The Economics of Halloween
Holidays and special days of remembrance generally have a central theme or in some cases, several of them. For example, on Mothers’ Day, children often demonstrate their appreciation by sending cards; Thanksgiving is a special time for family reunions and turkey dinners; and Christmas and Hanukkah are traditionally highlighted by special presents to friends and loved ones.
Perhaps no occurrence, however, has as many themes, unusual aspects, or cultural accretions as Halloween, which will be observed on the last day of October. The origin of this day is not well documented, nor is the beginning date for wearing outlandish costumes or carving pumpkins. (In Ireland, the turnip was the original vegetable of choice for carving.)
The establishment of these customs with which we are so familiar is shrouded in the mists of history and may go back several thousand years. Some people identify Halloween with the occult and refrain from any celebratory activities. Others, while recognizing Halloween’s early pagan influences, note that the holiday was later co-opted by religious institutions to mark festivals or special holy days. Most people probably consider Halloween a purely secular event devoted to wearing costumes and harvesting as much candy as possible.
Today, Halloween is celebrated throughout much of the Western world, particularly the US, Puerto Rico, Ireland, Canada, and the United Kingdom. Its popularity is growing in Australia and New Zealand. The commemoration was probably brought to the US in the 19th century and has since become a central part of our pop culture. After Christmas, Halloween is the most profitable holiday for US retailers. The National Retail Federation estimates Halloween spending this year will reach nearly $5 billion.
The first city in the US to celebrate Halloween officially was Anoka, Minnesota, in 1921. Costumes and visiting neighbors in search of foodstuffs became popular in the 1950s. Several years later, trendy store-bought yard embellishments began to replace home-made decorations and, by the 1990s, they had become fashionable. Approximately 67% of consumers are expected to purchase general Halloween décor this year.
Thus, on October 31, all across the United States, thousands of doors will be opened to over 36 million “ghouls and goblins” shouting “trick or treat” while pleading for candy and other sweets.
The holiday also brings benefits to farmers, as many of the nation’s more than 108 million housing units will be decorated with pumpkins, or Jack O’Lanterns, complete with candlelit faces. These pumpkins, as well as many others that didn’t endure artists’ knives, are a part of the approximately 1.1 billion pounds of the vined orange gourd that are used to create various delicacies during this time of the year. Hundreds of both new and old recipes will undoubtedly be meticulously followed in the making of myriad soups, breads, pies, and other desserts.
Pumpkin patches can be found from coast to coast. The national leader in pumpkin production is Illinois (almost 500 million pounds last year). California, Ohio, and Pennsylvania produce more than 100 million pounds annually. In Texas, the fourth-leading state in commercial pumpkin production, some 5,000-8,000 acres of pumpkins are planted each year. The yield varies from 20,000 to 33,000 pounds per acre. About 95% of Texas farmers’ pumpkin crops are grown for seasonal ornamental purposes.
Some $1.5 billion will probably be spent on Halloween candy this to satisfy visiting “gremlins” calling for treats with accompanying half-hearted threats of malice for non-participation. Many of the children, along with older siblings and parents, will be decked out in homemade outfits, but about $1.8 billion will be spent this year to purchase creative costumes. Millions more will be used to obtain attire from the nation’s more than 2,500 rental establishments.
There are scores of ways to spell Halloween and even more ways to participate in the distinctive events associated with it. Regardless of how you do either, be sure, on the last day of the month, to be prepared to avoid tricks by passing out treats. It’s fun and, even more, it’s good for our economy.
posted @ 08:16 AM CST [link]
Friday, October 20, 2006
Selling Drugs
“If it ain’t broke, don’t fix it” is a saying with which most of us are quite familiar. That axiom could be applied in the context of one critical aspect of health care delivery—specifically, the cost of prescription drugs and the pool of Pharmacy Benefit Managers (PBMs). Allow me to explain.
Pharmacy Benefit Managers make prescription drug benefits available for almost two-thirds of the nation’s population, including 13 million Texans. They accomplish this by providing coverage through a variety of entities including small businesses, health insurers, labor unions, state and local governments, Fortune 500 employers, and Medicare. By pooling the purchasing power of these consumers, PBMs make prescription drug benefits safer and more affordable.
They also support programs that promote the use of cost-effective prescription drugs, including generics, as well as the development of efficient distribution procedures such as mail-service pharmacies. Moreover, PBMs encourage price competition and negotiate discounts with manufacturers of therapeutically similar drugs. Additionally, they seek agreements with drug stores that participate in their pharmacy networks to provide discounts to customers.
Technologically advanced mail-service pharmacies, which are operated primarily by Pharmacy Benefit Managers, are extremely efficient and effective in dispensing prescriptions. These highly efficient pharmacies generate billions of dollars in savings each year.
In essence, by reducing drug therapy expenses, PBMs generate savings for individuals, insurance carriers, and companies that provide benefits, as well as others. Last year, Texans saved about $3 billion through prescription drug programs managed by PBMs. Estimates for savings in 2006 amount to some $4.8 billion. From 2005-2014, PBMs are expected to save Texans approximately $71.8 billion relative to unmanaged programs.
These savings, of course, free up money for consumers and businesses to purchase non-prescription drug goods and services. In 2005, the savings in Texas generated more than $6.8 billion in economic activity and almost 50,000 permanent jobs. Based on the volume of purchases last year and the current contract provisions, PBMs save the State of Texas an estimated $180 million per year on health benefit costs to its employees.
In a recent study, my firm estimated the overall impact of PBMs on the State budget last year to be $502.5 million. Included in this estimate are direct savings on prescription drugs, associated increases in economic activity, and positive fiscal effects associated with PBM operations. PBM-related economic activities and savings are projected to generate expansion in the average annual employment in Texas of about 111,870 persons over the next decade.
By helping keep the cost of health care delivery lower, PBMs aid in reducing the number of uninsured individuals in the Lone Star State. In 2005, PBMs and their effect of health costs led to a decrease in the number of uninsured Texans of almost 95,600.
Along with these benefits, PBMs help alleviate the growing shortage of pharmacists. Texas ranks 39th among all states in pharmacists per 100,000 population. With the opening of more than 1,000 new pharmacies in Texas from 1993 to 2004, the demand for pharmacists is naturally growing.
The PBM’s 727 highly efficient and automated mail-service pharmacies in Texas are helping to lessen the need for additional pharmacists. The PBM mail-order pharmacies also offer alternatives to individuals in areas underserved by retail pharmacies.
Despite all of these benefits, some folks are proposing to change a system that has proven to be significantly beneficial to the economy of the Lone Star State and the health and well-being of all of us who live here. Placing restrictions on PBM operations in Texas would diminish savings and benefits and add billions to the cost of prescription drugs for consumers, employers, and state and local governments over the next 10 years, as well as add to the ranks of the uninsured (Texas already has the highest portion of uninsured citizens of any state). Imposing unnecessary limitations would be harmful to the overall economy of our state.
Pharmacy Benefit Managers fill a vital and crucial role in the delivery of health care in Texas. The system ain’t broke; we don’t need to fix it.
posted @ 08:10 AM CST [link]
Friday, October 13, 2006
Another New Record
Americans have long been fascinated with records. While the 45 or 78 rpm versions (when you can find them) are certainly interesting, I’m referring to those kinds of records that play on our minds rather than on phonographs.
Some of these records are physical and seemingly require almost superhuman feats to conquer, such as reaching the top of Mount Everest or circumnavigating the globe in a balloon. And quite a number of records that we seek to break are simply psychological in nature and have no great significance in and of themselves.
The Dow Jones industrial average recently reached a new intraday record high of 11,872.94. Though by the closing bell it had retreated to 11,866.69, the mark still broke the previous closing record of 11,727.98 set in January 2000. So is this an important record or one of those without much impact? First, a little history.
The market crossed the psychological mark of 100 on January 12, 1906. The next three decades in US history were tumultuous ones, and over that period, there were substantial rallies and devastating crashes. By the middle of World War II, the 100 point stage was in the rearview mirror, and the Dow was headed for the 1,000 level.
It would prove to be a 30-year journey. Even though the market flirted with 1,000 several times, it was not until November 14, 1972 that 1,000 was finally reached. Another 27 years would pass before the market climbed to 10,000 on March 16, 1999.
The last record high came on the heels of the phenomenal 1982-to-2000 bull market, when economic prosperity and optimism combined with a strong dose of frenzy over technology stocks to send the indices soaring. Investors from all walks of life entered the market in record numbers. When the bubble burst, it was a long, hard fall for many. Adding to the gloom of the crash in various technology darlings were a national (and global) recession and a horrifying act of terrorism on US soil. For several years, a bear market kept most growth in hibernation. After hitting the bottom in October 2002, stocks have slowly recovered.
The stock market, of course, is an index of the direction people believe the economy is moving and it naturally experiences cyclical rises and declines. Currently, with a drop in oil prices, inflation basically under control, and interest rate growth at a standstill, consumers are expressing a greater degree of confidence through increased levels of spending. The stock market is reflecting the resiliency of the economy, which in turn is stoking a growing optimism about the future. Even news about the war in Iraq or North Korea’s nuclear test have not significantly dampened the positive atmosphere that generally prevails across the country.
Market analysts and other pundits point to the facts that the broader-based S&P 500 is a better measure of the economy, and it remains significantly below its record high. The Nasdaq composite is also far below its prior peak. The Dow setting an intraday record, they say, is no big deal. While I agree from the perspective of the pure numbers, I think the psychological effects are more notable.
The world’s most widely watched stock market gauge is flirting with record highs, and that is reason to celebrate. You only have to think back about four years to remember the rampant uncertainty and pessimism that made a return to the near-12,000 level seem impossibly out of reach. It is certainly not (in and of itself) a springboard to another 18-year bull run. It’s also not an indication that the US economy is the best it’s ever been. But it is a symbol of our recovery from dark days, and that is great news.
In the various meetings and conferences at which I speak, I am frequently asked my opinion about the future direction of the stock market. My stock (pardon the pun) answer is that the market will most assuredly rise and fall in the days and years ahead. Just how far in either direction is unknown, but the potential for further gains in the future is undoubtedly limited only by the decisions we make and the desire we demonstrate in striving for ever new heights.
posted @ 07:29 AM CST [link]
Friday, October 6, 2006
Insourcing—Opportunity and Challenge
For several years, there have been outcries regarding the negative impact that outsourcing is having on the US. There have even been myriad predictions as to when this aspect of globalization will cause the American economy irreparable harm.
It is true that some areas of the country have indeed experienced significant economic challenges because firms have shifted various operational tasks to organizations outside the US‘ boundaries. However, absent from most discussions on this matter is the positive impact of the converse of this practice. It’s called “insourcing,” and many Americans have failed to pay much attention to it.
Insourcing occurs when foreign-headquartered businesses establish operations in the US. By creating US subsidiaries, these multinational companies provide jobs—lots of them—while also investing in research and development activities and promoting business practices that make our economy more productive.
Speaking of jobs, these US subsidiaries support approximately 5.1 million American jobs, which is about 4.5% of the nation’s private-sector workforce. On average, the foreign-owned companies pay annual compensation of $63,428, some 32% higher than the average yearly salaries provided by domestic US firms. Annual payroll of US subsidiaries of firms headquartered abroad approaches $324.5 billion—nearly $70 billion more than five years ago.
A report released last week by the Organization for International Investment (OFII) shows that 31% of employment opportunities offered by US subsidiaries are in the manufacturing sector. A substantial portion of the goods produced by these operations are exported around the world and account for nearly 19% of our nation’s total exports.
Last year, the net financial inflow of foreign direct investment in the US was $128.6 billion, a 20% hike above the previous year. Reinvested earnings totaled $59.4 billion in 2005, a jump of $3.5 billion over 2004. Some 98% of foreign direct investment comes from private-sector firms; only 2% is from firms owned or controlled by foreign governments.
Over the years, Texas has been an attractive location for foreign-owned companies to place their operations and is currently ranked third in the nation in “insourced” jobs. California is first with 547,000 jobs, followed by New York with 377,000. Florida and Illinois round out the top five with 238,400 and 235,600 jobs, respectively. The 341,200 Texans now employed by US subsidiaries represent an increase of more than 25% over the past five years.
More than 27% of all the jobs created in Texas by foreign-owned companies (92,600) are in the manufacturing sector. Manufacturing, of course, has proven to have a significant multiplier effect on the economy as it stimulates quite a bit of activity and employment in those sectors that provide supplies to the manufacturing companies.
Although Texas has been very attractive to global investors for the past decade, competition for investment has been intensifying dramatically. As a result, only 900 new jobs were created in the Lone Star State by multinational companies in 2005. Across the US, insourcing employment decreased by 2.4% or 128,000 positions, for the same period.
To ensure that the economies of our state and nation continue to benefit from insourcing, policymakers and business leaders must expand and strengthen their efforts to make Texas and the US viable locations for the placement of subsidiaries by companies from around the world. Even though the trend has slowed recently, these firms are an important source of economic activity including jobs.
Next time you see a headline decrying the “flow of US jobs overseas” or some similar negative regarding the practice of outsourcing, remember that there is clearly another side to the story. Foreign companies employ hundreds of thousands of Texans and millions of Americans. Moreover, the jobs on US shores typically involve good pay and sizable ripple effects through the economy.
posted @ 08:05 AM CST [link]