Monthly Archives: March 2015

Sweden’s Wallstrom

From the Spectator:

A few weeks ago Margot Wallström, the Swedish foreign minister, denounced the subjugation of women in Saudi Arabia. As the theocratic kingdom prevents women from travelling, conducting official business or marrying without the permission of male guardians, and as girls can be forced into child marriages where they are effectively raped by old men, she was telling no more than the truth. Wallström went on to condemn the Saudi courts for ordering that Raif Badawi receive ten years in prison and 1,000 lashes for setting up a website that championed secularism and free speech. These were ‘mediaeval methods’, she said, and a ‘cruel attempt to silence modern forms of expression’. And once again, who can argue with that?

The backlash followed the pattern set by Rushdie, the Danish cartoons and Hebdo. Saudi Arabia withdrew its ambassador and stopped issuing visas to Swedish businessmen. The United Arab Emirates joined it. The Organisation of Islamic Co-operation, which represents 56 Muslim-majority states, accused Sweden of failing to respect the world’s ‘rich and varied ethical standards’ — standards so rich and varied, apparently, they include the flogging of bloggers and encouragement of paedophiles. Meanwhile, the Gulf Co-operation Council condemned her ‘unaccept-able interference in the internal affairs of the Kingdom of Saudi Arabia’, and I wouldn’t bet against anti-Swedish riots following soon.

Yet there is no ‘Wallström affair’. Outside Sweden, the western media has barely covered the story, and Sweden’s EU allies have shown no inclination whatsoever to support her. A small Scandinavian nation faces sanctions, accusations of Islamophobia and maybe worse to come, and everyone stays silent. As so often, the scandal is that there isn’t a scandal.

 

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Contrarian Jared Dillian

Love this whole post, from Mauldin Economics:

The 10th Man

Leaves in a Swimming Pool

March 26, 2015

My life is pretty awesome. Indescribably great, at times. It wasn’t always this way. (If you want to read about when it was not so great, go here.)

There’s an old saying: My problems are like leaves in a swimming pool. It means that it makes no sense to be angry or upset about the fact that you have leaves in your swimming pool, because… you have a swimming pool! Your life is so great that you have a swimming pool, and you’re upset that you have leaves in it? A little perspective is needed.

So whenever I find myself tied up in knots about this or that problem, I like to think that things could be (and have been) much, much worse.

Are Americans Too Negative?

Sometimes I think we have a problem with perspective. A lot of people in this country like to focus on the negatives—stagnant incomes in lower deciles, for example. But someone with an income in the 20th percentile in the US (about $20K) would be one of the richest people in the world—by a lot.

Sure, many people don’t have jobs, but many people do—and companies can’t hire workers fast enough.

Here’s my favorite chart:

It’s funny—my article “I Heart Capitalism” from about a month ago stirred up all kinds of controversy. (For more controversial topics, check out these short interviews, each only a couple minutes long, that I did on volatility, interest rates, and my highest-conviction trade: shorting Canada.)

If you recall, I talked about how prices of certain goods were collapsing in real terms. People criticized the article, pointing out how the prices of some things, like higher education and health care, are skyrocketing. It brought out all the pessimists.

May I remind people that higher education and health care are two of the most heavily subsidized sectors in America?

In health care and higher education, the free market isn’t allowed to function properly. It’s no wonder prices are so high! The market works just fine when you leave it alone; prices will go down over time.

One of the things I forget as a “Wall Street guy” or a “finance guy” is that people take problems like joblessness, underemployment, and stagnant incomes very seriously, because there is a human cost to them. “Poverty porn” has become a whole new genre of journalism or at least one that hadn’t been popular since the 1930s. We’re bombarded with information on a daily basis about how hard people have it.

So it’s easy to sit back in my air-conditioned office and manipulate my spreadsheets and talk about how, no, actually, our standard of living is much higher than it was 15 years ago, even though it may not seem like it. People don’t like those arguments. They seem insensitive. And maybe I am insensitive, since I haven’t been a working stiff since my Coast Guard days.

But it has gotten to the point where if you are an optimist, you are persona non grata. Don’t tell my friends, but I use Facebook as sort of a social laboratory. I post provocative things and see how people respond. I was posting on Facebook recently about how we are close to curing cancer (it’s actually true—read for yourself), and people were cynical about it! How can you be cynical about curing cancer, saving millions of lives?

There was a piece on Vox recently, with 26 charts showing how the world is getting unimaginably better. The charts showed that poverty and hunger were decreasing, and that our access to leisure time and cheaper food, and our life expectancy were all getting better. I posted that on Facebook. It got a handful of likes. People were trying to figure out what my angle was.

I think human beings naturally have a pessimism bias, but I think it’s gotten out of control.

The problem with pessimism is that it affects people’s politics. If we think that the world sucks and always needs fixing, then we are going to elect really angry, indignant people who are going to try to fix something that may not be broken.

Happiness Is Hard to Find

Parts of the financial markets are overheating. Silicon Valley is stupid. Credit is too tight. If you look hard enough, you can probably find a bubble somewhere.

I remember 1999 like it was yesterday. People were happy. They were deliriously happy. Life could not have been better.

We were at the tippy-top of eight years of uninterrupted economic expansion (really 17 years—the 1991 recession had been quite mild), there were no wars, the Dow hit 10,000, the Nasdaq hit 5,000, everyone was day trading, people were listening to Britney Spears… madness.

It was the closest thing to complete social euphoria I have ever seen.

The stock market has been going up for six years now, and is up 200%. And people are miserable. Just miserable human beings.

Stock market tops are not usually made when people are miserable. I suppose there is a first time for everything. But it seems unlikely.

Sincerely,

The Leaves in a Swimming Pool Guy

Jared Dillian
Jared Dillian

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China coal use

Looks like China is reducing it’s dependence on coal even faster than they had previously planned, from Bloomberg:

Beijing, where pollution averaged more than twice China’s national standard last year, will close the last of its four major coal-fired power plants next year.

… Beijing plans to cut annual coal consumption by 13 million metric tons by 2017 from the 2012 level in a bid to slash the concentration of pollutants.Shutting all the major coal power plants in the city, equivalent to reducing annual coal use by 9.2 million metric tons, is estimated to cut carbon emissions of about 30 million tons, said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., a London-based research company with a focus on China.

So if they are closing 9.2 million metric tons by the end of 2016 just in Beijing, then they don’t have much more to do to get to the 13 million metric ton goal by the end of 2017.  Which makes me suspect that they plan to beat that number, maybe by a lot.

The US exports only about 10% of the coal it mines currently (per eia.gov), so it makes sense that China is also shutting down their coal mines.

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HRC and sexism in the press

So a group called “HRC Super Volunteers” has put the press on notice that they will not tolerate the use of certain words that they consider sexist.  @amychozick tweeted that she received a message not to use the following words and phrases:  polarizing, calculating, disingenuous, insincere, ambitious, inevitable, entitled, over confident, secretive, will do anything to win.

There definitely are words that are kind of “code” words, and if used to describe a female political figure, could pretty much be immediately chalked up as sexist.  I would include bossy, aggressive, bitchy (obviously), whiny, pouty, and anything that diminishes or sexualizes, like comparing her to a kitten.  Also descriptions of her clothing, hair, and makeup, and anything more than a passing mention of her family.  (Ted Cruz’s wife just resigned from Goldman Sachs, and the social media reaction is that he’s hypocritical for signing up for Obamacare.  WTF??!!??)  So there is a lot that they did not include on their list.  And I think that what they did include is not really objectionable, for the most part.

Polarizing:  this word is often used about Barack Obama.  That may be why they included it, because another word that is often used against blacks is also used against women:  uppity.  But while I find uppity to be supremely objectionable, not so much with polarizing.  It’s used to describe lots of public figures, and unless it is used in a context that explicitly or implicitly includes reference to her femaleness, then it’s not sexist.

Calculating, Entitled.   If either is used with “woman” as the object of the adjective, then, clearly yes.  Otherwise, meh, not really.

Disingenuous and Insincere.  Huh?  How could that be sexist?

Ambitious, Over Confident.  Again, these are context dependent.  If the implication is that she is *too* ambitious, then, I can see how that might be sexist.  But in general, I think candidates for president possess these qualities pretty much by definition.

Inevitable.  This must be only for Hillary.  There aren’t any other female candidates who press would use this word about.  Don’t see how this is sexist at all.

Secretive.  LOL.  Not sexist.  But I’m sure her supporters would prefer that reporters not use this term in reference to HRC.

Will do anything to win.  Only sexist if the implied “anything” is sex.  Or housework.  Or something else inherently sexist.  Otherwise, yeah, pretty sure that’s more of an accurate depiction than a sexist smear.

 

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Stay Classy

Great job, San Diego police!  From LA Times:

Complaints have fallen 40.5% and use of “personal body” force by officers has been reduced by 46.5% and use of pepper spray by 30.5%, according to the report developed by the Police Department for the City Council’s Public Safety and Livable Neighborhoods Committee.

By year’s end, the department plans to have nearly 1,000 officers equipped with the small cameras, including patrol officers, gang-unit officers and motorcycle officers. Currently, 600 officers have the cameras.

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Herbicides vs Antibiotics

Well, this is terrifying.  Especially note the bolded part.  Wow!  From the Guardian:

Antibiotics and herbicides, as it turns out, don’t mix. At least that’s the conclusion of a study published today in mBio, the peer-reviewed journal of the American Society for Microbiology, which found that if someone is exposed to both herbicides and antibiotics at the same time, higher doses of antibiotics will likely be needed to kill the offending bacteria.

…The study comes a week after glyphosate, an agricultural herbicide produced by Monsanto and more commonly known as RoundUp, was deemed “probably carcinogenic” by the World Health Organization.

The level of herbicide exposure tested in the mBio research was higher than what would generally be found as residue on food, but lower than application standards for commercially available herbicides. The level is compatible with the amount that people in rural areas can be exposed to from herbicide drift – the wind distributing chemicals sprayed in one field across many other plots of land – and what urban dwellers might be exposed to from using herbicides in their own or their neighbors’ gardens.

“The exposure pathways that we identified as possibly being the most relevant for future study generally arose from the use of the herbicide by others – for example, in the urban setting” Heinemann said. “Therefore, it may take communities talking to each other to find ways to reduce unintended exposures.”

Heinemann and his fellow researchers tested various combinations of three of the most commonly used herbicides: dicamba (sold commercially under the name Kamba); 2,4-dichlorophenoxyacetic acid; and glyphosate (RoundUp). They also studied five different classes of antibiotics: ampicillin, ciprofloxacin, chloramphenicol, kanamycin, and tetracycline.

In some cases, certain combinations of herbicide and antibiotic either improved the performance of the antibiotic or had no effect on the antibiotic at all. But in the majority of cases, the herbicide made the antibiotic less effective.

More research, though, is needed, and agrichemical producer Monsanto is in agreement with Heinemann over what needs to be studied next: whether or not it’s the active ingredient of these herbicides that affects antibiotics.

“It is difficult to separate the effect of surfactants, which are known to have an impact on cultured microbes, from the active ingredients,” said Charla Lord, a spokesperson for Monsanto.

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One Word Key to Happiness

Another great post from Eric Barker:

The One Word Key To Happiness

…What’s it take to become happy very quickly without dramatically changing your life (or spending $80)? The key to happiness really comes down to one word:

Attention.

We all have regrets and worries. We all have bad things we could think about. But they don’t bother us when we pay them no mind. The Buddha once said:

We are what we think.  All that we are arises with our thoughts. With our thoughts we make the world.

And research is agreeing with him. People always think more money or a better this or that — a thing or event — is going to make them happier.

But when we look at the data, very happy people don’t experience more happy events than less happy people.

Via 50 Great Myths of Popular Psychology: Shattering Widespread Misconceptions about Human Behavior:

Ed Diener and Martin Seligman screened over 200 undergraduates for levels of happiness, and compared the upper 10% (the “extremely happy”) with the middle and bottom 10%. Extremely happy students experienced no greater number of objectively positive life events, like doing well on exams or hot dates, than did the other two groups (Diener & Seligman, 2002).

So it’s not really what happens. It’s what you pay attention to and the perspective you take on things. “Look on the bright side” is a cliche, but it’s also scientifically valid.

Paul Dolan teaches at the London School of Economics and was a visiting scholar at Princeton where he worked with Nobel-Prize winner Daniel Kahneman.

He explains the importance of attention in his book, Happiness by Design: Change What You Do, Not How You Think:

Your happiness is determined by how you allocate your attention. What you attend to drives your behavior and it determines your happiness. Attention is the glue that holds your life together… The scarcity of attentional resources means that you must consider how you can make and facilitate better decisions about what to pay attention to and in what ways. If you are not as happy as you could be, then you must be misallocating your attention… So changing behavior and enhancing happiness is as much about withdrawing attention from the negative as it is about attending to the positive.

Make sense, right? So how can you and I put this to use?

Here are 5 questions to ask yourself about attention that can have a profound affect on your happiness.

 

Are you actually paying attention?

“Savoring” is a powerful method for boosting happiness. It’s also ridiculously simple:

Next time something good happens, stop whatever you are doing, give it a second and appreciate that moment. Pay attention to it.

…“Stopping to smell the roses”? It’s true. People who take time to appreciate beauty around them really are happier.

Via 100 Simple Secrets of the Best Half of Life:

Those who said they regularly took notice of something beautiful were 12 percent more likely to say they were satisfied with their lives.

This isn’t speculation. Studies show slowing down and appreciating good things boosts happiness and reduces depression.

Via The How of Happiness: A New Approach to Getting the Life You Want:

In one set of studies, depressed participants were invited to take a few minutes once a day to relish something that they usually hurry through (e.g., eating a meal, taking a shower, finishing the workday, or walking to the subway). When it was over, they were instructed to write down in what ways they had experienced the event differently as well as how that felt compared with the times when they rushed through it. In another study, healthy students and community members were instructed to savor two pleasurable experiences per day, by reflecting on each for two or three minutes and trying to make the pleasure last as long and as intensely as possible. In all these studies those participants prompted to practice savoring regularly showed significant increases in happiness and reductions in depression.

Do one thing at a time. Pay attention. Enjoy it. You’ll feel less busy and you’ll be happier.

(For more on how to savor those precious good moments in life, click here.)

Okay, you’re going to pay more attention. But maybe that’s not your problem. You might be paying attention to the wrong things.

 

What are you paying attention to?

Training your mind to look for errors and problems (as happens in careers like accounting and law) makes you miserable.

Via One Day University Presents: Positive Psychology: The Science of Happiness (Harvard’s Most Popular Course):

I discovered the tax auditors who are the most successful sometimes are the ones that for eight to 14 hours a day were looking at tax forms, looking for mistakes and errors. This makes them very good at their job, but when they started leading their teams or they went home to their spouse at night, they would be seeing all the lists of mistakes and errors that were around them. Two of them told me they came home with a list of the errors and mistakes that their wife was making.

Don’t pay so much attention to the bad. Pay more attention to the good. Stop looking for problems. Enjoy what you have.

Gratitude is arguably the king of happiness. What’s the research say? Can’t be more clear than this:

…the more a person is inclined to gratitude, the less likely he or she is to be depressed, anxious, lonely, envious, or neurotic.

You must teach your brain to seek out the good things in life. Research shows merely listing three things you are thankful for each day can make a big difference.

Via Flourish: A Visionary New Understanding of Happiness and Well-being:

Every night for the next week, set aside ten minutes before you go to sleep. Write down three things that went well today and why they went well. You may use a journal or your computer to write about the events, but it is important that you have a physical record of what you wrote. The three things need not be earthshaking in importance (“My husband picked up my favorite ice cream for dessert on the way home from work today”), but they can be important (“My sister just gave birth to a healthy baby boy”). Next to each positive event, answer the question “Why did this happen?”

This technique has been proven again and again and again. One of the reasons old people are happier is because they remember the good and forget the bad.

And feeling gratitude doesn’t just make you happier. It’s correlated with an objectively better life:

…we found that gratitude, controlling for materialism, uniquely predicts all outcomes considered: higher grade point average, life satisfaction, social integration, and absorption, as well as lower envy and depression.

(For more on how to use gratitude to improve your life, click here.)

Now I know what many of you may be thinking: I agree, but my attention span is terrible.

Well, we can do something about that too.

 

Can you pay attention?

…This is why you keep hearing so much about mindfulness these days. Meditation can help you train your attention. A 2011 Yale study showed:

Experienced meditators seem to switch off areas of the brain associated with wandering thoughts, anxiety and some psychiatric disorders such as schizophrenia. Researchers used fMRI scans to determine how meditators’ brains differed from subjects who were not meditating. The areas shaded in blue highlight areas of decreased activity in the brains of meditators.

(For more on the easiest way to learn how to meditate, click here.)

Another issue may be that you’re not really noticing what truly makes you happy and unhappy. It’s a common mistake. But one we can fix.

 

Are you paying attention to what makes you happy and what doesn’t?

When something makes you really happy, jot it down. Then do that thing more often. Daniel Nettle jokingly refers to this as “Pleasant Activity Training.”

….Yeah, it’s stupidly simple. But as Stanford professor Jennifer Aaker explained in my interview with her, you probably don’t do it:

…people who spend more time on projects that energize them and with people who energize them tend to be happier.  However, what is interesting is that there is often a gap between where people say they want to spend their time and how they actually spend their time. For example, if you ask people to list the projects that energize (vs. deplete) them, and what people energize (vs. deplete) them, and then monitor how they actually spend their time, you find a large percentage know what projects and people energize them, but do not in fact spend much time on those projects and with those people.

(For more of the things research has proven will make you happier, click here.)

Okay, time to bring out the big guns. This is something you can do at any moment to make yourself happier. And all it takes is asking yourself one question.

 

Are you paying attention to what’s going on right now?

You probably spend a fair amount of time worrying about the future, regretting the past or reliving an argument that ended long ago.

And that means you’re not paying attention to what’s happening right now. None of those negative things are actually occurring here in front of you. If you were focused on right now, bang, you’d be happier.

When happiness expert Sonja Lyubomirsky studied the happiest people, what did she find?

They savor life’s pleasures and try to live in the present moment.

That thing you’re making yourself miserable about: is it here, right now, in front of you? Or are you projecting into the future or the past? Pay attention to the present and you’ll probably feel much better.

(For more on what makes the happiest people in the world so happy, click here.)

Still paying attention? Let’s wrap this up.

 

Sum Up

… Try shifting your attention to the good around you.Worrying about the future or dwelling on the past or letting your mind wander is a prescription for unhappiness. Those things aren’t in front of you and they’re not real. As Mark Twain once said:

I have had a great many troubles, but most of them never happened.

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Secular Science

As I read the excellent post by John Mark Reynolds on how a conservative Christian reacts to the Ferguson report, I noticed this curious aside: “the joys of secular science!”

What the heck is the meaning of that?

Well, it turns out, secular science is what the defenders of creationism call “science.”  Or, more specifically, science as it relates to evolution.  But what it seems like they do here is really to use creationism as a litmus test, and then make a whole bunch of assumptions about anyone who raises questions about creationism, especially those who think that evolution is a pretty strongly established theory.  Here’s what “All About God,” a 501c3 corporation, has to say about it:

Secular Science – Introduction
The core of Secular Science is well-summarized by George Gaylord Simpson, “Man is the result of a purposeless and natural process that did not have him in mind. He was not planned. He is a state of matter, a form of life, a sort of animal, and a species of the Order Primates, akin nearly or remotely to all of life and indeed to all that is material.”1

Belief in evolution is as crucial to Humanism’s worldview as are its atheistic theology and naturalistic philosophy. In fact, the Humanist’s ideas about the origin of life can be considered a special dimension of these disciplines. Without the theory of evolution, the Humanist would have to rely on God as the explanation for life, which would necessarily destroy his atheism. Therefore, every Secular Humanist embraces the theory of evolution.

The Humanist Manifesto I states, “Humanism believes that man is a part of nature and that he has emerged as the result of a continuous process.”2 This belief is echoed in the Humanist Manifesto II, which claims that “science affirms that the human species is an emergence from natural evolutionary forces.”3 And in Humanist Manifesto 2000 Kurtz says, “The theory of evolution and the standards of ecology should also be studied.”4

For the Humanist, atheistic evolution is not one option among many, but rather the only option compatible with their worldview. Creationism, or Intelligent Design, is considered an enemy of science. – See more at: http://www.allaboutworldview.org/secular-science.htm#sthash.qGHW6vP8.dpuf

This is a false dichotomy, and one that is harmful.  Albert Einstein was a pretty good scientist, and he thought a great deal about the philosophy and epistemology involved.  Here is a website about his philosophy.  Here is one about his religions thoughts.  He did believe in God, and only saw a conflict when a religion applied a dogmatic belief to facts that can be observed and described by science.  Generally, those dogmatic beliefs are really not a part of the main goals of the religion anyway, and might better be described as symbolic rather than literal.  Einstein:
It is this mythical, or rather this symbolic, content of the religious traditions which is likely to come into conflict with science. This occurs whenever this religious stock of ideas contains dogmatically fixed statements on subjects which belong in the domain of science. Thus, it is of vital importance for the preservation of true religion that such conflicts be avoided when they arise from subjects which, in fact, are not really essential for the pursuance of the religious aims.
It seems to me that what is important to those who use this kind of terminology is not really the facts, or the science, or even the aims of the religion, but mostly the dogma.  And the reason is that they use that dogma in a lot of other ways as well, so if they allow for the possibility of evolution, then it’s open season on all their beliefs.

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DB Solar Report

From Deutsche Bank AG:

March 10, 2015

Deutsche Bank report: Solar grid parity in a low oil price era

Despite the recent drop in oil price, we expect solar electricity to become competitive with retail electricity in an increasing number of markets globally due to declining solar panel costs as well as improving financing and customer acquisition costs.

 Unsubsidized rooftop solar electricity costs between $0.08-$0.13/kWh, 30-40% below retail price of electricity in many markets globally. In markets heavily dependent on coal for electricity generation, the ratio of coal based wholesale electricity to solar electricity cost was 7:1 four years ago. This ratio is now less than 2:1 and could likely approach 1:1 over the next 12-18 months.
Netzparität

Electricity Prices are Increasing, Despite Nat Gas Price Swings

Peak to trough, average monthly natural gas prices have decreased ~86% over the past 10 years. Yet, during this time period, average electricity prices have increased by ~20% in the US. The main driver for rising electricity bill is that T&D investments which represent 50% of bill have continued to ramp and have accelerated recently. In 2010, T&D capex levels of for US Utilities ~$27B were ~300% higher than 1981 levels. We expect electricity prices worldwide to double over the next 10-15 years making the case for solar grid parity even stronger.

Solar System Costs Could Continue to Decline

The economics of solar have improved significantly due to the reduction in solar panel costs, financing costs and balance of system costs. Overall solar system costs have declined at ~15% CAGR (compound annual growth rate) over the past 8 years and we expect another 40% cost reduction over the next 4-5 years. YieldCos have been a big driver in reducing the cost of capital and we expect emergence of international yieldcos to act as a significant catalyst in lowering the cost of solar power in emerging markets such as India.

We see cost trajectory on pace for a ~40%+ reduction by the end of 2017

 …

Read the entire report here.

Click here for the Solar Outlook 2015.

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Health care “nonprofit” conglomerates

Minnesota has the same problem as Pennsylvania, apparently.  We are better protected from auto insurance companies restricting our choices than we are from health insurance companies.   While Minnesota has five large companies competing, here in Western PA, we are down to two.

The bubble in health care is visible and obvious.  Drive around Pittsburgh, and write down the construction that you see.  What is being built?  Not everyone can work in health care.  And why is it so profitable (especially for “nonprofits”)?

In addition, there is the problem of these huge corporations being taxpayer funded.  That is, they are not funding the government since they don’t pay taxes, so all the government services they use and benefit from are funded by the taxpayers.

From Star Tribune:

This leads to two questions. The first is whether a high-performing health care system should be exclusively composed of nonprofit organizations. The second is whether Minnesota hospitals and insurers actually fulfill the kind of mission that would justify nonprofit status.

We believe the answer to both questions is no. When carefully examined, Minnesota’s largest health care entities are hiding behind some very small nonprofit fig leaves.

According to the Star Tribune’s 19th Annual Nonprofit 100, nonprofit health systems, hospitals and insurers comprise 19 of the 20 largest nonprofit organizations in Minnesota and take in 92 percent of the overall revenue among the top 100.The top 15 among these organizations generated enough revenue in 2013 to rank them among the 50 largest publicly held companies headquartered in Minnesota. State taxpayers are generously subsidizing entities that, in certain cases, generate more revenue than Fortune 500 companies.

Meanwhile, the excess of revenue over expenses at these nonprofits is eye-popping. In 2013, Mayo Clinic had a margin of revenue over expenses of $612 million. While Mayo is a global brand, HealthPartners, Allina Health and Fairview Health Services also had margins totaling $848 million.

…According to the New England Journal of Medicine, tax exemptions saved nonprofit hospitals $13 billion nationwide in 2013. In 2005, according to the Minnesota Department of Health, the tax exemptions received by Minnesota nonprofit hospitals totaled $443.6 million, or $540.3 million in 2014 dollars. These numbers rival the controversial public subsidies for the new Vikings stadium. What do Minnesotans receive in exchange?

…Accountability starts with requiring nonprofit hospitals to provide charity care equal to at least half the value of the tax exemptions received. Hospitals that fail to meet this basic threshold should lose their nonprofit classification.

In addition, the boards of directors of Minnesota’s nonprofit health systems ought to reflect the diversity of the communities they serve. A review of the composition of two of Minnesota’s largest health system boards found them to be predominantly composed of white, male business executives. There is no question that business acumen is important, but governing boards should be more representative of the community and strive to provide culturally competent care. Hospitals and insurers should appoint appropriately diverse boards to maintain their nonprofit status.

If operating revenue is not expended in the provision of charity care or other charitable services, then it is important to explore how it is being utilized. One way revenue is being spent is through an increase in executive compensation.

In 2013, the average compensation for the four highest paid nonprofit CEOs in Minnesota — all leaders of health care systems — was $2.18 million. This trend is not limited to the C-suite. IRS 990 forms show that many lower-level executives are making more than $1 million a year.

Another way revenue is being spent is through a medical arms race for the latest technology and facilities, as a smaller number of health systems compete for customers and to provide the most profitable services.

Last, mounting financial pressure is driving acquisitions of physician groups and hospitals. Despite these pressures, some have maintained their independence.

Our concern is not that some hospitals and insurers are successful in terms of profitability. Rather, the problem concerns how profits are spent when Minnesota taxpayers are providing generous subsidies. We are not advocating for the dismantling of Minnesota’s nonprofit hospital and insurer infrastructure. The provision of charity care, education and research are true community benefits. But other activities deserve heightened scrutiny.

Everyone sees the need for improvement in our health care system. Minnesota’s nonprofit health care entities should be enthusiastic about innovations designed to improve care, satisfy patients and lower costs. Unfortunately, ostensibly nonprofit health care systems are often blind and deaf to alternatives, particularly when offered from the outside or when innovation threatens to decrease revenue. Examples of organizational ossification are not hard to find.

The fee-for-service payment system is a major force behind expensive care, and it is clear that bundled payments for an episode of care is one way to restrain costs and encourage collaboration. Pregnancy is the perfect episode of care to test bundled payments. Regrettably, when the idea was first proposed to various Minnesota health care executives, responses ranged from “what would it take for you to give this idea up?” to “you are talking about a for-profit entity.” Fortunately, such attitudes are changing.

Two future health care scenarios appear plausible. One is further system consolidation until only two or three large systems remain. Some see this as desirable and inevitable, but we know how consolidation has worked out in other industries, such as airlines and cable television. This would result in health care entities that are “too big to fail.”

The preferable course is a health care landscape built on reformed nonprofit organizations existing for reasons beyond boundless growth. Nonprofit health care systems and insurers should serve as platforms for innovation — even in collaboration with for-profit partners. Partnerships focusing on innovation will result in higher value care for all Minnesotans. That would be a real community benefit.

Steve Calvin is medical director of the Minnesota Birth Center. Theodore J Patton is an investigator for the Minnesota Department of Commerce. The views expressed here by Patton do not necessarily represent those of the Minnesota Department of Commerce.

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