Government – Page 135 – artdiamondblog.com

77,000 Die from Lack of Tort Reform

Source of report cover image: http://www.pacificresearch.org/pub/sab/entrep/2007/Jackpot_Justice/index.html

(p. A18) How does the legal system extract such an astounding amount from our economy? We applied the rent-seeking theory of transfers from economic science to pick up where past studies — including the highly regarded Tillinghast-Towers Perrin study — leave off. We began by examining the static costs of litigation — including annual damage awards, plaintiff attorneys’ fees, defense costs, administrative costs and deadweight costs from torts such as product liability cases, medical malpractice litigation and class action lawsuits. The annual static costs, $328 billion per year, are well in excess of previous Tillinghast estimates.

But $328 billion is only the beginning. After all, litigation doesn’t just transfer wealth, it also changes behavior, and often in economically unproductive ways. Any true estimate of the costs of America’s tort system must also include these dynamic costs of litigation — the impact on research and development spending, the costs of defensive medicine and the related rise in health-care spending and reduced access to health care, and the loss of output from deaths due to excess liability.

. . .

Based on data from previous studies, we determined that more than 77,000 people would have been alive today and contributing to the workforce, but are not because of a failure to enact comprehensive tort reforms in the states. The cost of foregone output from these lost workers is more than $7 billion each year.

What we’re left with, then, are annual dynamic costs of $537 billion resulting from our litigation system. Add that to the static costs of $328 billion and you arrive at the total of over $865 billion per year.

For the full commentary, see:

LAWRENCE J. MCQUILLAN and HOVANNES ABRAMYA. "The Tort Tax." The Wall Street Journal (Tues., March 27, 2007): A18.

(Note: ellipsis added.)

McQuillan, Abryamyan, along with Anthony P. Archie, have co-authored a report entitled Jackpot Justice: The True Cost of America’s Tort System that elaborates on many of the issues sketched in the commentary excerpted above. You can download a free PDF copy at: http://www.pacificresearch.org/pub/sab/entrep/2007/Jackpot_Justice/Jackpot_Justice.pdf

Cost of Government Grew by 20% Since 1975

Source of graph: online version of the NYT article quoted and cited below.

(p. C3) After dipping briefly in the first years of this decade, taxes are growing again around the world, the Organization for Economic Cooperation and Development said yesterday.

Taxes in 2005 equaled the previous peak year of 2000, the organization said, when by one measure 36.2 percent of gross domestic product in 30 industrial countries, including the United States, went to taxes at all levels of government.

The organization, which is based in Paris, said that when final figures are in for 2006, they will most likely show a new peak.

The report defines taxes as “compulsory, unrequited payments to general government.”

The cost of government has risen by about 20 percent since 1975, when taxes accounted for less than 30 percent of the gross domestic product of the organization’s member countries.

. . .

Taxes in the United States — from the federal income tax and Social Security tax to local property levies — rose to 28.2 percent in 2006, from 25.6 percent of gross domestic product in 1975, the O.E.C.D. said. It reported that American taxes peaked at 29.9 percent in 2000, slipped to 26 percent in 2004 and then began rising again, a finding consistent with recent statistical tables released by the Internal Revenue Service.

For the full story, see:

DAVID CAY JOHNSTON. "Taxes in Developed Nations Reach 36% of Gross Domestic Product." The New York Times (Thurs., October 18, 2007): C3.

(Note: ellipsis added.)

New Farm Bill Is Sweet for Sugar Industry, but Sour for Sugar Consumers

"Sugar being processed at the Louisiana Sugar Cooperative mill in St. Martinville, La." Source of caption and photo: online version of NYT article quoted and cited below.

(p. C1) A little-noticed provision in the new farm bill working its way through Congress would oblige the Agriculture Department to buy surplus domestic sugar caused by the expected influx of Mexican sugar next year. Then the government would sell it, most likely at a steep discount, to ethanol producers to add to their fermentation tanks. The Bush administration is fighting the measure.

Sugar producers say the cost would be relatively low and the plan would help keep prices at a level they consider fair. As a side benefit, the deal would allow the nation to produce more ethanol to mix with gasoline, displacing some foreign oil, they say.

But ethanol producers are unenthused. And the plan is drawing fire from opponents of agricultural subsidies and from longtime critics of the sugar in- (p. C4) dustry, who complain that producers already have one of the best deals in American agriculture.

“It’s a tax burden without a benefit that distorts both the ethanol market and the food-ingredient market,” said Richard E. Pasco, counsel for the Sweetener Users Association, a lobby group for food companies that use sugar. “And guess who will pay the price? Taxpayers and consumers.”

. . .

The measure would be grafted onto an existing sugar policy so complex that even many farmers have trouble understanding it. The government limits the supply of sugar through production quotas and import restrictions, and it uses financial mechanisms to set an effective price floor.

The system does not cost taxpayers money directly, a point of pride for the industry. But it costs consumers money in the form of higher sugar prices. The system has been subjected to withering criticism for decades, but the sugar lobby has clout on Capitol Hill. Sugar producers donated $2.7 million in campaign contributions to House and Senate incumbents in 2006, more than any other group of food growers, according to the Center for Responsive Politics, a Washington group.

The new farm bill would retain much of the existing system, which sugar producers defend on the ground that virtually every country with a domestic sugar industry has strong protections. But it would add more guarantees, including one that would assure American producers 85 percent of the market no matter how much sugar comes in from abroad.

For the full story, see:

CLIFFORD KRAUSS. "Seeing Sugar’s Future in Fuel." The New York Times (Thurs., October 18, 2007): C1 & C4.

(Note: ellipsis added.)

Source of graphic: online version of NYT article cited above.

Hong Kong Dim Sum Lovers Rebuke Government

"Wong Yuen enjoying breakfast at a Hong Kong restaurant. The government, he says, "shouldn’t be telling anyone how dim sum should be served."" Source of caption and photo: online version of the NYT article quoted and cited below.

Longtime dim sum lovers are indignant.

"The government is putting its thumb on every part of citizens’ lives, and it shouldn’t be telling anyone how dim sum should be served," said Wong Yuen, a retired mechanic and truck driver who says he has eaten dim sum every morning for the last two decades. "People can make their own decisions. If it’s unhealthy, they can eat less. They don’t need the government to tell them."

For the full story, see:

KEITH BRADSHER. "HONG KONG JOURNAL; Dim Sum Under Assault, and Devotees Say ‘Hands Off’." The New York Times (Thurs., April 28, 2005): A4.

Incentives for Organ Donations Would Save Lives

Sally Satel is a medical doctor and a resident scholar at the Amerrican Enterprise Institute. Source of photo: http://www.aei.org/publications/filter.all,pubID.25785/pub_detail.asp

(p. A12) At the annual meeting of The American Society of Transplant Surgeons this winter a straw poll revealed that 80 to 85% were in favor of studying incentives for living donors, according to society president Arthur Matas. In 2003, the American Medical Association testified on behalf of legislation that would have permitted pilot studies of incentives for deceased organs.

The public seems receptive as well, according to a new Gallup poll on attitudes toward donation of organs after death. The most striking results were among 18 to 34 year olds wherein an impressive 34% said that incentives would make them "more likely" to donate while 6% said less likely. . . .

. . .

The idea of combining organ donation with material gain can make people queasy. Yet the mix of financial and humanitarian motives is commonplace. No one objects, for example, to a tax credit for charitable contributions–a financial incentive to complement the "pure" motive of giving to others. The great teachers who enlighten us and the doctors who heal us inspire no less gratitude because they are paid. An increase in the supply of kidneys will ameliorate suffering and prevent needless death. This is more important than whether an organ has been given freely or for material gain. . . .

For the full commentary, see:

Satel, Sally. "Doing Well By Doing Good." The Wall Street Journal (Fri, March 16 2007): A12.

(Note: ellipses added.)

Texas Shows Tort Reform Works

"Dr. Donald W. Patrick, executive director of the Texas Medical Board, with applications for medical licenses sent to it." Source of caption and photo: online version of the NYT article quoted, and cited, below.

HOUSTON, Oct. 4 — In Texas, it can be a long wait for a doctor: up to six months.

That is not for an appointment. That is the time it can take the Texas Medical Board to process applications to practice.

Four years after Texas voters approved a constitutional amendment limiting awards in medical malpractice lawsuits, doctors are responding as supporters predicted, arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional health care to some long-underserved rural areas.

The influx, raising the state’s abysmally low ranking in physicians per capita, has flooded the medical board’s offices in Austin with applications for licenses, close to 2,500 at last count.

“It was hard to believe at first; we thought it was a spike,” said Dr. Donald W. Patrick, executive director of the medical board and a neurosurgeon and lawyer. But Dr. Patrick said the trend — licenses up 18 percent since 2003, when the damage caps were enacted — has held, with an even sharper jump of 30 percent in the last fiscal year, compared with the year before.

“Doctors are coming to Texas because they sense a friendlier malpractice climate,” he said.

For the full story, see:

RALPH BLUMENTHAL. "After Texas Caps Malpractice Awards, Doctors Rush to Practice There." The New York Times (Fri., October 5, 2007): A21.

“Merchant Generator” Leads Nuclear Renaissance

Source of graphic: online version of the WSJ article quoted, and cited, below.

(p. B1) In a move that could mark the beginning of a nuclear-power revival, a New Jersey-based energy company today plans to submit an application to build and operate two new reactors. The request, the first submitted to the Nuclear Regulatory Commission in 31 years, comes from an unlikely source: NRG Energy Inc., a company that has never before built a nuclear plant.

The application — for a two-reactor addition to the company’s existing South Texas nuclear station — could offer the first full test of the nuclear agency’s new licensing process, which has been under development since the 1980s. The new process allows companies to submit a single application for a construction permit and conditional operating license, eliminating the risk that a firm could build a plant but not be allowed to run it.

. . .

(p. B2) . . . , the industry has regained momentum, partly because other forms of power generation have continued to show significant flaws. Coal-fired plants undermine efforts to combat global warming. Many natural-gas-fired plants rely on a fuel with volatile prices. And renewable energy mostly comes from intermittent forces like wind, rain and sunlight.

This first application comes from a somewhat unlikely source; NRG is a so-called "merchant generator," a company that makes electricity and sells it on the open market. NRG has never built a nuclear plant, and because it doesn’t own a utility, has no ratepayers to whom it could bill the estimated $5.5 billion to $6 billion expense.

"We’re like the uncola," says David Crane, NRG chief executive in Princeton, N.J.

. . .

So far, it appears merchant generators think Texas provides the most promising market. Deregulation in that state has resulted in a sharp run up in wholesale power prices since 2004. A recent decision by Dallas-based TXU to abandon efforts to build eight coal-fired plants could result in shrinking electricity reserves in the coming years, creating an environment receptive to operators looking to bring large units online and sell such units’ full output.

For the full story, see:

REBECCA SMITH. "Nuclear Energy’s Second Act? Bid to Build Two New Reactors In Texas May Mark Resurgence; NRC Gears Up for Many More." The Wall Street Journal (Tues., September 25, 2007): B1 & B2.

(Note: ellipses added.)

New Nuclear Design Reduces Already-Low Risks, and Increases Efficiency

Source of graphic: online version of the NYT article quoted and cited below.

(p. C1) WASHINGTON, Sept. 24 — In a bid to take the lead in the race to revive the nuclear power industry, an energy company will ask the federal Nuclear Regulatory Commission on Tuesday for permission to build two reactors in Texas.

It is the first time since the 1970s and the accident at Three Mile Island that an American power company has sought permission to start work on a new reactor to add to the existing array of operable reactors, which now number 104.

. . .

(p. C11) NRG is planning to build the Advanced Boiling Water Reactor, which represents a relatively low-risk choice in an industry where few American companies have current experience with building a plant. . . .

. . .

The new design has several innovations that are aimed at sharply reducing the risk of meltdown, a risk that is described by the industry and by regulators as very low in any case. Other innovations are supposed to reduce the time and cost of construction.

MATTHEW L. WALD. "Approval Is Sought For Reactors." The New York Times (Tues., September 25, 2007): C1 & C11.

(Note: ellipses added.)

Michael Powell Provides Support for the Capture Theory of Regulatory Agencies

The following brief story would seem highly compatible with the "Capture Theory of Regulatory Agencies" that is associated with the names of economist George Stigler, and historian Gabriel Kolko. That theory suggests that regulatory agencies are frequently captured by the industries that they are intended to regulate.

One kind of evidence for the theory is that members of regulatory agency boards often are recruited from the industry, and often return to working for the industry after their terms are over.

The efforts of federal regulators to curtail cronyism on corporate boards have led to some odd outcomes. The case of Michael K. Powell, a new director of Cisco Systems, is a prime example.

Mr. Powell, the former chairman of the Federal Communications Commission, happens to be a son of Colin Powell, the former secretary of state. Cisco happens to have paid the senior Mr. Powell more than $100,000 to deliver two speeches in 2005.

Under guidelines established by the Nasdaq stock market, that connection disqualifies the younger Mr. Powell as an independent director, so he cannot sit on the company’s audit, compensation or governance committees. But by the same definition, Richard M. Kovacevich, the chairman of Wells Fargo, is an independent director of Cisco, even though his company has promised to lend Cisco $120 million.

The difference is that Cisco’s line of credit is deemed too small a part of Wells Fargo’s overall business to present a conflict of interest, while the payments to the senior Mr. Powell exceeded the allowable annual limit of $100,000 to any family member of an independent director.

Source of story:

PATRICK McGEEHAN. "$100,000? Too High. $120 Million? Fine." The New York Times, SundayBusiness Section (Sun., September 30, 2007): 2.

The key Kolko book is:

Kolko, Gabriel. Railroads and Regulation, 1877-1916. W. W. Norton & Company, 1970.

Testing Incentives

When W. became president, he had two major education initiatives: vouchers, and "no child left behind." It is unfortunate that in the face of formidable Democratic opposition, he abandoned vouchers, and stuck with "no child left behind." The latter policy’s intent is noble, but some of its unintended consequences are perverse.

Mandatory testing results in educational inefficiency: teachers teach to the tests, and as the commentary quoted below reports, tests get jiggered to show good results.

The main harm though, is that some of the most important results of good education, like resilience, self-discipline, and creativity, are not readily measured in standardized multiple choice tests. So programs, such as Montessori, that encourage such results, end up under-appreciated and under-rewarded.

What we most need is for parents to be free to choose in education. That would result in far greater innovation and improvement in education than the current "no child left behind" standardized testing.

(p. A31) If teachers, administrators, politicians and others have a stake in raising the test scores of students — as opposed to improving student learning, which is not the same thing — there are all kinds of incentives to raise those scores by any means necessary.

. . .

A study released last week by the Thomas B. Fordham Institute and the Northwest Evaluation Association found that “improvements in passing rates on state tests can largely be explained by declines in the difficulty of those tests.”

The people in charge of most school districts would rather jump from the roof of a tall building than allow an unfettered study of their test practices. But that kind of analysis is exactly what’s needed if we’re to get any real sense of how well students are doing.

For the full commentary, see:

BOB HERBERT. " High-Stakes Flimflam." The New York Times (Tues., October 9, 2007): A31.

Columnist Bob Herbert. Source of photo: online version of the NYT column quoted and cited above.

United States Cotton Subsidies Hurt Poor African Farmers

Dan Sumner did his dissertation many years ago under T.W. Schultz, a great economist, and a great human being. (Dan was a friend of mine in grad school–we were members of a club that gathered once a month to discuss the works of Bertrand Russell.)

Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.

Agricultural economists at the University of California, Davis, who conducted the study for Oxfam, found that a typical farm family of 10 in Chad, Benin, Burkina Faso or Mali — Africa’s major cotton producers — that now earns $2,000 a year would have an extra $46 to $114 a year to spend if American subsidies were removed.

“Fifty to a hundred bucks is a lot of money to these people,” said Daniel Sumner, chairman of the Department of Agricultural and Resource Economics at the university. “It’s not right to think that changing U.S. subsidies will turn very poor people into middle-class households by our standards. That’s a generational process. But it’s money in their pocket.”

. . .

Dani Rodrik, an economist at Harvard who is skeptical of the importance of reduced agricultural subsidies, said he found Oxfam’s new estimates credible, but said the gains forecast were relatively small. . . .

. . .

But the authors of the report said that removing American subsidies would permanently shift the price of cotton upward, with prices subsequently fluctuating around a higher average.

For the full story, see:

CELIA W. DUGGER. "Oxfam Suggests Benefit in Africa if U.S. Cuts Cotton Subsidies." The New York Times (Thurs., June 21, 2007): A12.

(Note: ellipses added.)