Messrs. Reinhart and Rogoff demonstrate that financial meltdowns typically follow real-estate bubbles, rising indebtedness and gaping current-account deficits. Before 2007, the economies that are suffering most today, from tiny Iceland to the mighty U.S., shared these maladies.
“This Time Is Different” doesn’t simply explain what went wrong in our most recent crisis. The book also provides a roadmap of how things are likely to pan out in the years to come. Real-estate bubbles invariably give way to banking crises. Losses in the financial sector are followed by the sharp deterioration in government finances amid bailouts and decreased tax revenue. The decline in economic output that follows the bust is sharp, but the recovery tends to be slow and protracted. The situation is especially dire when the crisis is geographically widespread. …
It also issues a worrying economic forecast. Currently the markets are discounting a rapid and sustained recovery from the global economic meltdown. Around the world, governments are borrowing very large sums at very low rates—assuming that stimulus spending will generate future taxes to pay off the current debt binge. But Messrs. Reinhart and Rogoff’s work points in a rather different direction: toward the potential for future national debt crises and rising inflation. Of course, this time may be different. But don’t bet on it.
Weekend Interview with John Mackey (WSJ): The Whole Foods CEO discusses the backlash over his health care reform Op-Ed (addressed in an earlier blog post). There’s some good humor in this as Mackey explains the reasoning behind his position and his amusement at some of the response.
Mr. Mackey says that combining “our high deductible plan (patients pay for the first $2,500 of medical expenses) with personal wellness accounts or health savings accounts works extremely well for us.” He estimates the plan’s premiums plus other costs at $2,100 per employee, and about $7,000 for a family. This is about half what other companies typically pay. “And,” he is quick to add, “we do cover pre-existing conditions after one year of service.”
Whole Foods also puts several hundred dollars into a health savings account for each worker.This money can be used to cover routine medical expenses, like drug purchases or antismoking programs. If that money is not used in a year, the workers can save the money to pay for expenses in later years.
This type of plan does not excite proponents of a single-payer system, who think that individuals can’t make wise health-care choices, and that this type of system is “antiwellness” because it discourages spending on preventive care.
Mr. Mackey scoffs at that idea: “The assumption behind that is that people don’t care about their own health, and that somebody else has to—a nanny or somebody—has to take care of me because people are too stupid to make these decisions themselves. That’s not been our experience. We find our team members [employees], not surprisingly, seem to care a whole lot about their health.”
I ask if he thinks the attacks were instigated by unions. While many other grocery chains are unionized, Whole Foods is not. “Well, the unions have had an adversarial relationship with us,” he replies. “I don’t think all the protests are strictly union-based, but I do think the unions have contributed to that. I think they’ve piled on and in some cases are orchestrating some of it.” He says he can’t divulge private information about whether the boycott hurt sales, but the stock hasn’t taken any hit.
“I sometimes think that unions don’t understand that we live in a free society and people have the right to not select union representation if they don’t want it. I oftentimes hear things like ‘Whole Foods is preventing people from unionizing,’ which is a lie. That’s illegal. We can’t prevent anyone from unionizing,” Mr. Mackey says.
So why aren’t they choosing it? “Because it’s not in their best interest,” he insists. “We have better benefits and higher pay” than Whole Foods’ unionized competitors. “We wish the unions would respect people’s right to not have a union.” Do they keep agitating? “Yeah, they do.”
All this from a man who started out as a “long-haired counterculture anticapitalist in the early 1970s”
“Before I started my business, my political philosophy was that business is evil and government is good. I think I just breathed it in with the culture. Businesses, they’re selfish because they’re trying to make money.”
At age 25, John Mackey was mugged by reality. “Once you start meeting a payroll you have a little different attitude about those things.” This insight explains why he thinks it’s a shame that so few elected officials have ever run a business. “Most are lawyers,” he says, which is why Washington treats companies like cash dispensers.
Mr. Mackey’s latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren’t forces of evil. He calls his concept “conscious capitalism.”
Mackey’s interview is a refreshing example of someone who is simply thinking clearly in terms of business and economic matters. Such examples are few and far between these days.