy 16:19, 20)

• For the LORD is righteous, he loves justice . . . . (Job 11:5,7)

• Learn to do right! Seek justice . . . . (Isaiah 1:17)

So if the powerful players in the giant banks broke the laws, they must be held to account.

Manipulating Money

Moreover, there have been credible allegations that Goldman Sachs and other giant banks manipulate the currency and other markets.

As Ron Paul notes, the Bible forbids altering the quality of money (which, at the time and place, was entirely in the form of coins):

Daniel Gross points out that part of the reason that the American stock markets are going up even though unemployment is rising and the real economy suffering is because multinational corporations headquartered in the U.S. are experiencing strong sales abroad:

Here’s a puzzle: The stock markets are doing very well, yet the performance of the underlying economy doesn’t seem to justify optimism. The buoyant S&P 500 has risen 53 percent since the March bottom. And while the economy expanded at a 3.5 percent rate in the third quarter, unemployment is high, incomes are stagnant, and consumers are shaky…

It could be that the notion the stock market is an accurate gauge of the domestic economy’s temperature is outdated.

The Dow, the S&P 500, and the NASDAQ are primarily indices of large U.S.-based companies, not main street businesses: more Davos than Chamber of Commerce. These increasingly cosmopolitan firms have been busy globalizing and expanding their operations overseas. In 2006, according to Standard & Poor’s, 238 members of the S&P 500 broke out revenues between U.S. and non-U.S. sales. These companies notched about 43.6 percent of sales outside the United States. For large companies that had already saturated the U.S. market, the home market was something of an afterthought. In the second quarter of 2007, 66 percent of Coca-Cola’s beverage business came from outside North America.

And thanks to the long recession, demand for products and services of all types in the United States has shrunk even since 2006. Yes, the global economy in 2008 experienced its first year of shrinkage since World War II. But growth has resumed, and in some places—Peru, China, India—it never stopped. As a result, the globe’s economic geography has continued to change, with the United States accounting for a smaller chunk of global output and demand each year. For much of the past two years, virtually all growth in economic activity has taken place outside America’s borders. As a result, U.S.-based companies are becoming even more reliant on non-U.S. customers and operations for sales… in two years, big companies’ proportion of sales coming from outside the United States rose 9.8 percent. It’s likely the 2009 figure will be something very close to 50 percent.

Don’t American Workers Win?

The fact that companies based in America are raking in profits from sales abroad is good for American workers, right?

No.

Gross points out that American workers don’t benefit because a lot of the goods sold abroad by American multinationals are made abroad:

If companies participated in foreign markets primarily by exporting U.S.-made goods, this shift would be good news for the U.S. economy and workers. But that’s not how it works. In fact, in the months after the global credit meltdown, U.S. exports plummeted. They bottomed in April, at $120.6 billion, and though they have been rising, the August 2009 total is still 20 percent below the August 2008 total. Globalization is changing the way we do business. It’s not a matter of U.S. companies exporting goods—burgers, soda, cars, software—made in the United States to Beijing but rather, making goods overseas and selling them overseas…

“Based on a Russian fairy tale and produced in Russia using local talent, the film is the latest step in Disney’s broad push into local language production,” the FT reports. As Disney CEO Robert Iger put it: “We would not be able to grow the Disney brand … if we just created product in the US and exported it to the rest of the world.” If Book of Masters succeeds, it will be good for Disney’s American shareholders but won’t do a whole lot of good for its U.S.-based employees. Or consider American icon General Motors. GM’s sales in China are rocking. In the first nine months, the company sold 1.3 million cars in China, including more than 181,000 in September. By contrast, GM in the United States in the first nine months sold 1.5 million cars in the United States, down 36.4 percent from the year before. And in September, GM sold just 156,673 cars in the United States. That growth in China is good for GM’s shareholders and for some of its executives. But since most of the cars sold in China are produced there, with parts produced by suppliers in China, rising sales in the Middle Kingdom won’t translate into jobs for unionized workers in the Middle West.

The rising U.S. stock market and a weak, slow-growing U.S. consumer sector aren’t really in contradiction. Given the large-scale trends transforming the global economy—and the role of large U.S. companies in it—it may be possible to have a sustainable rally in American stocks without a sustainable rally by American consumers.

Don’t Multinationals Pay A Lot in Taxes?

Well, at least the multinationals are paying a good chunk of taxes into the American economy, right?

Not exactly.

The Washington Post notes:

About two-thirds of corporations operating in the United States did not pay taxes annually from 1998 to 2005, according to a new report scheduled to be made public today from the U.S. Government Accountability Office…

In 2005, about 28 percent of large corporations paid no taxes…

Dorgan and Sen. Carl M. Levin (D-Mich.) requested the report out of concern that some corporations were using “transfer pricing” to reduce their tax bills. The practice allows multi-national companies to transfer goods and assets between internal divisions so they can record income in a jurisdiction with low tax rates…

[Senator] Levin said: “This report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.”

Indeed, as Pulitzer prize winning journalist David Cay Johnston documents, American multinationals pay much less in taxes than they should through a variety of widespread schemes, including:

• Selling valuable assets of the American companies to foreign subsidiaries based in tax havens for next to nothing, so that those valuable assets can be taxed at much lower foreign rates

• Pretending that costs were spent in the United States, so that the companies can count them as costs or deductions in the U.S. and pay less taxes to the American government

• Booking profits as if they occurred in the subsidiary’s tax haven countries, so that taxes paid on profits are at the much lower safe haven rate

• Working out sweetheart deals with certain foreign governments, so that the companies can pretend they paid more in foreign taxes than they actually did, to obtain higher U.S. tax credits than are warranted

• Pretending they are headquartered in tax havens like Bermuda, the Cayman Islands or Panama, so that they can enjoy all of the benefits of actually being based in America (including the use of American law and the court system, listing on the Dow, etc.), with the tax benefits associated with having a principal address in a sunny tax haven.

• And myriad other scams

As Johnston documents, the American economy is hurt by the massive underpayment of taxes by the huge multinationals.

Consequences of the Lehman failure Jim Hamilton

Health Care Bill Passes Through House. Politics Still SUCK EconomPic Data

The media market has a conservative bias John Hempton

California bank failure will cost FDIC $1.4 billion MarketWatch (hat tip reader John D)

GOP Members Shout Down Women Members of Congress Matt Yglesias

“Why Do Central Banks Have Assets?” Mark Thoma

Consumer credit down, but does it show deleveraging? Ed Harrison

The third-quarter productivity numbers show that business is squeezing more work out of employees in hard times Business Week (hat tip DoctoRx)

The First Call Before The First Call Cassandra

Antidote du jour:

Self assessment (and undue self regard) was one of the big fallacies of the famed stress tests. The banks were asked to run scenarios on their own loan portfolios, with no independent verification of what was in them (as in no sampling of loan files, for instance). And on the trading side, the tests were run using the banks’ own risk models, which as we all know did a wonderful job in the run-up to the crisis.

Not everyone is convinced. The Financial Stability Board, a group of international regulators tasked with developing new international banking standards, ascertained that many of the 20 biggest banks are too optimistic about their health and warned against letting them exit close government supervision too soon. From Bloomberg:

“Some banks became dependent on this assistance and don’t seem to be able to detach themselves from the public support,” FSB Chairman Mario Draghi told reporters today after a G-20 meeting in St. Andrews, Scotland. “Some jurisdictions may continue to support unsustainable business models.”…

“While firms indicated that they had either fully or partially compiled with the most recommendations, the Senior Supervisors Group members found that these assessments were, in the aggregate, too positive,” said the FSB. “Much stronger ongoing management commitment to risk control” will be required to close the gap.’’….

Finance ministries should be wary of institutions wanting to exit the programs too quickly, the FSB said.

“Authorities may want to delay exit in order to preserve their freedom of action in case conditions again worsen,” the report said. “A terminated program that subsequently needs to be reinstated could undermine the broader credibility of the official sectors’ policy response.”

Executive Summary

1. According to BLS, payrolls fell at a 188,000 a month rate over the last three months. But their own household survey says employment fell at a 589,000 a month rate.

2. Why the discrepancy?

3. Chris Manning of the BLS told us last month that payrolls were overestimated in the twelve months ending March by 824,000. The source of this error was the birth/death model. BLS used “plug” numbers for the number of births and deaths. These “plug” numbers were wrong. They led to estimated positive contributions to employment that were too high. Most of the error (675,000 out of a total 824,000 jobs) occurred in the first quarter of this year. The birth/death model was adding significantly to payrolls when all other payrolls were falling. In reality the contribution from net births and deaths was in fact negative.

4. Manning told us that the faulty birth/death model was still being used for the months after March of this year. The implication was that the faulty birth/death model would continue to overstate payrolls and understate the payroll job losses in the months since March.

5. And, in fact, the BLS is doing just that. For the last three months they are assuming net birth/deaths have added 18,000 jobs a week. Last year over the same period they assumed it added 17,000 a week, the year before 18,000 a week, and the year before smack in the middle of the economic boom 18,000 a week.

6. It is obvious what BLS is doing. They are simply plugging in an extrapolated figure with zero adjustment for the most severe labor market contraction in three generations. And, worse yet, they know the birth/death number they are using is pure baloney.

7. NUTS!

8. Therefore, reality probably lies somewhere between the payroll survey monthly rate of job loss of 188,000 and the noisy household survey rate of job loss of almost 589,000. A best guess would be that jobs continue to be lost at a rate of 300,000 a month or more.

Payrolls were down 190,000. A slightly larger decline than the consensus. But prior payrolls were revised to show a lesser decline in August and September combined of 91,000. Payrolls with revisions declined only 99,000.

From a payroll survey perspective employment conditions are improving significantly. Not so from a household survey perspective.

The unemployment rate rose by .4%. I expected a rise, but only because I expected the sharp drop in the labor force in recent months to be partly reversed. In fact the labor force fell further by 31,000. The increase in the unemployment rate came entirely from another huge decline in the household measure of employment of 589,000. This followed declines of 785,000 in September and 292,000 in August. That is an average monthly rate of decline in employment of 589,000. That is as bad as it has been for the entire recession adjusted for population discontinuities.

The household survey of employment is a very noisy series. I was absolutely certain that, after the huge declines of August and September, we would see a much lesser decline in household survey employment in October. I thought that a decline of 200,000-300,000 would still signal serious employment weakness because of the huge declines in the prior two months.

No matter how noisy we think the household survey is, we have to take these household survey employment declines seriously. The three month decline may not be close to 1.8 million; it may be half that. It does not matter. A 300,000 a month rate of employment decline is very serious.

How can there be such a huge divergence between the household survey which now shows almost 600,000 job losses a month and the payroll survey which now shows average job losses of under 200,000 a month? Part of it, of course, is data noise. But part of it must be a continued overestimation of net positive job creation arising from the notorious birth/death model….

Therefore, reality probably lies somewhere between the payroll survey monthly rate of job loss of 188,000 and the noisy household survey rate of job loss of almost 589,000. A best guess would be that jobs continue to be lost at a rate of 300,000 a month or more.

Is this consistent with anything else? Yes. Though the manufacturing ISM showed a huge increased in its employment index, the non-manufacturing ISM showed a significant decrease to a low level. The vast majority of employment is in the non-manufacturing sector.

Also, if the rate of job loss was seriously contracting the work week should be rising. A move to a longer work week is often the first move by employers when labor conditions start to improve. The payroll survey shows a decline in the work week over the last three months and no improvement in the last month.

The latest initial and continuing claims suggest that there is some recent abatement in job losses. But they have probably continued at a significant rate and income destruction probably continues at a rapid pace….

As for the markets, they are so clueless at reading the fundamentals I have no idea how they will react to this data.

Thomas Frank has a good piece in the New York Times tonight, in which he argues that health care reform might lead more doctors to be salaried rather than in an entrepreneurial format in a system that is piecework and therefore rewards more procedures, and therefore encourages doctors to run tests and procedures, adding to healthcare costs.

If you don’t think this happens, I have a bridge I’d like to sell you. I had had a very good doctor before I went overseas for two years, but when I came back, he was no longer practicing (he had taken an job with a small drug company). I had surprising trouble finding a doctor I liked remotely as much as him (and I found doctors I liked in Syndey pretty readily, so I don’t believe I am unduly fussy). I also have a a good insurance policy, it allows me to see anyone with a 20% copay. I can go directly to a specialist, no gatekeeper nonsense. But a 20% copay is also enough to make me sensitive to overtesting.

One doctor I was referred to had his own townhouse. Bad sign. Decorated like that of a plastic surgeon. Second bad sign. He interviewed patients (by then in a gown) in a surprisingly cavernous office for a townhouse behind a large desk that I swear reminded me of Nazi Gemany (and I am a WASP and therefore not inclined to that line of thought). It read to me as an effort to intimidate, and he confirmed that by looking at my file and sneering, “XXX [my address] That’s a rental, isn’t it?”

Even though I am basically healthy, he proceeded to order $2000 worth of bloodwork and have me take an highly sensitive echocardiogram in his office (a $1300 test). Now mind you, my last doctor, a board certified cardiologist, said, “You would be immortal based on your heart.” There was not reason to run a costly test on my heart, but I didn’t know it was costly until I got the bill. I did have an idea what the damage on the bloodwork would be, though, and refused to have that done.

I also had an incident earlier where an orthopedic surgeon was particularly eager to operate on my knee despite a pretty ambivalent radiologist’s report on an MRI. Even though the report said, “possible false positive” his reaction was, “Oh, I’ll just go in, have a look, clean whatever I find up, you’ll be in on a Friday and walking by Monday. ” A second opinion (by a team of radiologists on the same MRI) found my knee was “perfectly normal.”

I hate to give personal anecdotes, but if as a pretty healthy person who does not see doctors often, I have had two clear experiences of doctors pushing to overtreat (and a few borderline cases too), how often does this happen to the average Joe, who might not be in as good general health and less of a constitutional skeptic than me?

Most patients are not able or wiling to buck their doctors if they order unnecessary tests or procedures. Frank describes the general case:

Most doctors undoubtedly recommend only those tests and procedures that they sincerely believe to be in their patients’ best interests. Yet those interests are seldom completely clear. And when doctors know that their incomes will be higher if they recommend additional procedures, many may tilt in that direction.

Physicians, like everyone else, are also subject to herd behavior. If some doctors in a given city begin prescribing additional procedures, others may feel pressure to follow suit — not just because patients expect it, but also to keep pace with colleagues’ incomes.

Yves here. There are most decidedly national as well as regional differences in practice. I noticed when I was in Australia, doctors were up on the current research, but were not inclined to swallow it hook, line and sinker. They were, far more than US doctors, very cognizant of the limits of recent studies (for instance, if it was a small sample size, or was a particular population, and thus not necessarily generalizable). And they were much less eager to operate and prescribe drugs.

Frank does point out that some approaches to cutting the test-happiness of US medicine have yielded positive outcomes:

In an article in The New Yorker, for example, Atul Gawande described an entrepreneurial medical subculture in McAllen, Tex., in which doctors prescribe roughly half again as many tests and procedures as those in otherwise similar Texas communities. McAllen, he argued, is where American health care is heading.

Current reform bills do little to curtail such spending, and all include subsidies to help meet insurance mandates, which would shift substantial existing health spending onto the federal budget. So enacting one of these bills would intensify pressure to cut costs.

The good news is that Dr. Gawande also identifies at least some health plans, like that of the Mayo Clinic in Minnesota, that have sidestepped the incentive problem by putting doctors on salary and operating their own hospitals. Such plans, which provide superb care and high patient satisfaction at significantly lower cost than conventional fee-for-service plans, would become more attractive under the proposed legislation.

But Frank asks the obvious question, and provides his own answer:

But that raises a puzzling question: If the Mayo model is better and cheaper, why hasn’t it swept the market like wildfire?

Part of the answer lies in the so-called adverse selection problem, a market failure that explains why so many Americans remain uninsured. When the decision to buy insurance is left to individuals, the young and healthy often opt out, thinking — generally correctly — that their premiums are likely to far exceed any reimbursement they will get.

But that means that the remaining members of the insured pool, on average, are significantly less healthy, so premiums must rise further. This puts pressure on the healthiest remaining members to drop out, causing still further increases in premiums, and so on…

But adverse selection can’t explain why the Mayo model hasn’t gained ground faster in the employer-provided health insurance market. That market doesn’t suffer from adverse selection, because insurance is tax deductible only if insurers accept all employees on equal terms.

Dr. Gawande reports that Mayo has recently opened a clinic that serves employers in the high-cost Florida market. But given how bitterly businesses complain about rising health care costs, we might have expected much more movement.

One explanation may be residual prejudice against the for-profit H.M.O. wave of the 1990s, which entailed a conflict of interest of a different sort. Patients paid a fixed annual fee, which meant that H.M.O.’s made more money each time they avoided prescribing a procedure. Because clinics like Mayo’s are nonprofits, they may avoid this conflict.

Another factor militating against quick expansion of the Mayo model is that many current doctors chose their profession hoping to earn lucrative pay, which they might not be able to do in a nonprofit clinic. But across the economy, we see talented professionals whose career choices are driven by concerns far broader than pay. Many top graduates from elite law schools, for example, turn down lucrative positions in corporate law to work for public-interest groups paying a third as much.

I suspect Frank is right on the pay issue, but for the wrong reasons. I am always staggered when I hear of law school and business school graduates being in debt to the tune of $100,000, even $200,000. I have no idea what the level for MDs is, but I imagine it is even worse.

And you cannot discharge student debt in a bankruptcy. You have no choice but to pay it (or I suppose flee the US or go underground, there are always extreme options). So the fee for service model may remain intact despite the fact that it produces poor outcomes for society as a whole because the current generation of doctors needs high incomes to so they can service their debts.

Antidepressants and Violence EconoSpeak. One of my pet peeves is how psychoactive medications are handed out like candy in the US. Just go to your MD, say you are exhausted, and once they eliminate anemia, chronic fatigue syndrome, and low thryoid, they assume it’s in your head and will offer you all sorts of mood altering goodies.

What does Google Suggest suggest about the state of humanity? CNet

Jon Stewart spoofs Glenn Beck Ed Harrison. Too funny.

Landing a job like getting into Harvard CNN (hat tip Felix Salmon)

A Tsunami of Red Ink Michael Panzner

Wall Street still overestimating the American consumer The Economic Populist

JRE Keeps You Entertained All Weekend: It’s not nice to make fun of Telstra Josh Reviews Everything. Two of my accomplishments when I lived in Australia were victories against Telstra. The first was getting Telstra to correct a large overcharge on my mobile phone bill. You have no idea what that entails. The second was, after I was told I would have to wait three weeks to get broadband (!) because there were no open ports in my local office, finding an open port on my own and using that info to insist they give me service sooner. This post is further confirmation that all the bad things said about Telstra are accurate.

“Demystifying Social Knowledge” Mark Thoma

Consumer debt drops for record 8th straight month MarketWatch (hat tip reader John D)

Report: 237 millionaires in Congress Politico (hat tip reader John D)

Bank of England says financiers are fuelling an economic ‘doom loop’ Telegraph. It is striking how the BofE is willing to take on the banksters, when no one in the officialdom here will.

Nominally misguided (wonkish) Paul Krugman

Barking Up the Wrong Tree Roger Ehrenberg. Today’s must read

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