Great comment regarding the convoluted election mess during the Democrat primary cycle from Dennis Miller during his Tuesday broadcast:

If the Democrats can turn their own election process into this kind of Rube Goldbergian process, imagine what they can do with nationalized health care."

Labels: 2008, Clinton, democrats, healthcare, Obama

Health-care providers – not consumers – are always asking for tighter regulation, because they profit from making everyone subsidize generous plans that cover, say, podiatry or infertility treatment. Given the choice, consumers might choose policies that cover some services but not others.
Regulation is a very misunderstood and often mistaught concept (the above comment, by the way, was taken from a WSJ editorial touting a new Florida state law that would get the Florida government out of health insurance).

We were all taught when we were young that regulators like Teddy Roosevelt "fought" against the powerful big businesses to provide a more governed and regulated (and thus, the argument goes, more "fair" or safe) industrial world. But the truth is that the so-called "fat cats," the Rockefellers, Vanderbilts, etc., co-authored the very regulations that Teddy Roosevelt, among others, was supposedly shoving down their throats.

And why would big business so readily agree to MORE regulation?

Simple. Regulation kills competition. The "fat cats," then, no longer need worry about smaller, more nimble companies undercutting their profit margins. Instead, the government makes the business of doing business so expensive that only the largest corporations will survive.

Whatever the regulation costs the corporations the cost is far less then the cost of competing, and what's more, those costs can just be passed onto the customers, and the customers will just have to eat it because the government killed whatever competitive choice there would have been had government never involved itself in order to "save" us.

The law of unintended consequences strikes again!

Labels: Economics, healthcare, tax cuts, taxes

There are some worrying trends I see among Americans and especially conservatives. On many key issues having to do with free market, trade, and economics people seem to be mimicking old liberal arguments (many debunked long ago) and (often inadvertently) end up calling for more government intrusion into their daily life and livelihood.

Much of this, of course, is due to noneducation of the subjects at hand. While I don't profess to be an expert on these matters I am well-read enough to understand that government intervention has both seen and unseen, often unintended, consequences on my family's bottom line. But because the "reforms" are packaged as populism -- things that create a division or dichotomy between "the people" and "the elite" -- in this case "the elite" usually being auto-makers, oil companies, drug companies or politicians and lobbyists.

After all...

Who would be against strengthening campaign finance laws?
Who would be against forcing auto-makers to make more fuel efficient vehicles?
Who would be against protecting the environment?
Who would be against cheaper pharmaceuticals or Canadian drug imports?

But each of these things has often unintended but very bad consequences for the individual consumers and citizens whom have been fooled into believing they need government protection. Each of the "reforms" often more harm individual liberty than they do "reform" anything.

Each new set of campaign finance reform laws, for example, attempt to correct the overreach and consequences of past campaign finance reform laws. The McCain-Feingold campaign finance reform bill was created to correct problems created by the Watergate-era campaign finance reform bills. In it's wake, McCain-Feingold ended up curbing free speech guaranteed to us by the First Amendment (in the form of prohibiting broadcast advertisements that name a federal candidate within 30 days of a primary or caucus or 60 days of a general election). This created a vacuum, explained by Reason's Jonathan Rauch, "filled by private groups that are unaccountable to the voters," also known as "527s." To date, there is more money in politics than before, but like damming water running downhill, the law simply shifted the path to groups with anonymous and often very powerful backers whom do not have to answer to voters.

Next, forcing auto-makers to make more fuel efficient vehicles by raising CAFE (Corporate Average Fuel Economy) standards really only does two things: increased the number of highway deaths due to auto-makers making lighter, smaller cars, and increase the price of cars whose engines really do become more fuel efficient. You'll save at the pump but never enough to make up for the extra money you paid to purchase the more expensive fuel-efficient car.

Protecting the environment? On an almost daily basis I cite article after article showing that the cause of global warming and defining of carbon dioxide as a pollutant has little to do with the environment and much to do with continuing grant funding, justifying new taxation schemes, and empowering those few corporate-NGO blocks who have devised way to make money off the red-herring issue (and faulty science at that).

Finally, I'm going to post Megan McArdle's recent commentary as someone who understands the consequences of the continued demonization of pharmaceutical companies and "progressive" populist demand for cheaper drugs. Socialist medicine, single-buyer healthcare, national healthcare, etc., are really just repacked descriptors by our politicians for a monopsony -- the opposite of a monopoly, a monopsony is one buyer to many sellers.

[McCardle:] Yesterday I wrote:

So the most probable outcome of introducing monopsony power here [in the U.S.] is that the market for drugs shrinks to the point where it will support few-to-no new drugs.
Not to put too fine a point on it, Tom responded:

This seems crazy.
He is not the only one for whom this seems a little nuts. But it is not. Let me explain.

People who think that there will be continuing R&D in the pharmaceutical industry are basically thinking of it as a budgeting problem. They think of the pharmaceutical industry's gross income as a budget to be allocated between various functions, such as marketing and R&D. They may concede that by changing the size of the budget, you may shrink the amount of money to fund R&D, because there will be less money in the kitty. (Though many or most hope that shrinking the size of the pie will force pharmaceutical companies to transfer money from the advertising budget to R&D1). But, their reasoning goes, there will still be money in the kitty; if you allow pharmaceutical companies 1/3 as much gross income, you will get 1/3 as much R&D. Or perhaps they will cut their advertising budgets to zero, and then you will get 2/3 as much R&D. But still, you will get something.

I don't think of R&D as a budgeting problem; I think of it as an investment problem. After all, even if the pharmaceutical industry has no profits right now, they can borrow the money in the financial markets at fairly attractive rates.

The main obstacle to R&D, then, is not the current state of pharmaceutical industry profits; it is the potential return on the investment in R&D. After all, Merck doesn't have to make drugs; it could generate a nice, safe return of 5% a year in government bonds. Or it could get into some other business, such as making soap. If you drive down the profits on new drugs too far, it stops making sense to invest in new drugs, even if there is a small profit to be made on current production.

Developing new drugs is very, very risky. Depending on what you think constitutes a drug candidate, somewhere between one in one thousand, and one in ten thousand drug candidates makes it from a lab bench to clinical trials. Each of the failed drugs was very expensive, particularly if it got partway through clinicals, which run about $500 million per course.

The problem is, once you've developed a drug, it's easy to copy. It's also usually trivially cheap to produce. And your patent is rapidly running out. This gives a monopsony buyer a lot of leverage to force down your price--you're almost always better off taking something. This is particularly true if the monopsony buyer has the power to break your patent and license its generic manufacturers to turn out cheap but near-perfect imitations of your product2. This is, in fact, what Europe has done; they make pharmaceutical firms sell to them at cost plus. The lion's share of the profits on any drug come from the United States; what they get in Europe and Canada and the rest of the world is (thin) gravy, a price that is just a little bit better than not selling any drugs there.

Now imagine that America drives drug prices down to that sort of "cost+10" or "cost+20" level. The pharmaceutical firms will keep making the drugs they already have, because there will still be a little profit there. But they would have to be psychotic to invest billions of dollars over a 20 year time horizon in exchange for a one in a thousand chance of making that small a profit. Would you put 20% of your income now into an investment that might yield a profit of 10% of your income--in thirty years?

But they have to invest in R&D, say my interlocutors; otherwise they won't have any drugs to sell! This makes the odd assumption that they can't do anything else. But history is full of companies that used to do something else entirely--and also, of companies that went out of business when their market collapsed.

1 This belief is wrong, for reasons I will explain in another post.

2 The patent threat seems to be the most plausible reason that pharmaceutical firms do not raise Canadian prices to US levels.

Labels: CAFE, campaign finance, civil liberties, Economics, free markets, healthcare, mccain, Oil, pharmacy, supply-side, taxes, the moderate trap

Tom Firey and Jacob Grier opine on the folly of tying funding for the S-CHIP program to an increase in cigarette taxes.

Smoking in the United States is already declining significantly -- largely as a result of public awareness of its dangers, not higher taxes. The declining number of smokers makes cigarette tax revenue unstable. Congress's Joint Committee on Taxation projects that if the new tax rate is implemented next year, tobacco revenues will fall nearly 10 percent over the next decade. As Dr. Michael Siegel, professor at the Boston University School of Health has noted, this is a risky way to fund the program. "This is a situation where you're advocating a specific amount of money to a program based on cigarette revenue," he says. "So if that cigarette revenue falls, by definition, the revenue available to the program is going to fall."

...Nor does the "make smokers healthier" argument justify a tax increase. It's true that higher tobacco taxes result in declines in cigarette consumption. But smoking has proven relatively inelastic — that is, the increase in the price of cigarettes after the tax is larger than the decrease in smoking as a result of the tax. And studies have found that smokers compensate for higher prices by switching to brands with higher tar and nicotine content, and they smoke their cigarettes more intensely, increasing their intake of carcinogens and other hazardous substances. These unintended consequences partially offset the expected health gains of tobacco taxes. So even if we accept that government has a paternalistic role to play in altering adults' choices about smoking, it's unclear that the benefits of higher cigarette taxes outweigh their costs.

Labels: Economics, folly, healthcare, SCHIP, taxes

Healthcare makes up about one-seventh of the economy, so one finds it curious and somewhat hypocritical that the mainstream media and Democrats haven't demanded full disclosure from the Clintons with the same zeal as they did Cheney's energy studies. It took a lawsuit by a center-right advocacy group to even get the gears moving:

In a letter last year responding to a Freedom of Information Act request by the conservative group Judicial Watch, Melissa Walker, supervisory archivist of the Clinton Presidential Library, wrote that archivists had identified 3,022,030 still-unreleased health-care documents, along with 2,884 e-mails and 1,021 photos covered by the group's request. Archives officials at the Clinton library have yet to process the Judicial Watch request or release the several million pages of task-force documents, including many key internal memos written by Mrs. Clinton and her advisers about how to restructure the health-care industry. This prompted the group to file a new lawsuit last week demanding their immediate disclosure. "This doesn't pass the giggle test," said Christopher Farrell, the group's research director, about Clinton's statement that "all" of her health-care records had been released.

Labels: Clinton, corruption, healthcare

A statement on SCHIP by Rep. Tim Walberg:

The Democratic legislation takes a program originally meant for children of low-income families and expands it to cover some families earning up to $83,000 and illegal immigrants, while moving millions of children from private health insurance to government programs.
In 2006, 118,501 children and 101,919 adults in Michigan received health care from the S-CHIP program. Incredibly, this means that 46 percent of Michigan's funding allotment intended to give poor children health insurance actually went to cover adults.

The Wall Street Journal further described this problem in its August 9 editorial: "The bill goes so far as to offer increasing 'bonus payments' to states as they enroll more people in their SCHIP programs. To grease the way, the bill re-labels children' as anyone under 25, and 'low income' as up to… $82,600 for a family of four."

...And to pay for their huge expansion, House Democrats need 22 million new smokers to begin lighting up over the next ten years. Over two million kids will move from private health care to Washington-based, government run health care under the House leadership's plan.

Labels: Congress, democrats, healthcare, SCHIP

A rare voice of reason in the mainstream media, ABC News' John Stossel takes on Michael Moore's view of healthcare:

When government is in charge of health care, the result is not that everyone gets access to experimental treatments, but that people get less of the care that is absolutely necessary. At any given time, just under a million Canadians are on waiting lists to receive care, and one in eight British patients must wait more than a year for hospital treatment. Canadian Karen Jepp, who gave birth to quadruplets last month, had to fly to Montana for the delivery: neonatal units in her own country had no room.

Rationing in Britain is so severe that one hospital recently tried saving money by not changing bed-sheets between patients. Instead of washing sheets, the staff was encouraged to just turn them over, British papers report. The wait for an appointment with a dentist is so long that people are using pliers to pull out their own rotting teeth.

Patients in countries with government-run health care can't get timely access to many basic medical treatments, never mind experimental treatments. That's why, if you suffer from cancer, you're better off in the U.S., which is home to the newest treatments and where patients have access to the best diagnostic equipment. People diagnosed with cancer in America have a better chance of living a full life than people in countries with socialized systems. Among women diagnosed with breast cancer, only one-quarter die in the U.S., compared to one-third in France and nearly half in the United Kingdom.

Mr. Moore thinks that profit is the enemy and government is the answer. The opposite is true. Profit is what has created the amazing scientific innovations that the U.S. offers to the world. If government takes over, innovation slows, health care is rationed, and spending is controlled by politicians more influenced by the sob story of the moment than by medical science.

Labels: Economics, healthcare, taxes