Government – Page 146 – artdiamondblog.com

Distorted Incentives in Medicine

Source of book image: http://www.harpercollins.com/books/9780061130298/The_End_of_Medicine/index.aspx

The problem right now, as Mr. Kessler sees it, is that we fight the "big three" — cancer, stroke and heart attack — with treatment rather than early detection. Cancer cells and blood-vessel plaque can be handled much more easily in the early stages, but we spend most of our money on the later ones. More than 80% of health-care dollars are paid by insurance companies and the government, and neither is especially interested in detecting disease when it first appears. Doctors, regulators, researchers and payers of all kinds are locked into what Mr. Kessler calls — a bit ungenerously — the "cholesterol and cancer conspiracies."

A complicated system of mutual dependency distorts the incentives. "The FDA is like the FCC and Big Pharma is like the regional Bells" is what Mr. Kessler hears from Don Listwin, a former Cisco executive who now heads the Canary Foundation, a Silicon Valley-based effort to promote preventive medicine. In other words, in medicine as in telecom, the big players end up exploiting regulations more than opposing them, if only to preserve their monopolies. The Food and Drug Administration — understandably but narrow-mindedly — wants "cures" for cancer and other diseases. Thus tens of thousands of chemicals are screened, only a handful make it even to Phase I trials, and by the time a new drug is approved a billion dollars has been spent. Even then the new drug may help only 10% of patients.

Yet if someone were to invent a device with a wide, preventive usefulness — say, a nanotech implant that would spot the proteins that indicate the first minute presence of cancer — it would have to go through the same process of billion-dollar testing. Since the government and insurance companies are reluctant to add anything to their repertoire of coverage — and since such a device would be targeted at the much broader pool of people who are not sick — research might well stall in its earliest phases for lack of reimbursement-funding.

For the full review, see:

WILLIAM TUCKER. "Bookshelf; The Art of Navigating Arteries." Wall Street Journal (Tues., July 18, 2006): D6.

A full reference to the book reviewed, is:

Kessler, Andy. The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor. HarperCollins, 2006.

Welfare Reform Increases Number Employed

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

WASHINGTON, Aug. 20 — Ten years after a Republican Congress collaborated with a Democratic president to overhaul the nation’s welfare system, the implications are still rippling through policy and politics.

The law, which reversed six decades of social welfare policy and ended the idea of free cash handouts for the poor, was widely seen as a victory for conservative ideas. When it was passed, some opponents offered dire predictions that the law would make things worse for the poor. But the number of people on welfare has plunged to 4.4 million, down 60 percent. Employment of single mothers is up. Child support collections have nearly doubled.

“We have been vindicated by the results,” said Representative E. Clay Shaw Jr., Republican of Florida and an architect of the 1996 law who was vilified at the time. “Welfare reform was one of the most successful policy changes in our nation’s history.”

For the full story, see:

ROBERT PEAR and ERIK ECKHOLM. "A Decade After Welfare Overhaul, a Shift in Policy and Perception." The New York Times (Mon., August 21, 2006): A12.

Money Buys Happiness, and Governments Tax It Away

We are . . . all constantly reminding each other that "money doesn’t buy happiness."

Economists aren’t so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are "very happy" than people in the bottom fifth, and only about half as likely to say they are "not too happy."

There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of "consumerism" explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others — so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

Perhaps you’re unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are "not too happy." At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

For the full commentary, see:

ARTHUR C. BROOKS. "Money Buys Happiness." The Wall Street Journal (Thurs., December 8, 2005): A16.

Power to the People

Cooling towers at the Vogtle nuclear power plant in Georgia. Source of photo: the online version of the NYT article quoted and cited below.

A long, and informative cover-story in the NYT, discusses the costs and benefits of nuclear power. My read is that, on balance, the considerations in the article favor nuclear energy. Here are a few passages from near the end of the article:

(p. 64) Gary Taylor, . . ., the C.E.O. of Entergy Nuclear, says he believes a doubling of the number of nuclear plants around the world is inevitable, both to satisfy energy demands and to counter global warming. As Taylor puts it: ”The reality is, what is scalable in the time frame that addresses the issues? If it isn’t this technology, I don’t know what it would be.” Diaz, the former head of the N.R.C., told me he sees a similarly bright future for nuclear. ”The world is going to go nuclear, because they do not have any other real alternatives,” he says. I met plenty of other engineers within the industry who went even further. Their feeling about nuclear power is close to evangelical, in that they seem to approach the technology with moral certitude while being loath to acknowledge any of its many negatives. Would that include the utility executives who will ultimately decide if — and what — to build? I’m not sure it would. To those I spoke with in the uppermost ranks, nuclear power isn’t a belief system. It’s a business. And to them, what might come out of, say, Vogtle Units 3 and 4 — the waste and the power and the profits — would be nearly identical to what comes out of Units 1 and 2.

At least that was my conclusion in Georgia, where Jeff Gasser, the Southern Company’s chief nuclear officer, took me through a long tour of the plant. He was smart, meticulous and intensely committed to the obscure safety protocols that go on at nuclear power facilities. Most of all he was forthright about the advantages and disadvantages of the nukes business. When we went to visit the spent-fuel pool in Vogtle, where the used fuel-rod assemblies are stored under 20 feet of protective water, Gasser let me know that we would die if we pulled one of the fuel assemblies out of the pool. ”We would receive, before we could get to the exit door a few feet away, a lethal radiation dose,” he said. I quickly had to check the radiation dosimeter I was wearing — another legal requirement of the N.R.C. — to see if I was already glowing. (It read zero.) ”The communications people hate it when I use words like ‘lethal’ and ‘irradiated,’ ” Gasser continued. ”But the fact is, there is no perfect way of generating electricity. There are byproducts for every type.” Like many others, he went through the positives and negatives of coal, gas, solar, wind and nuclear. In his opinion, he added, with Vogtle’s engineering, redundancy of safety systems and its trained operators, it was a safe, reliable and efficient way of making electricity. That was his sales pitch.

We had already passed through the containment buildings, where the reactors heat the pressurized water. So Gasser took me through the turbine building, an enormous room the size of a soccer field, where the steam turns the fan blades. Eventually, we went out a back door into the sunlight. The deafening sounds of turbines and machinery subsided to a dull thrum. We removed our earplugs and walked over to a small forest of electrical transformers, our backs to the plant. The electricity from the turbines inside comes out here, Gasser explained, its voltage is transformed, and it is then put into the grid.

Gasser made a pushing motion toward the green hills before us.

”Once the power is sent out of here, it can go everywhere,” he explained. And I could see that it did go everywhere. The high-tension wires stretched away from where we stood, in several directions, through deep cuts in the pinelands, as far as I could see.

For the full article, see:

JON GERTNER. "Atomic Balm? ‘ The New York Times Magazine, Section 6 (Sunday, July 16, 2006), 36-47, 56, 62 & 64.

Cuban Bureaucrats Fooled by Castro Impersonator

Castro impersonator Eddy Calderón. Source of photo: online version of WSJ article cited below.

(p. A1) Mr. Calderón says the work can be risky. Once, he recalls, a woman whose relative had been executed by the revolution hurled a dinner plate at his head. At a recent gig, a tiny, white-haired lady shouted at him: "Why did you ruin the country?" Mr. Calderón, as Fidel, answered that she should thank him because if it hadn’t been for him, she’d be stuck in Cuba instead of living well in Miami, "where you can buy hair dye and dentures."

After the Aug. 13 performance, a ballroom attendant, Armando Montes de Oca, approached Mr. Calderón while he was still in his Castro beard and told him: "If I didn’t know you were Calderón behind that beard, you would never leave (p. A9) this room alive."

"Thank you," Mr. Calderón replied.

Mr. Calderón has been doing his imitation of Fidel for about a dozen years. He became a local superstar two years ago when a cable-TV channel started weekly broadcasts of a skit called "La Mesa Retonta," or "The Idiots’ Table," a takeoff on a weekly "Meet the Press"-style show Mr. Castro has done in Cuba, called "La Mesa Redonda," or "The Roundtable."

Mr. Calderón’s Fidel voice is so good that on about 50 occasions, he has telephoned Cuban bureaucrats in Havana or Cuban diplomats abroad and fooled them into thinking they were on the line with the man himself. Mr. Calderón taped the calls, which he still often plays on a Miami radio show.

Two years ago, Mr. Calderón held a 12-minute conversation with Cuba’s deputy construction minister, ordering him to build a giant retractable roof over Havana’s Latin American stadium, as a way to improve conditions for Cuban baseball players and dissuade them from defecting.

"We need a revolutionary roof to uphold the pride of the Cuban Revolution," said Mr. Calderón during the taped telephone call, in a dead-on imitation of Mr. Castro’s edgy, high-pitched, nasal voice.

"I am your unconditional soldier," replied the hapless minister, who promised to get the job done.

That same year, Mr. Calderón telephoned a luxury hotel at Cuba’s Varadero beach resort and ordered the hotel manager to provide a week-long all-expense-paid vacation for one of Cuba’s leading dissidents, whose movements are shadowed by the secret police, to show the government’s good will. Before hanging up, the hotel manager, Mr. Calderón says, promised to make the reservation.

A year earlier, Mr. Calderón as Fidel told transport official Gumersindo Gómez to round up 200 scarce buses for an outing of some 700 priests of the Afro-Cuban religion Santería, and to find room for their sacrificial goats and chickens. Make sure the buses don’t have any graffiti saying "down with You-Know-Who," he added.

"Fatherland or death," Mr. Calderón said.

"Onwards to victory," replied Mr. Gómez, according to the tape of the phone call.

For the full story, see:

JOSÉ DE CÓRDOBA. "Fidel Castro’s Illness Has Impersonators Scrambling to Adapt In Miami; Mr. Calderón Does El Jefe’s Voice Perfectly; New Role for Brother Raúl." Wall Street Journal (Fri., August 18, 2006): A1 & A9.

Eleven-Year-Old Crippled for Life by Mao Supporters

Source of book image: http://www.holtzbrinckpublishers.com/henryholt/Search/SearchBookDisplayLarge.asp?BookKey=1524294

(p. B29) This improbable journey, from Maoist orthodoxy to the entrepreneurial quasicapitalism officially described as “socialism with Chinese characteristics,” is the main theme of “Chinese Lessons,” but Mr. Pomfret, a reporter for The Washington Post, gives his tale a twist. He tells it not only through his own experiences as a student and journalist but through the life stories of five university classmates, who suffered through the Cultural Revolution as children, found inspiration and hope in the growing democracy movement and lived to see a China that neither they nor their parents could have imagined. . . .

All the lives Mr. Pomfret explores are extraordinary, and each sheds its own light on recent Chinese history. Perhaps the most endearing of his characters is Guan Yongxing, better known as Little Guan, who as an 11-year-old suffered social ostracism after accidentally using a piece of paper with “Long Live Chairman Mao!” on it to wipe herself in the bathroom.

After classmates threw her to the ground, no doctor would treat her dislocated shoulder, leaving her crippled for life. Her father’s job as a schoolteacher made the Guan family a prime target for abuse, and Little Guan, rather than endure ridicule and torment at school, picked cotton and sprayed fertilizer on the fields, her back constantly burned by chemicals leaking from the tank on her back. Tough, determined and highly intelligent, she survives and eventually prospers in the new China.

. . .

Zhou Lianchun, called Book Idiot Zhou by a contemptuous Communist Party official, meted out insults and torture as part of a Red Guard brigade. “I did what I was told and, being 11, I liked it,” he tells Mr. Pomfret.

. . .

More even than sex, students want just a little bit of the good life that seems to be in reach as China’s rulers relax their economic policies. To get it they master a strange kind of doublethink, pledging allegiance to the party and Communist ideals while scheming to start a business.

Book Idiot Zhou, a history teacher by day, jumps into a business partnership to process urine for the pharmaceutical industry. “Several days a week, he taught Marxism, Leninism and Maoist thought and railed against the exploitation of the capitalist class,” Mr. Pomfret writes. “The rest of the time he spent as a budding entrepreneur, employing dozens at rock-bottom wages, working the system to enrich himself, his partners and his family.”

. . .

His classmates have done well. But their lives, and the China described in “Chinese Lessons,” bear a heavy load of suppressed grief, terrible compromises and boundless cynicism. At a new drive-in called the Happy Auto Movie Palace, Mr. Pomfret notices something strange about the concrete slabs underneath his feet. They show the marks of tank treads. The drive-in owner bought them after the government repaved Tiananmen Square.

This strikes Mr. Pomfret as bizarre, but not the owner. “It was a good deal,” he says.

For the full review, see:

WILLIAM GRIMES. "Books of The Times; Twisting Along China’s Sharp Curves." The New York Times (Fri., August 4, 2006): B29.
(Note: ellipses added.)

Big Business Is Often Bashed, But Is Not Always Bad

(p. 4) BUSINESS bashing by politicians in America has a long history, including rhetoric far more inflammatory than the denunciations being directed at Wal-Mart this year by some Democrats, who sometimes sound as if they are running against the company instead of another politician.

. . .

The company may not appreciate the honor, but its place in the political debate reflects its revolutionary effect on the American economy.

Put simply, the big winners as the economy changes have often been scary to many, particularly those with a stake in the old economic order being torn asunder.

“Twice as many Americans shop at Wal-Mart over the course of a year than voted in the last presidential election,” said H. Lee Scott Jr., the company’s chief executive, in a speech to the National Governors Association in February.

Wal-Mart’s success reflects its ability to charge less for a wide range of goods. That arguably has reduced inflation and made the economy more efficient. It has introduced innovations in managing inventory and shipping goods.

. . .

But the fact that Wal-Mart has more shoppers than any politician has voters shows that many of those workers — and many people higher on the income scale — find its prices irresistible. That group no doubt includes some of the company’s critics.

Previous business targets of politicians have similarly been both popular and reviled. The railroads enabled much of America to prosper, but to many people in the late 19th century they were viewed as villains.

They upset old economic relationships by making it possible to ship goods over much longer distances, thus introducing competition for local businesses and farms.

For the full commentary, see:

FLOYD NORRIS. "THE NATION; Swiping at Industry From Atop the Stump." The New York Times, Section 4 (Sun., August 20, 2006): 4.

(Note: ellipses added.)

Illinois protesters bashing Wal-Mart during the summer of 2006. Source of photo: online version of the NYT article cited above.

French Slow Innovation By Violating Apple’s Intellectual Property Rights

THE French take pride in their revolutions, which are usually hard to miss — mass uprisings, heads rolling and such. So, with the scent of tear gas in the air this past month from the giant protests against a youth labor law, it was easy to overlook the French National Assembly’s approval of a bill that would require Apple Computer to crack open the software codes of its iTunes music store and let the files work on players other than the iPod. While seemingly minor, the move is actually rather startling and has left many experts wondering (as ever): What has possessed the French?

. . .

If the French gave away the codes, Apple would lose much of its rationale for improving iTunes. Right now, after the royalty payment to the label (around 65 cents) and the processing fee to the credit card company (as high as 23 cents), not to mention other costs, Apple’s margin on 99-cent music is thin. Yet it continues to add free features to iTunes because it helps sell iPods.

Opening the codes threatens that link. Apple would need to pay for iTunes features with profits from iTunes itself. Prices would rise. Innovation would slow.

Even worse, sharing the codes could make it easier for hackers to unravel Apple’s FairPlay software. Without strong copy protection, labels would not supply as much new music.

For the full commentary, see:

Austan Goolsbee. "ECONOMIC SCENE; In iTunes War, France Has Met the Enemy. Perhaps It Is France." The New York Times (Thurs., April 27, 2006): C3.

Over-regulating Lenders is a Recipe for Stagnation

MICROFINANCE is based on a simple idea: banks, finance companies, and charities lend small sums — often no more than a few hundred dollars — to poor third world entrepreneurs. The loan recipients open businesses like tailoring shops or small grocery stores, thereby bolstering local economies.

But does microfinance, in fact, help the poor?

To help answer this question, I visited Hyderabad, India, in June. . . .

. . .

My visit suggested that microfinance is working, but it is often more corporate, more commercial and under more attack than I had expected.

. . .

Near Hyderabad, in the state of Andhra Pradesh, political opposition to microfinance has begun. State officials have fed negative stories to the media. They charge that microfinance debts have driven some people to ruin or perhaps suicide. They call Spandana’s programs “coercive” and “barbaric.” They question whether the “community pressure” behind repayment is sometimes too severe.

The motives behind this campaign are twofold. The state is not a neutral umpire but rather has its own “self-help group” banking model, which lends at the micro level. Spandana and some of the other private microfinance groups are unwelcome competition. More generally, opposition to money lending has been frequent in the history of both India and the West. Not every loan will have a positive outcome, and it is easy to focus on the victims. Not all Indians have accepted the future of their country as an open commercial society with winners and losers.

. . .

The Indian political authorities must decide whether they will allow new businesses to spread, even when commercialization leads to some disappointments or competes with a state interest. The stipulation that no one can be harmed by progress is a sure recipe for stagnation.

For the full commentary, see:

Tyler Cowen. "ECONOMIC SCENE; Microloans May Work, but There Is Dispute in India Over Who Will Make Them." The New York Times (Thurs., August 10, 2006): C4.

More and Better Jobs Gained by ‘Insourcing’ than are Lost to ‘Outsourcing’

N. Gregory Mankiw, former chair of W.’s Council of Economic Advisors. The media, most Democrats, and some Republicans, skewered Mankiw in 2004 for simply and clearly stating the truth about outsourcing. Source of photo: online version of the NYT article cited below.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 280,000 a year. That’s a drop in the bucket. In July, there were 135.35 million payroll jobs in the United States, according to the Bureau of Labor Statistics. Thanks to the forces of creative destruction, more jobs are created and lost in a few months than will be outsourced in a year. Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

What’s more, the threat of outsourcing varies widely by industry. Lots of services require face-to-face interaction for people to do their jobs. That is particularly true for the biggest sectors, retail and health care. As a result, according to a McKinsey study, only 3 percent of retail jobs and 8 percent of health care jobs can possibly be outsourced. By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore. But those sectors account for only about 2 percent of total employment. The upshot: “Only 11 percent of all U.S. services job could theoretically be performed offshore,” Ms. Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing. Quite the opposite. Last fall, J. Bradford Jensen, deputy director at the International Institute of Economics, based in Washington, and Lori G. Kletzer, professor of economics at the University of California, Santa Cruz, documented the degree to which various service sectors and jobs were “tradable,” ranging from computer and mathematical occupations (100 percent) to food preparation (4 percent).

Not surprisingly, Mr. Jensen and Professor Kletzer found that in recent years there has been greater job insecurity in the tradable job categories. But they also concluded that jobs in those industries paid higher wages, and that tradable industries had grown faster than nontradable industries. “That could mean that this is our competitive advantage,” Mr. Jensen says. “In other words, what the U.S. does well is the highly skilled, higher-paid jobs within those tradable services.”

There is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here. In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the United States lost 125,000 programming jobs but added 425,000 jobs for higher-skilled software engineers and analysts.

For the full commentary, see:

DANIEL GROSS. "Economic View; Why ‘Outsourcing’ May Lose Its Power as a Scare Word." The New York Times, Section 3 (Sun., August 13, 2006): 5.

Static Assumptions Undermine Economic Policy Analysis

Over 50 years ago, Schumpeter emphasized that static models of capitalism miss what is most important in capitalism. Yet static analysis still dominates most policy discussions. But there is hope:

(p. A14) A bit of background: Most official analysis of tax policy is based on what economists call "static assumptions." While many microeconomic behavioral responses are included, the future path of macroeconomic variables such as the capital stock and GNP are assumed to stay the same, regardless of tax policy. This approach is not realistic, but it has been the tradition in tax analysis mainly because it is simple and convenient.

In his 2007 budget, President Bush directed the Treasury staff to develop a dynamic analysis of tax policy, and we are now reaping the fruits of those efforts. The staff uses a model that does not consider the short-run effects of tax policy on the business cycle, but instead focuses on its longer run effects on economic growth through the incentives to work, save and invest, and to allocate capital among competing uses.

For the full story, see:

ROBERT CARROLL and N. GREGORY MANKIW. "Dynamic Analysis." The Wall Street Journal (Weds., July 26, 2006): A14.