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Doctors Erect Barriers to Keep Out Competition

A Bangalore radiologist. One of three radiologists in India known to be reading U.S. scans. Each of the three has a U.S. degree, as required by U.S. law. Source of image: http://www.nytimes.com/2006/04/19/business/19leonhardt.html?_r=1&oref=slogin

(p. C1) Radiologists seem like just the sort of workers who should be scared. Computer networks can now send an electronic image to India faster than a messenger can take it from one hospital floor to another. Often, those images are taken during emergencies at night, when radiologists here are sleeping and radiologists in India are not.

There also happens to be a shortage of radiologists in the United States. Sophisticated new M.R.I. and CT machines can detect tiny tumors that once would have gone unnoticed, and doctors are ordering a lot more scans as a result.

When I talked this week to E. Stephen Amis Jr., the head of the radiology department at Montefiore Medical Center in the Bronx, he had just finished looking at some of the 700 images that had been produced by a single abdominal CT exam. "We were just taking pictures of big, thick slabs of the body 20 years ago," Dr. Amis said. "Now we’re taking thinner and thinner slices."

Economically, in other words, ra-(p. C6)diology has a lot in common with industries that are outsourcing jobs. It has high labor costs, it’s growing rapidly and it’s portable.

Politically, though, radiology could not be more different. Unlike software engineers, textile workers or credit card customer service employees, doctors have enough political power to erect trade barriers, and they have built some very effective ones.

To practice medicine in this country, doctors are generally required to have done their training here. Otherwise, it is extremely difficult to be certified by a board of other doctors or be licensed by a state government. The three radiologists Mr. Levy found in Bangalore did their residencies at Baylor, Yale and the University of Massachusetts before returning home to India.

"No profession I know of has as much power to self-regulate as doctors do," Mr. Levy said.

So even if the world’s most talented radiologist happened to have trained in India, there would be no test he could take to prove his mettle here. It’s as if the law required cars sold here to have been made by the graduates of an American high school.

Much as the United Automobile Workers might love such a law, Americans would never tolerate it, because it would drive up the price of cars and keep us from enjoying innovations that happened to come from overseas. But isn’t that precisely what health care protectionism does? It keeps out competition.

For the full story, see:

Leonhardt, David. "Political Clout in the Age of Outsourcing." The New York Times (Weds., April 19, 2006): C1 & C4.

Remembrances of Galbraith (and Buckley and Demsetz and Drucker)

John Kenneth Galbraith passed away a couple of days ago, on Sat., April 29, 2006 at the age of 97. (see: "Economist, Writer Galbraith Dies at 97." Omaha World-Herald (Sun., April 30, 2006): 11A)

I remember at a Republican Convention in Miami (1968 I think) when one of the networks had the late Frank Reynolds sitting with Galbraith and William F. Buckley, Jr., to provide occasional commentary on the scene. On this occasion, Galbraith was going on and on about how all of the Republicans had arrived at the convention in their yachts. Buckley sat by, nodding, in uncharacteristic silence. Finally, with a few seconds until they needed to break away, Buckley slowly and deliberately drawled at Galbraith something like the following: ‘And John, when you visit your friends in Hyannis Port, I trust that you find the accommodations adequate?’ As they cut to commercial, you could hear Reynolds, and others in the background, convulsed in laughter.

Actually Buckley and Galbraith were friends, for several years skiing together in Europe. Apparently Galbraith was an indifferent and very slow skier, leading Buckley to observe that Galbraith looked as though he was skiing up the slope backwards. (I read this many years ago, but, alas, do not remember where.)

David Levy and I once wrote a paper in which we measured the writing quality of articles by many important economists. When we presented the paper to the meetings of the American Economic Association, Galbraith was the discussant of our paper. For his comments, he basically recycled an old paper he had written on writing economics, and showed no signs of having read our paper. But he did seem to enjoy our mentioning that by our measures, he turned out to be one of the best writers in the profession. My memory is that at one point, just before or just after the formal proceedings, he actually patted me on the back.

Galbraith wrote many books. One that I enjoyed, and learned from, was his account of the stock market crash of 1929.

Perhaps his most famous book was The New Industrial State, in which he argues that some of the larger firms in the United States form what he called the "technostructure." The technostructure firms were widely held, by many stock owners, few of whom had the incentive or power, to closely monitor whether the firms’ managers were serving the stock owners by maximizing profits. As a result, the technostructure firms’ managers were free to pursue other goals, such as their own power. (Galbraith was OK with the assumption that firms outside the technostructure were maximizing profits.)

Harold Demsetz tested this hypothesis by comparing the rate of profit of firms in and out of the technostructure, reasoning that if technostructure firms were not maximizing profits, we would expect their profits to be lower than those of other firms. He found that there was no difference between the rate of profits of the so-called ‘technostructure’ firms, and the non-technostructure firms. Demsetz’s conclusion was that there was no distinguishable technostructure, and no new industrial state.

I tell my classes that if we don’t throw entrepreneurs such as Michael Milken in prison, they can provide us with the means to keep CEOs pursuing shareholder value (profits) as their goal. The way it would work would be that if CEOs start pursuing something else, their firm’s stock price falls, and the firm becomes an attractive take-over target for someone like Milken.

I also point out that if firms maximize profits, a lot of rich people benefit, but that a lot of average people benefit too—Drucker emphasized that roughly half of the value of stock equity in the United States is held by worker pension funds.

I did not agree with Galbraith’s efforts to grow the government, but he was witty, and urbane, and intelligent. The intellectual scene was more interesting, and fun, with him than without him. He will be missed.

Some references to publications mentioned in, or supporting, the discussion above:

Demsetz, Harold. "Where Is the New Industrial State?" Economic Inquiry 12, no. 1 (1974): 1-12.

Diamond, Arthur M., Jr., and David M. Levy. "The Metrics of Style: Adam Smith Teaches Efficient Rhetoric." Economic Inquiry 32, no. 1 (1994): 138-45.

Drucker, Peter Ferdinand. The Unseen Revolution: How Pension Fund Socialism Came to America. 1st ed: Harpercollins, 1976.

Galbraith, John Kenneth. The Great Crash 1929. Houghton Mifflin Co., 1961.

Galbraith, John Kenneth. The New Industrial State. Houghton Mifflin, 1967.

Kornbluth, Jesse. Highly Confident: The Crime and Punishment of Michael Milken. William Morrow & Co., 1992.

Source of book image: http://www.whatihaveread.net/biblio/book_1458.html

Seeing How Life Has Improved Since the Days of the Cowboys

A cowboy on "Texas Ranch House." Source of image: the WSJ article cited below.

"Texas Ranch House" — circa 1867 — is the latest PBS experiment in transporting a group of people back to another era so we can watch them live and struggle the way our ancestors did. (Part one of eight begins Monday, 8-9 p.m. ET, but check local listings.) As with past series such as "Colonial House," everything — clothing, tools, food, housing and all-around deprivation — is authentic. Once again, though, stuffing 21st-century mentalities into period costumes and situations is a tough fit. And once again, it’s the folks wearing the bodices that chafe the most.

The Western setting is fascinating for two reasons: What seems familiar from movies and TV takes on fresh significance when there are real people — not pampered actors — trying to scratch out an existence on the frontier 24/7, with no plot to guide them. There is also the fact, as one of the participants points out early on, that many of us exist today only because a forebear actually did make the real journey West and manage to survive there long enough to bear children. What luck, we are reminded more than once during this series, that those ancestors were so different from contemporary Americans.

. . .

The trouble that threatens to sabotage the entire experiment develops in the widening gap between the cowboys and the Cooke family. The first time one of the employees disses boss man Mr. Cooke, yelling "Don’t let your wife run your life," we react with disgust at the insult. As one of the women in the household explains to the camera, all the cowboys "are sexist bastards." Besides, instead of rising early to ride the range in search of mavericks for 10 hours, the cowboys — mostly young Americans plus one frisky British boarding-school boy playing the part of 19th-century remittance man — indulge in long naps during the 100-degree days and often wake up in the morning with hangovers after nights of hard drinking.

At some point, though, certain facts begin to sink in: Mr. Cooke does have management shortcomings and Mrs. Cooke is far more involved in running the business side of the ranch than a frontier wife would have been. The ladies, in general, don’t enjoy the roles or status that historical reality would dictate, and some act out in defiant, liberated ways. A fatal flaw, if not the only one, for the success of the ranch enterprise. In 1867, spending days making cornhusk dolls while the house filled with flies and vegetables rotted in the garden wasn’t an option for folks who wanted to stay alive. And, like it or not, keeping the ranch hands happy, as obnoxious as they might be, was more important than maintaining marital bliss.

This being a made-for-television environment, no one perishes, but there are no happy endings here, either. When one of the Cooke daughters says to the camera, "I feel lost and dazed and hurt," you feel genuinely sorry for her. At the same time, it’s clearer than ever that emotional pampering, navel-gazing and gender warfare are modern luxuries. Like it or not, if these had been features of daily life in the West 100 years ago, many of the people reading this would never have been born.

For the full review, see:

Nancy deWolf Smith. "TV REVIEW; The West That Never Was." The Wall Street Journal (Fri., April 28, 2006): W10.

Near Ancient Babylon in Iraq, “the streets pulsate with life”

Source of map: http://www.nytimes.com/2006/04/18/world/middleeast/18babylon.html?_r=1&oref=slogin

(p. A1) Ancient Babylon, celebrated as a fount of law, writing and urban living, sits just outside the modern-day city of Hilla, about 60 miles south of Baghdad. Hilla is neither haunted by Sunni insurgents nor overwhelmed by Shiite militias. And though it has a mix of Shiites and Sunnis, it has not been afflicted by the sectarian violence that has paralyzed so many other heterogeneous parts of Iraq.

Factories are churning, Iraqi security forces are patrolling and the streets pulsate with life — children bounding to school, crowds wading into markets, taxis gliding by.

. . .

(p. A6) The American military still maintains bases near Babylon, but next month, in a sign of how relatively stable the area has become, most troops will pull out and head north to Baghdad, where they are needed more.

For the full story, see:

Gentleman, Jeffrey. "Babylon Awaits an Iraq Without Fighting." The New York Times (Tues., April 18, 2006): A1 & A6.

“Damn it Fidel! What are you going to do about this lousy, piece-of-**** island of yours?”

Source of image of book: http://www.amazon.com/gp/product/1586483242/qid=1145298612/sr=2-1/ref=pd_bbs_b_2_1/104-9985403-1047968?s=books&v=glance&n=283155

Fernando Cardosa is the former Brazilian President who is best known for having temporarily tamed Brazil’s runaway inflation. Although not a principled believer in the free market, Cardoso made some efforts to reduce the damage the Brazilian government was doing to the economy. The following startling passage is from a useful review of a new memoir by Cardoso:

. . . , Mr. Cardoso mentions a telling moment at a 1999 summit meeting in Havana. When the heads of state were alone at a luncheon, one said to Castro: "Damn it Fidel! What are you going to do about this lousy, piece-of-**** island of yours? We’re sick of apologizing for you all the time, Fidel. It’s getting embarrassing." The anecdote shows how disingenuous Latin governments can be when they remain silent about the Cuban dictatorship.

For the full review, see:

MARY ANASTASIA O’GRADY. "A Leader Who Got Real." The Wall Street Journal (Thurs., April 6, 2006): D8.

(Note: ellipsis added.)

Here is the full reference to Cardoso’s memoir:

Cardoso, Fernando Henrique. The Accidental President of Brazil: A Memoir. PublicAffairs, 2006. [with Brian Winter; 291 pages; $26.95]

Chernobyl Accident Cannot Occur In U.S. Type Reactors

Twenty years ago (April 25, 1986), the Chernobyl nuclear accident sent a plume of radiation into the air above Ukraine. The word "Chernobyl" remains the most emotionally charged argument used by the opponents of nuclear energy. But if examined carefully, the main lesson from Chernobyl may be that what happened there cannot occur in the better designed light water reactors used in the United States, and most of the rest of the world. William Sweet, the author of the commentary below, has also authored Kicking the Carbon Habit: Global Warming and the Case for Renewable and Nuclear Energy.

(p. A23) . . . , though it went unnoticed at the time and has been inadequately appreciated since, Chernobyl also cast into relief the positive features of the reactors used in the United States and most other advanced industrial countries.

The reactor at Chernobyl belonged to a class that was especially vulnerable to runaway reactions. When operating at low power, if such reactors lost water, their reactivity could suddenly take off and very rapidly reach a threshold beyond which they could only explode. Making matters worse, surprisingly little more pressure than normal in the machine’s water channels would lift its lid, snapping the vital control rods and fuel channels that entered the reactor’s core.

On the night of April 25, 1986, poorly trained and supervised plant operators conducted an ill-conceived experiment, putting the machine into the very state in which reactivity was most likely to spike. Within a fraction of a second, the reactor went from being barely on to power levels many times higher than the maximum intended.

This kind of accident cannot happen in the so-called light water reactors used in the United States and most of Western Europe and Asia. In these reactors, the water functions not only as a coolant but as a "moderator": self-sustaining nuclear chain reactions cannot take place in its absence. This is a very useful passive safety feature. If coolant runs low, there is still a danger of a core meltdown, because the fuel retains heat; but the reactor will have automatically and immediately turned itself off.

For the full commentary, see:

WILLIAM SWEET. "The Nuclear Option." The New York Times (Weds., April 26, 2006): A23.

The reference to Sweet’s related book is:

Sweet, William. Kicking the Carbon Habit: Global Warming and the Case for Renewable and Nuclear Energy. Columbia University Press, 2006.

Source of book image: http://www.amazon.com/gp/product/0231137109/sr=8-1/qid=1146071688/ref=sr_1_1/104-5668094-9083929?%5Fencoding=UTF8

Founder of Greenpeace Endorses New Nuclear Reactors

Patrick Moore, co-founder of Greenpeace. Source of image: http://www.nytimes.com/2006/04/25/us/25nuke.html?_r=1&oref=slogin

(p. A24) WASHINGTON, April 24 — The nuclear industry has hired Christie Whitman, the former administrator of the Environmental Protection Agency, and Patrick Moore, a co-founder of Greenpeace, the environmental organization, to lead a public relations campaign for new reactors.

Nuclear power is "environmentally friendly, affordable, clean, dependable and safe," Mrs. Whitman said at a news conference on Monday. She said that as the E.P.A. leader for two and a half years, ending in June 2003, and as governor of New Jersey for seven years, she had promoted various means to reduce the emission of gases that cause global warming and pollution.

But Mrs. Whitman said that "none of them will have as great a positive impact on our environment as will increasing our ability to generate electricity from nuclear power."

. . .

Mr. Moore said he favored efficiency and renewable energy, but added that solar cells, which produce electricity from sunlight, were "being given too much emphasis and taking too much money." A dollar spent on geothermal energy, he said, was "10 to 12 times more effective in reducing greenhouse emissions."

Mr. Moore is the director of a company that distributes geothermal systems in Canada. He is also a supporter of what he called "sustainable forestry" because, he said, building with wood avoided the use of materials whose manufacture releases greenhouse gases, like steel and concrete.

Mr. Moore, who left Greenpeace in 1986, favors many technologies that some environmentalists oppose, including the genetic engineering of crops, and has referred to his former colleagues as "environmental extremists" and "anti-human."

. . .

Representatives of the United States Chamber of Commerce and the Teamsters also spoke in favor of new reactors.

For the full story, see:

MATTHEW L. WALD. "Ex-Environmental Leaders Tout Nuclear Energy." The New York Times (Tues., April 25, 2006): A24.

Hurricanes Not Caused by Human-Induced Climate Change: More on Why Crichton is Right

The Alfred P. Sloan Professor of Atmospheric Science at MIT analyzes the case for human-induced global warming:

(p. A14) There have been repeated claims that this past year’s hurricane activity was another sign of human-induced climate change. Everything from the heat wave in Paris to heavy snows in Buffalo has been blamed on people burning gasoline to fuel their cars, and coal and natural gas to heat, cool and electrify their homes. Yet how can a barely discernible, one-degree increase in the recorded global mean temperature since the late 19th century possibly gain public acceptance as the source of recent weather catastrophes? And how can it translate into unlikely claims about future catastrophes?
The answer has much to do with misunderstanding the science of climate, plus a willingness to debase climate science into a triangle of alarmism.
. . .
To understand the misconceptions perpetuated about climate science and the climate of intimidation, one needs to grasp some of the complex underlying scientific issues. First, let’s start where there is agreement. The public, press and policy makers have been repeatedly told that three claims have widespread scientific support: Global temperature has risen about a degree since the late 19th century; levels of CO2 in the atmosphere have increased by about 30% over the same period; and CO2 should contribute to future warming. These claims are true. However, what the public fails to grasp is that the claims neither constitute support for alarm nor establish man’s responsibility for the small amount of warming that has occurred. In fact, those who make the most outlandish claims of alarm are actually demonstrating skepticism of the very science they say supports them. It isn’t just that the alarmists are trumpeting model results that we know must be wrong. It is that they are trumpeting catastrophes that couldn’t happen even if the models were right as justifying costly policies to try to prevent global warming.
If the models are correct, global warming reduces the temperature differences between the poles and the equator. When you have less difference in temperature, you have less excitation of extratropical storms, not more. And, in fact, model runs support this conclusion. Alarmists have drawn some support for increased claims of tropical storminess from a casual claim by Sir John Houghton of the U.N.’s Intergovernmental Panel on Climate Change (IPCC) that a warmer world would have more evaporation, with latent heat providing more energy for disturbances. The problem with this is that the ability of evaporation to drive tropical storms relies not only on temperature but humidity as well, and calls for drier, less humid air. Claims for starkly higher temperatures are based upon there being more humidity, not less — hardly a case for more storminess with global warming.
. . .
In Europe, Henk Tennekes was dismissed as research director of the Royal Dutch Meteorological Society after questioning the scientific underpinnings of global warming. Aksel Winn-Nielsen, former director of the U.N.’s World Meteorological Organization, was tarred by Bert Bolin, first head of the IPCC, as a tool of the coal industry for questioning climate alarmism. Respected Italian professors Alfonso Sutera and Antonio Speranza disappeared from the debate in 1991, apparently losing climate-research funding for raising questions.
And then there are the peculiar standards in place in scientific journals for articles submitted by those who raise questions about accepted climate wisdom. At Science and Nature, such papers are commonly refused without review as being without interest. However, even when such papers are published, standards shift. When I, with some colleagues at NASA, attempted to determine how clouds behave under varying temperatures, we discovered what we called an “Iris Effect,” wherein upper-level cirrus clouds contracted with increased temperature, providing a very strong negative climate feedback sufficient to greatly reduce the response to increasing CO2. Normally, criticism of papers appears in the form of letters to the journal to which the original authors can respond immediately. However, in this case (and others) a flurry of hastily prepared papers appeared, claiming errors in our study, with our responses delayed months and longer. The delay permitted our paper to be commonly referred to as “discredited.” Indeed, there is a strange reluctance to actually find out how climate really behaves. In 2003, when the draft of the U.S. National Climate Plan urged a high priority for improving our knowledge of climate sensitivity, the National Research Council instead urged support to look at the impacts of the warming — not whether it would actually happen.
Alarm rather than genuine scientific curiosity, it appears, is essential to maintaining funding. And only the most senior scientists today can stand up against this alarmist gale, and defy the iron triangle of climate scientists, advocates and policymakers.

For the full commentary, see:
RICHARD LINDZEN. “Climate of Fear.” The Wall Street Journal (Weds., April 12, 2006): A14.

State Colleges and Universities “suffer from all the inefficiency and poor decision-making of Soviet-style factories”

In its public meetings, panelists from Wall Street and elsewhere in the business world have criticized academia as failing to meet the educational needs of working adults, stem a slide in the literacy of college graduates and rein in rising costs.
During a February meeting in San Diego, Trace Urdan, a senior research analyst for the investment banking firm Robert W. Baird & Company, said state colleges and universities “amount to state-run enterprises and suffer from all the inefficiency and poor decision-making of Soviet-style factories.”

For the full story, see:
SAM DILLON. “Panel Considers Revamping College Aid and Accrediting.” The New York Times (Weds., April 12, 2006): A14.

Common Measures Aid Transparent Transactions

Source of book image: http://www.amazon.com/gp/product/customer-reviews/0743216768/ref=cm_cr_dp_2_1/104-9985403-1047968?%5Fencoding=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155
The Measure of All Things is an interesting book for several reasons. It shows how hard it is to stay focused on noble pursuits in the face of revolution, war, disease, and peasant ignorance. It raises questions about where common standards of measurement should and do come from; and makes useful points about the value of common standards of measurement for free trade. It tells us how hard it was to do science 200 years ago, and tells us of the devotion of those who tried.
Here is a useful passage on why common standards of measurement matter for the free market:

(p. 137) Prieur believed that uniform measures would make France a great nation, smoothly administered from the center and united through trade. The metric system would transform France into “a vast market, each part exchanging its surplus.” It would make exchanges “direct, healthy, and rapid,” diminishing the “frictions” which impeded the wheels of commerce. These frictions included anything that masked the true price of an item, such as the variable measures of the Ancien Regime. The price of an item, Prieur argued, necessarily depended on many factors: its scarcity, the work necessary to produce it, the quality of the product. But in the final analysis, price was whatever people agreed it should be. This meant that when people agreed on a price they needed to know what they were getting, not be baffled by secret shifts in the quantity being exchanged. Those who claimed that differences in measures aided commerce were just talking about their personal profits. “The French Republic,” he wrote, “can no longer tolerate men who earn their living by mystery.” Worse, those who profited from the diversity of measures, said Prieur, corrupted those who tried to conduct honest and transparent exchanges by “complicating commerce, spoiling good faith, and sowing error and fraud among the nations.” Until commerce was carried out with complete probity, the common people would doubt the advantages of free trade. Only if price were the sole variable in exchange would these exchanges be based on clear understanding between parties.

Alder, Ken. The Measure of All Things: The Seven-Year Odyssey and Hidden Error That Transformed the World. Paperback Reprint ed: Free Press, 2003.

Evidence for Darwin’s Claim that Small Changes Can Accumulate Into Bigger Changes

By reconstructing ancient genes from long-extinct animals, scientists have for the first time demonstrated the step-by-step progression of how evolution created a new piece of molecular machinery by reusing and modifying existing parts.
The researchers say the findings, published today in the journal Science, offer a counterargument to doubters of evolution who question how a progression of small changes could produce the intricate mechanisms found in living cells.
. . .
The researchers found the modern equivalent of the stress hormone receptor in lampreys and hagfish, two surviving jawless primitive species. The team also found two modern equivalents of the receptor in skate, a fish related to sharks.
After looking at the genes that produced them, and comparing the genes’ similarities and differences among the genes, the scientists concluded that all descended from a single common gene 450 million years ago, before animals emerged from oceans onto land, before the evolution of bones.
The team recreated the ancestral receptor in the laboratory and found that it could bind to the kidney regulating hormone, aldosterone and the stress hormone, cortisol.
Thus, it turned out that the receptor for aldosterone existed before aldosterone. Aldosterone is found just in land animals, which appeared tens of millions of years later.

For the full story, see:
KENNETH CHANG. “Study, in a First, Explains Evolution’s Molecular Advance.” The New York Times (Fri., April 7, 2006): A19.