Fortune

Shannon Brownlee in Fortune Online | 'Cholesterol skeptics have their day'

Communications — Wed, 06 Feb 2008 12:00:00 -0500

Cholesterol skeptics have their day (Fortune)

"There's a mountain of evidence that shows that people who have financial relationships with industry produce biased research and come up with biased recommendations for treatment," notes Shannon Brownlee, author of "Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer". Brownlee points out, as has been widely reported, that of the nine medical experts who devised the national cholesterol guidelines, six had received research grants, speaking honoraria, or consulting fees from at least three of the five companies that produce brand-name statins.

Fortune Quotes Michael Dannenberg on Student Loans, 'Big Education'

Communications — Tue, 14 Nov 2006 10:26:00 -0500

In the corporate world, there's a short list of obvious suspects who may face tougher times under a Democratic Congress, including Big Pharma and Big Oil. Then there are the not-so-obvious suspects -- like what might be called Big Education.

In fact, the stocks of companies that make their money educating America's college students have had a turbulent year. Look no further than the granddaddy of student lenders, SLM Corp. (Charts) -- more commonly known as Sallie Mae -- which fell some 13 percent through Nov. 7 and dropped another 5 percent on Nov. 8, as the news rolled in that the Democrats had captured the House...

Last spring Senator Hillary Clinton (D-New York) introduced a Student Borrower Bill of Rights. Among its tenets are a cap on loan interest as a percentage of a borrower's income. "A Democratic majority will definitely have an opportunity to change student-loan law," says Michael Dannenberg, who directs education policy at the New America Foundation, a Washington think tank.

It's no secret that change is needed. A just-released report commissioned by the Secretary of Education calls for "complete restructuring of the current federal financial aid system..."

For the complete article, please visit the Fortune magazine website.

Fixing Social Security

Cecille Isidro — Mon, 01 Nov 2004 00:00:00 -0500

Social Security is a mess. With the oldest babyboomers now four years away from qualifying for benefits, the program faces a shortfall of $12.7 trillion. To close the deficit, the program would need to cut benefits by 27% by the time today's 25-year-olds retire. And yet in this silly season, neither presidential candidate is offering a viable solution: Kerry says he won't touch Social Security; Bush promises an expensive privatization plan that would leave individuals with huge market risks. But there's another way. FORTUNE has learned that a new reform idea is percolating within the Social Security Administration. Nothing's official, but the idea is so good that we're previewing it here to get some public discussion going.

The idea starts with the creation of Early Retirement Accounts. Individuals could put one-sixth of the money they and their employers currently pay to Social Security into 401(k)-like accounts, which they could use to finance retirement beginning at age 62. How would Social Security make up for the loss of revenue? Monthly Social Security benefits would remain what they are today, but the age at which future retirees qualified for them would be delayed. Today you can qualify for early, reduced benefits at age 62; that age would gradually increase to 68. The retirement age for full benefits would be pushed back from 65 to 72. Preliminary analysis by the SSA indicates that the rollback in retirement ages would not only save enough money to fund the Early Retirement Accounts, but also return the system to solvency.

Most privatization plans stipulate that individuals take a 33% cut in their regular benefits and use personal accounts to make up (or exceed) the difference. That provision raises two big objections: What happens if the market tanks as you retire? And what happens if you live to be 115? Either way, you may end up eating dog food. (By contrast, today's system insures individuals not only against market losses but also against the risk of outliving their savings.) Some plans try to overcome market risk by promising a minimal return on personal accounts. But if there is a prolonged bear market, bailing out a whole generation of disappointed savers could easily become more expensive than the current system.

As for people living longer than their savings, privatizers suggest that retirees convert their personal accounts into annuities that will guarantee fixed payments for life. But annuities tend to be inefficient financial vehicles. Insurers have to set premiums high because they know that people who expect a long life will snap annuities up as a hedge against outliving their savings, while people who expect to die soon won't. Compelling everyone to buy annuities at retirement would eliminate that problem, but it would also impose a great burden on terminally ill people who might want to spend down their nest eggs quickly.

The new plan neatly solves these problems. It preserves full benefits for those who need them, the "old old." It leaves individuals exposed to some financial risk, but they bear that risk while they are still relatively young and able to recover. If your Early Retirement Account doesn't perform well enough for you to be able to retire in your early or middle 60s, then you can just work until 68 to qualify for Social Security's early retirement benefit, or until 72 to receive the standard benefit. In that case, you might miss out on some "golden years" of active retirement, but you wouldn't be stranded.

In the event that you're physically unable to work, you could still collect Social Security's Disability Insurance benefits, which would not have to be cut, as they would under most privatization plans. Also, there would be no need to bother with annuities. People would be using their personal accounts to finance only a fixed number of years before they reached eligibility for Social Security benefits.

There are other advantages. For example, the early retirement account might actually persuade people to work longer. Research shows that people with 401(k)s tend to delay retirement. Why? Because the money's theirs. If they don't spend it, they can live higher on the hog later. Also, under this plan, people who continue to work until age 65 wouldn't be sacrificing Social Security benefits as they often do today; instead they would be building up credits for bigger benefits in the future.

Because of Social Security's long-term insolvency, taxes will be raised and benefits cut, one way or another. This plan preserves a valuable government-issued insurance policy against advanced old age--the program's original purpose. But it also allows people who want to retire early a good chance (though not a guarantee) of being able to do so. Given polls showing that more young people believe in UFOs than believe they will ever collect Social Security, that's not a bad political bargain.

Which Nations Will Go Forth and Multiply?

Cecille Isidro — Mon, 19 Apr 2004 00:00:00 -0400

When asked how long it will take for the world's population to double, nearly half of all Americans say 20 years or less. That's hardly surprising, given the crowding many of us encounter in everyday life and the reports we hear of teeming Third World megacities. Yet forecasts by the United Nations and others show that world population, currently at a little over six billion, is unlikely to double--ever. Indeed, demographers at the International Institute for Applied Systems Analysis, a nongovernmental research organization in Laxenburg, Austria, predict that world population will peak at nine billion within the life-time of today's Gen Xers and then start shrinking. Meanwhile, the average age of the world's citizens will advance dramatically. This aging will happen fastest not in the developed world, where we are used to fretting about the graying of society, but, astonishingly, in the Middle East and other underdeveloped regions. By the end of this century, even sub-Saharan Africa will probably grow older than Europe is today.

These predictions come with considerable certainty. The primary reason, confirmed in late March by a U.S. Census Bureau report, is a fall in fertility rates over the last generation that is spreading to every corner of the globe. In nations rich and poor, under all forms of government, a broad social trend is absolutely clear: As more and more of the population moves to urban areas in which children offer little or no economic reward to their parents, and as women gain in economic opportunity and reproductive control, people are producing fewer and fewer children.

Global fertility is half what it was in 1972. The decline began in industrialized nations, none of which still produces enough children to sustain its population over time, or to prevent rapid population aging. While many factors are at work, the economics of family life in developed countries make the trend nearly inevitable. In the U.S., the direct cost of raising a middle-class child born this year through age 18, according to the Department of Agriculture, exceeds $200,000, not counting college; the cost to the parents in forgone wages can easily exceed $1 million. And while Social Security and private pension plans depend critically on parents' replenishing the nation's human capital, they offer the same benefits, and often more, to those who avoid the burdens of raising a family.

Yet now the developing world is graying, too, and at a far faster pace. Mexico is aging five times faster than the U.S., due primarily to a dramatic fall in fertility. Post-revolutionary Iran has seen its fertility rate plummet by nearly two-thirds, and will accordingly have more seniors than children by 2030. India's fertility rate has dropped by roughly one-fifth in the past 20 years; the people of its major southern provinces already produce too few children to replace themselves, as will be true for all Indians by 2020.

To those raised on "population bomb" fears--apocalyptic scenarios of famine, pestilence, war, and environmental collapse brought on by overcrowding--all this is certainly reason to cheer. A slowdown in fertility rates also brings economic benefits, which partly explains the current economic success of India and China. As the relative number of children declines, so does the burden of their dependency, thereby freeing resources for investment and adult consumption.

Yet while declining fertility rates can initially bring a "demographic dividend," the eventual loss of human capital means that dividend has to be repaid. At first there are fewer children to look after, which leaves more resources for adults to enjoy. But soon enough, if fertility remains below replacement levels, there are fewer productive workers and more and more dependent elders. Old people consume far more resources than children do; even after considering the cost of education, a typical child in the U.S. consumes 28% less than the typical working-age adult, while elders consume 27% more, mostly in health-related expenses.

Countries like France and Japan at least got a chance to grow rich before they grew old. Most developing countries are growing old before they get rich. China's low fertility means that its labor force will be shrinking by 2020; with current trends, 30% of its population will be over 60 by mid-century. The nation's social security system, which covers only a fraction of the population, already has debts exceeding 145% of GDP. Throughout much of the developing world, public pension systems have collapsed or been seriously cut back.

The implications for world economic growth are stark. Japan developed its export-driven economy at a time when the number of consumers in Western Europe and the U.S. was still growing robustly. By contrast, when today's developing nations look for long-term export markets, they find most rich countries on the brink of absolute population decline and deeply encumbered by the cost of their health and pension programs. We may all be facing a diminished old age.

Even more sobering are the implications for modern civilization's values. As urbanization and globalization continue to create a human environment in which children become costly impediments to material success, people who are well adapted to this environment will tend not to reproduce. Many others who are not so successful will imitate them. So where will the children of the future come from? Increasingly they will come from people who are at odds with the modern world--who either "don't get" the new rules of the game that make reproduction an economic liability, or who believe they are (or who in fact are) commanded by a higher power to procreate.

Such a higher power might be God, speaking through Abraham, Jesus, Mohammed, or some latter-day saint, or it might be a totalitarian state. Either way, such a trend, if sustained, could drive human culture off its current market-driven, individualistic, modernist course, gradually creating an antimarket culture dominated by fundamentalism--a new dark ages. History records a similar shift in third-century Rome, when pagan fertility collapsed, while that of early Christians did not. If modern secular societies are to survive, they must somehow enable parents to enjoy more of the economic value they produce for everyone when they sacrifice to create and educate the next generation.