I knew eventually someone else would pick up the ideas I have been discussing in blog posts such as Pneumonia, Pollution and Health Care Economics and What Is the Problem Universal Health Insurance Is Trying to Solve? However I did not expect the 'someone else' to be David Frum!

See David Frum's Unhealthy habits are what's killing us.

From The Hamilton Spectator:

A pioneering McMaster study has proved air pollution can put seniors in the hospital with pneumonia.

A team led by infectious disease expert Dr. Mark Loeb found evidence that prolonged exposure to pollutants in car exhaust fumes and industrial air pollution more than doubles the risk of seniors being hospitalized for pneumonia, a lung infection that is a leading cause of illness and death in the elderly.

Somewhere out there the Coasian economists are wondering why the seniors have not made a deal with the polluters and the health care economists are devising plans to build more hospital space and distribute more Zithromax.

In other health news - "The Foundation estimates that consumption of trans fats could account for 3,000 to 5,000 Canadian deaths annually from heart disease."

Econbrowser asks What went wrong and how can we fix it?. I agree with this analysis:

There was almost $8 trillion in new U.S. household mortgage debt issued between 2004 and 2006. A significant number of these loans had poor documentation of the borrowers' incomes, required little or no money down, and called for huge increases in the borrowers' monthly payments a few years into the loan.

In my mind there was a toxic stew of bad incentives, including the following:

1. Loans that required low-to-no money down, coupled with...
   
   
2. No recourse mortgages, which allows for lenders to walk away when their financial position is underwater. This creates a 'heads I win, tails you lose' situation for borrowers.
   
   
3. Mortgage interest deductability, which further gives incentive to borrowers to buy homes they may not be able to afford.
   
   
4. 'Too big to fail', which gives lenders an incentive to take on too much risk by creating a 'heads I win, tails you lose' scenario.

To avoid the situation in the future, all one needs to do is remove these 'heads I win, tails you lose' scenarios. A combination of:

1. Eliminating mortgage interest deductability.
2. Eliminating no recourse mortgages.

May be enough. In other words, make the U.S. mortgage market look a lot more like the Canadian market, which did not burst (though there are fears it may in the future.)

You could go further by requiring that borrowers put a certain percentage of money down (10%? 15%?) on a mortgage and do what James Hamilton suggests of introducing "a legal mechanism whereby large financial institutions that are not commercial banks (such as AIG or Bear Stearns) can be liquidated in an orderly manner without bankruptcy or bailouts, analogous to the authority that the FDIC currently has to take over failing banks."

Another part in my ongoing series of economic basics - What Are The Three Types of Unemployment?