Curing Debt Hysteria in One Easy Lesson

Are you hysterical about the so-called national debt? If you are, you probably keep repeating one or both of these statements:

• We can’t keep piling up debt like this, we’ll go bankrupt.

• We’re making future generations pay for our profligate spending.

Let’s get it straight. The so-called national debt is in fact the debt of the federal government, issued in the form of U.S. Treasury securities. It has nothing to do with your credit card balances, your auto loan, or your mortgage.

The federal government can keep piling up debt, it can’t go bankrupt, and the “future generations” argument is phony. Federal indebtedness does cause real problems, which I’ll come to after I’ve cured your hysteria.

The federal debt isn’t owed to a Simon Legree who’s just waiting for the chance to throw all of us out into the cold if we can’t make the mortgage payment. About 40% of the federal debt is held by agencies of the federal government (notably the Federal Reserve and the Social Security Trust Fund). The rest is held by private investors, including some foreigners (who hold about 20% of the total debt). They can’t demand immediate payment of the debt owed them; they must wait until their holdings mature (in three months to 30 years). And they know they’ll be repaid — that’s why they’re willing to hold U.S. Treasury securities at much lower rates of interest than they could earn on, say, corporate bonds.

Because individuals and institutions are quite willing to lend money to the federal government, it can keep piling up debt indefinitely. In fact the federal government has been able to increase its debt almost continuously since opening for business. From January 1, 1791, to April, 19, 2004, the federal debt rose at an average annual rate of 5.5%. During that period, the debt reached a low of $33,733.05 on January 1, 1835. From then until April 19, 2004, the debt rose at an average annual rate of 11.3%. That’s a much greater rate of increase than we’ve experienced recently or expect to experience in the next several years.

What about those future generations? Well, future generations not only “inherit” the debt, they also inherit an offsetting asset. If you lend the government $10,000 by buying a 10-year Treasury note, and you keep rolling the note over (that is, buying a new 10-year note when the old one matures), the note eventually will pass to your heirs.

Future generations of taxpayers also inherit an obligation to pay interest on the federal debt. But those same future generations receive the interest that is being paid.

Now, let’s find the real problems. The debt exists because the government has borrowed money to cover spending that is in excess of tax receipts. The excess in any given year is called a deficit. The federal debt is the sum of all deficits, less the occasional surplus.

Borrowing isn’t a real problem per se. Rubinomics to the contrary, there’s no strong evidence that government borrowing, in itself, has much effect on interest rates. The main risk is that additional borrowing will be financed by the Federal Reserve, which is tantamount to printing money. That can spur inflationary expectations, which do drive interest rates. The Fed, however, has become rather adept at defusing inflationary expectations through its manipulation of short-term interest rates.

Taxation is a real problem, but it’s a problem whether or not there’s a federal debt. Taxation compels some people to give money to other people. Even though a well designed tax policy might result have beneficial macroeconomic effects (e.g., a lower unemployment rate), the individuals who are net payers of taxes are decidedly worse off — and the harm done to them is not undone by making other individuals better off. Your misery and my happiness do not cancel each other.

This brings me to the real problems with the debt: It represents the diversion of resources from the private sector — from you and me, folks. And it can stifle economic growth by causing inflation.

The debt exists because the government spends money; that is, it purchases goods and services (e.g., missiles, military pay, civil service pensions, leases, computers, and office supplies) and it transfers income from some people to other people (via Social Security, Medicare, and other welfare programs). Government spending, like taxation, is a form of compulsion. It takes resources that could be used for private purposes and puts them to work for “public” purposes — some of which (like national defense) are necessary, some of which seem necessary but are not (e.g., Social Security and Medicare), and most of which are designed to perpetuate the federal bureaucracy and pander to interest groups with lots of votes.

If the federal debt grows year after year because the federal government’s spending keeps growing faster than its tax receipts, prices will tend to rise unless there is a lot of excess capacity in the economy. If the economy is perking along at relatively full employment, however, a growing debt will lead to inflation. Inflation will cause higher interest rates, which will do several bad things: further increase the debt (that is, add to inflationary pressure) by forcing the government make even higher interest payments, stifle investments that improve businesses’ productivity (e.g., better computing systems and software), and dampen interest-sensitive consumer markets (e.g., real estate and autos).

The root cause of these real problems is federal spending. The federal debt is just a symptom.

Now that your hysteria is cured, implore your members of Congress to treat the cause, not the symptom. Ask them to cut spending, then cut taxes some more, then cut some more spending, and so on until we reach nirvana.

Speaking of Health Care and Free Lunches

Tyler Cowen at Marginal Revolution points out that “Americans pay more [per capita] but get better health care in return. We die sooner because we eat too much and exercise too little, among other facts.” As he says, “National health insurance is unlikely to save on medical costs, unless it cuts back on treatment drastically.”

You get what you pay for and you are what you eat.

By Their Supreme Court Appointments Ye Shall Know Them

Nixon: Rehnquist (later appointed Chief Justice by Reagan) — Belongs in the second tier, all by himself. His instincts are statist rather than libertarian, but he tries to adhere to the original meaning of the Constitution.

Ford: Stevens — What do you expect from Ford? A Republican in name only who interprets the Constitution the way a blind umpire interprets the strike zone.

Carter: He made no appointments, luckily for the nation.

Reagan: O’Connor, Scalia, Kennedy — O’Connor and Kennedy make up the third tier; they vacillate between libertarianism and statism. Scalia’s originalism usually overcomes his instinctive statism; he’s in the top tier with Thomas.

Bush I: Souter, Thomas — Typically conflicted Bush I appointments; from another John Paul Stevens to the best appointment since the 1920s.

Clinton: Ginsburg, Breyer — Clinton failed to nationalize health care, but stuck us with these two crypto-socialists.

Do You Remember?

I often drop by <a href="

http://www.deadoraliveinfo.com/dead.nsf/pages-nf/main”>Dead or Alive? just for fun. A favorite feature of mine is “People Alive over 85” — famous and once-famous names from the not-so-distant past. A surprising number of erstwhile celebrities are still with us at 90+. Here are some of them. How many of them do you remember?

George Kennan 100, Max Schmeling 98, Dale Messick 98, Fay Wray 96, John Mills 96, Eddie Albert 95, Estée Lauder 95, Al Lopez 95, Henri Cartier-Bresson 95, Michael DeBakey 95, John Kenneth Galbraith 95, George Beverly Shea 95, Ernest Gallo 95, Peter Rodino, Jr. 94, Luise Rainer 94, Constance Cummings 93, Artie Shaw 93, Gloria Stuart 93, Kitty Carlisle 93, John Wooden 93, Joseph Barbera 93, Mitch Miller 92, Jane Wyatt 92, Byron Nelson 92, Karl Malden 92, Archibald Cox 91, Art Linkletter 91, Julia Child 91, Lady Bird Johnson 91, Frankie Laine 91, Oleg Cassini 91, Risë Stevens 90, Robert Mondavi 90, Ralph Edwards 90, Geraldine Fitzgerald 90, Tony Martin 90, Jane Wyman 90, Kevin McCarthy 90, Sammy Baugh 90, William Westmoreland 90, Frances Langford 90

Time Out for Humor: The Ghost of Impeachments Past Presents "The Trials of William Jefferson Whatsit"

This is a farce in three acts. The first act takes place in the presidential study near the Oval Office — also known as the nookie nook. Act two is set in the presidential boudoir, where the air is definitely chilly. Act three takes place beyond the great divide, that is, when Willie Whatsit meets the Chief Justice of us all.

Act I: In the Nookie Nook

Willie Whatsit: Wow, Veronica, that was great!

Monica Crapinsky: It’s Monica, you schmuck. Get it right. That’s only the fourteenth time I’ve given you a back rub, lard butt.

WW: Well, as leader of the free world, commander-in-chief of the armed forces, and first fund-raiser I’ve got too much on my mind to remember a detail like your first name.

MC: You’d better remember it, buster, because I’ve just been subpoenaed to testify against you in a wrongful discharge suit.

WW: But I haven’t fired anyone since I cleaned out the travel office to make room for the meetings of Hillary’s coven.

MC: Oh, I meant to say “paternity suit.” Paternity, wrongful discharge, same thing. Get it?

WW: Yuk-yuk-yuk. You’re as funny as Orrin Hatch eating a sour pickle. Anyway, if I’m the sue-ee, who’s the sue-er?

MC: You have to ask?

WW: Of course I have to ask. It could be almost anyone, couldn’t it?

Act II: In the Deep Freeze

WW enters the presidential boudoir to find Hillary Ramrod — his liberated, emancipated, and constipated spouse — writing his State of the Union speech.

HR: I heard a rumor that you’ve been cavorting with an intern in your private study.

WW: Who told you that? Come on, I need to know so I can figure out how to wiggle out of this one.

HR: Since you’re not going to be able to wiggle out of this one, I’ll tell you. It was our favorite flack, Sid “The Snake” Loveinbloom.

WW: You can’t believe anything Sid tells you. He’s got the hots for you and he’d say anything to tear me down.

HR: Well, you of all people know that he can have all the “hots” he wants, but it won’t get him anywhere with me. I’ve sworn off sex since I discovered witchcraft. Double, double, toil and trouble, send money to Washington, on the double.

WW: I’m glad you have such a laid-back — I mean relaxed — attitude. I was afraid you’d heard about the paternity suit.

HR: What paternity suit?

WW: What do you mean “What paternity suit?” How do you expect me to keep track of them? Do you think I do all that fund-raising to help elect a bunch of yokels to Congress?

Scream of rage from HR. Blackout. Loud thwack (simulated by striking Arkansas watermelon with baseball bat).

Act III: Beyond the Blue Horizon

The Great Chief Justice in the Sky: How do you come to be here, Mr. Whatsit?

WW: That’s a trick question if I ever heard one. It depends on what you mean by “come.” Where am I, anyway?

CJ: You’re in the land of the final judgment — beyond civil suits, criminal prosecutions, and impeachment trials.

WW: I always thought you had a flowing white beard and wore a blinding white robe. Why are you wearing that silly black robe with gold stripes on the sleeves?

CJ: Shut up. I ask the questions here. And the robe’s not silly, Justice Sandy made it for me. Do you have anything to say for yourself before I pass sentence on you?

WW: I didn’t do it.

CJ: “It” what?

WW: It depends on what you mean by “it.”

CJ: Enough with the clever wordplay, already. Do you take me for some dumb Senator?

WW: You’re about the right age.

CJ: Before I get any older, I’m sentencing you, William Jefferson Whatsit, to eternal community service, in the “other place.”

WW: Is that the best you can do? The “other place” can’t be any hotter than an Arkansas summer, and I’ll be glad to service the community. There must be some hot babes down there.

CJ: Just for that, I’m changing the sentence. Earphones will be permanently affixed to your ears and you will be forced to listen to right-wing talk radio twenty-four hours a day for all eternity.

WW grins broadly.

CJ: How can that sentence cause you to smile?

WW: It could have been worse. You could have sentenced me to listen to Hillary.

CJ: Mmmm….

Lights dim. Drone of HR reading from It Takes A Village Idiot to Know One swells in volume.

The Inevitability of the Communitarian State, or, What’s a Libertarian to Do?

What kind of state? Bear with me. To get there (inevitably) we have to reject some useless terminology.

It’s obvious that “left” and “right” inadequately capture the subtleties in political ideology. (Calling Stalin and Mao leftists while putting Hitler and Pinochet on the right is as descriptive as parsing shades of white.) “Liberal” and “conservative” are somewhat more meaningful labels, but libertarians always object (rightly) to being lumped with conservatives, who object (rightly) to being lumped with neo-fascists.

The left-right, liberal-conservative taxonomies of the political spectrum fail because they are linear and lacking in subtlety. My alternative is a somewhat more subtle taxonomy with these four major points arrayed on a circular continuum:

• Anarchy — “might makes right” without an effective state to referee the fight

• Libertarianism — the minimal state for the protection of life, property, and liberty

• Communitiarianism — the regulation of private institutions to produce “desirable” outcomes in such realms as income distribution, health, safety, education, and the environment

• Statism — outright state control of most institutions, reached either as an extension of communitarianism or via post-statist anarchy or near-anarchy, as in Stalin’s Russia, Hitler’s Germany, and Mao’s China.

Think of anarchy, libertarianism, communitarianism, and statism as the North, East, South, and West of a compass. The needle swings mostly from anarchy to statism to communitarianism, and occasionally from communitarianism toward libertarianism, but never very far in that direction.

The tide of communitarianism rose inexorably to engulf the federal government in the aftermath of the Great Depression and World War II. The tide continues to rise, threatening to engulf us in statism. Libertarians, like the sorcerer’s apprentice, have been trying futilely to turn the tide with a broom.

Consider the ambitious Free State Project,

a plan in which 20,000 or more liberty-oriented people will move to New Hampshire, where they may work within the political system to reduce the size and scope of government. The success of the Free State Project would likely entail reductions in burdensome taxation and regulation, reforms in state and local law, an end to federal mandates, and a restoration of constitutional federalism, demonstrating the benefits of liberty to the rest of the nation and the world.

The movement has attracted fewer than 6,000 adherents since it began almost three years ago.

The communitarian state is simply too seductive. It co-opts its citizens through progressive corruption: higher spending to curry favor with voting blocs, higher taxes to fund higher spending and to perpetuate the mechanisms of the state, still higher spending, and so on. Each voting bloc insists on sustaining its benefits — and increasing them at every opportunity — for one of two reasons. Many voters actually believe that largesse of the communitarian state is free to them, and some of them are right. Other voters know better, but they grab what they can get because others will grab it if they don’t.

Communitarianism leads inevitably to statism because the appetite for largesse is insatiable. The resultant statism may be relatively benign, like the statism of pre-Thatcher Britain or today’s France and Germany, but it is statism nevertheless.

The good news is that statism is an easier target for reform than communitarianism. The high price of statism becomes obvious to more voters as more facets of economic and personal behavior are controlled by the state. In other words, statism’s inherent weakness is that it creates more enemies than communitarianism.

That weakness becomes libertarians’ opportunity. Persistent, reasoned eloquence in the cause of liberty may, at last, slow the rise of statism and hasten its rollback. And who knows, perhaps libertarianism will gain adherents as the rollback gains momentum.

If we reach for the stars we may at least rise above the Earth.

Tito Schipa

No, that’s not a sparkling wine from the former Yugoslavia, it’s the name of one of Italy’s greatest tenors. Schipa is almost unknown today (unless you’re an afficianado of operatic singing), but in his prime…

Listen to track 9, recorded when Schipa was 37 years old and probably at or near his best. Listen to his agile, ringing voice, with its overtones of sweetness. Listen — and weep with joy.

Today’s Notable Birthday, and Related Thoughts

Today’s honors go to Charles Spencer (Charlie) Chaplin, born on this date in 1889, died Christmas Day, 1977, at the age of 88. I cannot reject his accomplishments on film however much I detest his pretensions to socialism. The man was a comic genius.

Similarly, I still enjoy the old recordings of Joan Baez, Pete Seeger, and Peter, Paul, and Mary despite their screwy political beliefs, just as I admire the acting skills of such dedicated lefties as Sean Penn, Susan Sarandon, and Tim Robbins.

Art transcends politics, as long as the artists only sing and act — and stay off their soapboxes.

Fear of the Free Market — Part III

If it’s unnecessary to regulate health care — as I’ve argued in Part I (April 8) and Part II (April 11) of this series — can we take the next step and denationalize it? Can we forgo other forms of nationalization (particularly Social Security) and the regulation of other industries (e.g., telecommunications, banking, and securities)?

The prospect of deregulating health care; giving up Medicare, Medicaid, or Social Security; and leaving consumers generally “at the mercy of the market” may seem unthinkable. So let us think about it.

Regulation and nationalization (an extreme form of regulation) restrict competition and therefore reduce the supply and quality of regulated products and services. Many have argued, rather persuasively, that individuals would be far better off with the privatization of Social Security. (See, for example, my posts of March 5.) Moreover, there is ample evidence that proper deregulation leads to higher quality and lower prices. Phone service, for example, is not only cheaper (in real terms) but indisputably better, given the range of options available to consumers. Air travel, to take another example, is also cheaper (in real terms) and certainly better for the great majority of travelers who prefer more legroom to the so-called meals that airlines used to serve in coach class.

Why, despite sound arguments and concrete evidence, do most Americans tend to resist denationalization and deregulation? Their resistance arises from two things: risk aversion (both personal and paternalistic) and economic illiteracy.

Risk aversion is revealed in questions like these: Will I choose the right doctor? Will he choose the right medicine? Will that over-the-counter drug poison me? Will I save enough for retirement? What about my parents, my children, my friends, and the elderly poor? The answers are:

• Licensing of doctors doesn’t ensure your doctor’s competence or help you choose the right doctor.

• The FDA’s approval of drugs doesn’t ensure that your doctor will choose the right drug for you or a drug that’s safe for you.

• That over-the-counter drug is unlikely to poison you, especially if the one you choose has been on the market for at least a few years.

• Your parents, children, and all the rest (even you) would have plenty of money for retirement living (including private medical insurance) if the government didn’t collect taxes for Social Security, Medicare, and other welfare programs. The elderly poor would be taken care of by greater charitable donations (afforded by lower taxes) and relatively small, strictly means-tested, welfare programs.

I could go on and on about other components of our over-regulated economy, but I think you get the idea. There is little risk of coming to harm in a free-market economy, where individuals learn to look out for themselves, especially if they are backed by strict enforcement of tough laws against deception and fraud. Conversely, the rewards of a free-market economy are great: more competition, higher quality, lower prices, greater output, higher employment, and higher incomes (from which to fund minimal welfare programs for those who are truly dependent on society because no one else can meet their needs).

Economic illiteracy blinds people to the benefits that flow from a truly free-market economy. The illiterates (that’s most of us) therefore become easy prey for the real beneficiaries of nationalization and regulation, what Bruce Yandle aptly calls “Bootleggers and Baptists”:

• The “bootleggers” are market incumbents (as represented by the American Medical Association and the American Bar Association, for example) who benefit from the suppression of competition (as bootleggers did during Prohibition).

• The “Baptists” are self-appointed guardians of our health and well-being (the sum of all our risk-averse fears, you might say).

Economics can be as abstruse as the physics of special relativity. But it rests on two things that are easily remembered:

• Incentives matter.

• There’s no such thing as a free lunch.

Nationalization and regulation suppress incentives and therefore weaken the economy. The benefits of nationalization and regulation come at a high cost, but we tend to focus on our own benefits (the “free lunch”) and forget the cost (the taxes we pay for benefits that go to others).

Great Voices of the Past

If you like great operatic voices, the site for you is Prima Voce Catalog: Listing of Real Audio Tracks. There you can listen to recordings made in the first four decades of the 20th century by the greatest singers of that era. There are many familiar names — Caruso, McCormack, Galli-Curci, Tibbett, Gigli, Bjoerling, and Ponselle, among others — and many unfamiliar names with voices just as great. Hours of enjoyment, free.

And here’s some free trivia about a few of the names you’ll see listed. Alma Gluck was the mother of Efram Zimbalist Jr. Geraldine Farrar’s father, Sid Farrar, was a first baseman for the Philadelphia Quakers of the National League from 1883 until 1890. Leo Slezak appeared in at least 45 German films; his son Walter began acting in German films, then became a familiar character actor in Hollywood films, appearing in at least 44 of them from 1942 until 1972. Ezio Pinza became famous late in his career for his leading role in the stage production of “South Pacific” (think “Some Enchanted Evening).

For alluring names to go with alluring voices, you can’t beat Pol Plançon, Conchita Supervia, Toti dal Monte, Claudia Muzio, Lucrezia Bori, Riccardo Stracciari, Luisa Tetrazzinni, Titta Ruffo, Giacomo Lauri-Volpi, Adelina Patti, and Apollo Granforte.

To Pay or Not to Pay

It’s tax time. Let’s celebrate with a bit of revisionist literary history. William Shakespeare was a tax protestor. Think about the message hidden in the titles of several of his plays:

“A Midsummer Night’s Dream” is about a man who hopes soon to repay the money he borrowed to meet his tax bill. “Winter’s Tale” follows him through months of overtime work as he struggles to save money for his old age. In “Love’s Labor’s Lost” he confronts the ugly reality that his savings will go to the IRS. “A Comedy of Errors” depicts his travails with Form 1040 and its many schedules. In “Much Ado About Nothing” he discovers, alas, that he owes the IRS even more than he had feared. Stunned by the discovery, he decides in “Twelfth Night” (April 12) not to file a tax return and tears it into tiny pieces. He reconsiders, and “The Tempest” recounts his struggle to complete a new return by April 15. “As You Like It” celebrates his triumphal march to the Post Office on April 15, armed with a return that shows him even with the IRS. “All’s Well That Ends Well” is a fantasy in which the IRS finds no fault with our hero’s return.

Then there is the real text of Hamlet’s soliloquy:

To file or not to file — that is the question;

Whether ‘tis nobler in the pocketbook to suffer

The slings and arrows of outrageous taxes,

Or to take arms against a sea of instructions

And by ignoring evade them. To file — to pay —

No more; and by not paying to say we end

The headache and the thousand-dollar debts

That Uncle Sam is heir to — ‘tis a consummation

Devoutly to be wish’d. To run — to hide —

To hide! Perchance in Bimini! Ay there’s the spot;

For in that sunny isle what dreams may come

When we have eluded the revenue agent

Must give us pause; there’s the reality

That makes mockery of such simple plans;

For who would bear the heat and hard bunks of Leavenworth;

The cell-block bully’s fist, the guard’s glare

The bagginess of prison garb, the sad children’s tears,

The righteousness of neighbors, and the spurns

That the gray-faced ex-con takes

When he himself might his quietus make

With a simple check? Who would these taxes bear,

To grunt and sweat under a glaring desk lamp,

But that the dread of something after April 15,

The uncelebrated penitentiary from whose walls

No inmate leaves, without parole,

And makes us rather bear those taxes we must

Than fly to Bimini or other exotic places?

Thus conscience does make taxpayers of us all….

Drunk Driver Appointed Traffic Court Judge

If there was any lingering doubt about the corruptness of the 9/11 Commission, Attorney General John Ashcroft dispelled it yesterday in his testimony before the Commission.

Ashcroft disclosed that Commissioner Jamie Gorelick wrote this, which Ashcroft properly described as “[t]he single greatest structural cause for September 11…the wall that segregated criminal investigators and intelligence agents.” Ashcroft continued, “Government erected this wall. Government buttressed this wall. And before September 11, government was blinded by this wall.” Specifically,

In the days before September 11, the wall…impeded the investigation into Zacarias Moussaoui, Khalid al-Midhar and Nawaf al-Hazmi. After the FBI arrested Moussaoui, agents became suspicious of his interest in commercial aircraft and sought approval for a criminal warrant to search his computer. The warrant was rejected because FBI officials feared breaching the wall.

When the CIA finally told the FBI that al-Midhar and al-Hazmi were in the country in late August, agents in New York searched for the suspects. But because of the wall, FBI Headquarters refused to allow criminal investigators who knew the most about the most recent al Qaeda attack to join the hunt for the suspected terrorists.

At that time, a frustrated FBI investigator wrote Headquarters, quote, “Whatever has happened to this — someday someone will die — and wall or not — the public will not understand why we were not more effective and throwing every resource we had at certain ‘problems’. Let’s hope the National Security Law Unit will stand behind their decision then, especially since the biggest threat to us, UBL, is getting the most protection.”

Of course Gorelick didn’t foresee the particular, horrific terrorist acts we call 9/11, just as a drunk driver doesn’t foresee the particular, horrific accident caused by his drunkenness.

If Gorelick’s policy hadn’t become known immediately after 9/11 — and hadn’t been rectified already — Ashcroft’s testimony would have contained the only true “bombshell” to emerge thus far from the 9/11 hearings.

Economic Illiteracy Prevails

Poll: Balanced Budget Beats Tax Cuts

By WILL LESTER, Associated Press Writer

WASHINGTON – By almost a 2-1 margin, Americans prefer balancing the nation’s budget to cutting taxes, according to an Associated Press poll, even though many believe their overall tax burden has risen despite tax cuts over the past three years.

About six in 10, 61 percent, chose balancing the budget while 36 percent chose tax cuts when they were asked which was more important, according to a poll conducted for the AP by Ipsos Public Affairs.

If you want a balanced budget, hold spending steady or cut it gradually. If you want a recession and slow economic growth, raise tax rates.

Today’s Notable Birthday

Sir Robert Watson-Watt (1892-1973) was born on this date.

Watson-Watt invented radar in 1935, specifically for the purpose of detecting aircraft. His “pioneering work…resulted in the design and installation of a chain of radar stations along the East and South coast of England in time for the outbreak of war in 1939. This system…provided the vital advance information that helped the Royal Air Force to win the Battle of Britain.” (From Radar Personalities: Sir Robert Watson-Watt.)

Had the Battle of Britain gone the other way, Hitler probably would have invaded England. A successful invasion would have sundered the U.S.-British alliance and ensured Hitler’s victory in Europe.

Vietnam and Iraq as Metaphors

Vietnam: a costly, unpopular, “unwinnable” war that foments unrest at home and anti-Americanism abroad.

We “lost” Vietnam, not because we couldn’t win it but because we weren’t willing to bear the cost of winning it. The “loss” of Vietnam posed no obvious threat to America’s vital interests. In that respect, the critics of the Vietnam War were right — and I was one of those critics.

Some proponents of the Vietnam War predicted that our withdrawal from Vietnam would, in the long run, threaten America’s vital interests by showing our potential enemies that we could be made to back down by the sight (or prospect) of body bags. As we saw in Lebanon, the Gulf War, Somalia, and Clinton’s tepid response to terrorist acts, those proponents of the Vietnam War were right.

We are now engaged in a war against terror that we invited, in part, by our actions in Vietnam, Lebanon, and the rest. We are now engaged in a war to stabilize the Middle East, where America does, indeed, have vital interests.

Iraq: a winnable war in which America shows its willingness to protect its vital interests, despite much anti-Americanism at home and abroad.

Fear of the Free Market — Part II

In Part I of this series (second post under April 8, 2004), I pointed out that

[i]t is easier to list those markets in which the government doesn’t intervene (namely, “black markets”) than it is to list those markets in which the government does intervene. There simply isn’t a lawful business activity that isn’t affected by government regulation….[G]overnment intervention in the market for any product or service tends to reduce the supply of that product or service.

Health care, being something almost everyone needs (like electricity and phone service), has been regulated to the point of being nationalized (see Part I). Yet it is unclear that the regulation of health care does anything but restrict our access to doctors and drugs. Licensing exams have no meaningful effect on our ability to choose competent doctors (see Part I).

What about FDA approval of drugs? The FDA doesn’t test drugs, it prescribes testing procedures for drugs. The responsibility for testing falls to the maker of the drug. According to a statistics published on the FDA web site, The FDA ultimately approves about 20% of applications for new drugs. The three phases of the FDA’s prescribed testing process last at least one year and sometimes six years and longer. What does the FDA hope to accomplish through its approval process? Here’s some of what the FDA’s Ken Flieger has to say:

Most of us understand that drugs intended to treat people have to be tested in people. These tests, called clinical trials, determine if a drug is safe and effective, at what doses it works best, and what side effects it causes–information that guides health professionals and, for nonprescription drugs, consumers in the proper use of medicines.

Clinical testing isn’t the only way to discover what effects drugs have on people. Unplanned but alert observation and careful scrutiny of experience can often suggest drug effects and lead to more formal study. But such observations are usually not reliable enough to serve as the basis for important, scientifically valid conclusions. Controlled clinical trials, in which results observed in patients getting the drug are compared to the results in similar patients receiving a different treatment, are the best way science has come up with to determine what a new drug really does. That’s why controlled clinical trials are the only legal basis for FDA to conclude that a new drug has shown “substantial evidence of effectiveness.”

It boils down to safety and effectiveness. But safety and effectiveness are also your doctor’s concern. Do you suppose that your doctor would prescribe a drug that its manufacturer hadn’t thoroughly tested for safety and effectiveness? Of course, your doctor might well flub his diagnosis (something that happens a lot, despite the medical licensing exam) and prescribe the wrong medication. Or your doctor might diagnose you correctly but prescribe a medication that produces an unpleasant side effect. In summary, the safety and effectiveness of the drugs your doctor prescribes depends mainly on your doctor’s competence.

Misadventure is more likely with non-prescription (over-the-counter) drugs. As the FDA acknowledges, “Most OTC drug products have been marketed for many years, prior to the laws that require proof of safety and effectiveness before marketing.” Very interesting. As with prescription drugs, OTC drugs, used to be available without the FDA’s imprimatur. That is, individuals used to be trusted to buy and use OTC drugs wisely, but then the FDA got into the act. Why? According to the FDA:

Languishing in Congress for five years, the bill that would replace the 1906 [Food and Drugs Act] was ultimately enhanced and passed in the wake of a therapeutic disaster in 1937. A Tennessee drug company marketed a form of the new sulfa wonder drug that would appeal to pediatric patients, Elixir Sulfanilamide. However, the solvent in this untested product was a highly toxic chemical analogue of antifreeze; over 100 people died, many of whom were children. The public outcry not only reshaped the drug provisions of the new law to prevent such an event from happening again, it propelled the bill itself through Congress. This was neither the first nor the last time Congress presented a public health bill to a president only after a therapeutic disaster. FDR (pictured at left) signed the Food, Drug, and Cosmetic Act on 25 June 1938.

The new law brought cosmetics and medical devices under control, and it required that drugs be labeled with adequate directions for safe use. Moreover, it mandated pre-market approval of all new drugs, such that a manufacturer would have to prove to FDA that a drug were safe before it could be sold. It irrefutably prohibited false therapeutic claims for drugs, although a separate law granted the Federal Trade Commission jurisdiction over drug advertising. The act also corrected abuses in food packaging and quality, and it mandated legally enforceable food standards. Tolerances for certain poisonous substances were addressed. The law formally authorized factory inspections, and it added injunctions to the enforcement tools at the agency’s disposal.

And on it went:

Enforcement of the new law came swiftly. Within two months of the passage of the act, the FDA began to identify drugs such as the sulfas that simply could not be labeled for safe use directly by the patient–they would require a prescription from a physician. The ensuing debate by the FDA, industry, and health practitioners over what constituted a prescription and an over-the-counter drug was resolved in the Durham-Humphrey Amendment of 1951. From the 1940s to the 1960s, the abuse of amphetamines and barbiturates required more regulatory effort by FDA than all other drug problems combined.

Notice that the focus is always on abuses and never on successes. Here’s what The Cato Institute’s Handbook for Congress has to say about the FDA::

As an agency, the FDA has a strong incentive to delay allowing products to reach the market. After all, if a product that helps millions of individuals causes adverse reactions or even death for a few, the FDA will be subject to adverse publicity with critics asking why more tests were not conducted. Certainly, it is desirable to make all pharmaceutical products as safe as possible. But every day that the FDA delays approving a product for market, many patients who might be helped suffer or die needlessly.

For example, Dr. Louis Lasagna, director of Tufts University’s Center for the Study of Drug Development, estimates that the seven-year delay in the approval of beta-blockers as heart medication cost the lives of as many as 119,000 Americans. During the three and half years it took the FDA to approve the drug Interleukin-2, 25,000 Americans died of kidney cancer even though the drug had already been approved for use in nine other countries. Eugene Schoenfeld, a cancer survivor and president of the National Kidney Cancer Association, maintains that ‘‘IL-2 is one of the worst examples of FDA regulation known to man.’’

In the past two decades patients’ groups have become more vocal in demanding timely access to new medication. AIDS sufferers led the way. After all, if an individual is expected to live for only two more years, three more years spent testing the efficacy of a prospective treatment does that person no good. The advent of the Internet has allowed individuals suffering from specific ailments and patient groups to use websites and chat rooms to exchange information and to give them an opportunity to take more control of their own treatment. They now can track the progress of possible treatments as they are tested for safety and efficacy and are quite conscious of how FDA-imposed delays can stand in the way of their good health and even their lives….

[I]n a free society individuals should be free to take care of their physical well-being as they see fit. The advent of the Internet gives individuals even more access to information about medical products and treatments. Individuals should be allowed to choose the treatments they think best. Such liberty does not open the door for fraud or abuse any more than does a free market in other products. In fact, informed consent by patients probably will become more sophisticated as the market for information about medical treatments becomes more free and open.

Government regulation of health-care products and services makes them harder to get and more expensive than the products and services that would be delivered in the absence of regulation. Would quality suffer in a free-market health-care system? It might in some cases, but competition among producers and providers would lead to an overall increase in quality, in response to consumers’ demands for competent medical practitioners and effective drugs.

If it’s unnecessary to regulate health care, can we take the next step and de-nationalize it? What about other industries and types of economic activity? Stay tuned for Part III of this series.

Re-fighting Old Wars

Ted Kennedy thinks Iraq is Bush’s Vietnam. Why can’t it be Bush’s Spanish-American War, World War I, World War II, Korean War, invasion of Grenada, Gulf War, or even the whatchamacallit in the Balkans? None of those wars became a quagmire? Not true.

We were stuck with Cuba and the Philippines for decades after winning the Spanish-American War. We still have troops in Germany almost 60 years after winning World War II, and troops in Korea 50 years after the quagmire — oops — stalemate there. I think we still have a military presence in the Balkans, even after having brought Milosovich to the uncertain tribunal of international justice.

Ted, you should come up with a term more imaginative than “quagmire.” How about “Chappaquiddick”? “Iraq is Bush’s Chappaquiddick” would have the ring of moral authority, wouldn’t it?

The Iraqi Insurgency

The insurgents and al Qaeda are in cahoots, probably with the backing of Syria, Iran, and others. They’re trying to do what bin Laden tried and failed to do with 9/11, namely, demoralize the U.S. and force our withdrawal from the Middle East, to open the way for the ascendancy of Muslim fundamentalism. They won’t succeed as long as Bush is president, but they’re hoping, of course, that U.S. forces will fail to overcome the insurgency (or at least fail to do so quickly or decisively). That would help to ensure the election of Kerry, whom they view as being more likely to cut and run — a view that Kerry’s guru, Ted “Quagmire” Kennedy, has lent considerable credence.

We must, therefore, put down the insurgency and put it down quickly. I think we can and will as long as the worry-warts in Washington don’t put too many constraints on the Marines, which seems unlikely. According to a Marine who’s in Iraq, the president “has given us the green light to do whatever we needed to do to win this thing so we have that going for us.” That’s a quotation from an interesting and balanced e-mail posted by Andrew Sullivan.

So, I think the enemy has, once again, underestimated our strength and resolve. The “second Iraq war” — as some are calling the insurgency — may in the end prove to be the decisive war. We can win it. I expect that we will win it.

Fear of the Free Market — Part I

In So When Are We Going to Get That Free-Market Health Care Everyone’s Complaining About?, Trent McBride guesstimates that with the addition of the prescription drug benefit to Medicare “our health care system will be paid for by explicit or implicit public funds at a rate of 65-70%.” By “explicit or implicit public funds” he means direct payments (e.g., Medicare, Medicaid, and the VA) plus the sundry regulatory activities (e.g., FDA approval of new drugs) that are funded by taxes. McBride therefore characterizes the health-care system as “marginally nationalized.” He asks, “if we have a nationalized health-care system now, and that system is [considered] broken, is more nationalization the way to go?”

Sasha Volokh objects to McBride’s characterization of the health-care system as “nationalized” because what matters is not only “who pays but also…who controls.” Apparently, in Sasha Volokh’s view, Medicare doesn’t count as a form of nationalization because beneficiaries get to choose their doctors. In this regard, it’s important to recall the old variation on the Golden Rule: “Them what has the gold makes the rules.” I might get to choose my doctor from a government-approved list, but all good doctors won’t be on that list, nor will all the treatments I might like to have. It would cost me more to go to doctors who aren’t on the list and to receive non-approved treatments, but I may not be able to afford either because my wealth has been depleted by many years of paying into Medicare. Bottom line: Medicare is most certainly a form of nationalization.

Government’s effective control of the health-care system is only a notorious example of government’s distortion of free-market mechanisms. It is easier to list those markets in which the government doesn’t intervene (namely, “black markets”) than it is to list those markets in which the government does intervene. There simply isn’t a lawful business activity that isn’t affected by government regulation.

If, for example, I wished to turn this blog into a business by selling advertising space on it, I would (or should) get a business license from the city, pay property tax on my computer (as a piece of business equipment), keep a set of business books for tax purposes, file a special income tax return (Schedule C, at a minimum), and pay additional Social Security taxes at the rate for self-employed persons. If business thrived and I hired someone to help me produce the blog (or handle the paperwork), that would compound my compliance problem and the cost of dealing with it.

Alternatively, I could ignore the law and run the risk of being caught and fined or even imprisoned. That’s a risk that I might take for the sake of a low-profile blog. It’s not a risk that I would take for the sake of making big bucks as an untrained, unlicensed M.D., though it is a risk that others (sometimes trained but unlicensed doctors) have been willing to take.

In summary, government intervention in the market for any product or service tends to reduce the supply of that product or service.

But, but, but…the proponents of regulation say…if government didn’t require doctors to pass licensing exams people wouldn’t know if they were being served by “good” or “bad” docs (not to mention lawyers, electricians, plumbers, and beauticians). Similarly, if the FDA didn’t approve drugs, people wouldn’t know if they were buying efficacious drugs or snake oil. And so on and so forth.

Are all medical school graduates equally competent? Are all medical school graduates who pass licensing exams equally competent? Is the doctor who barely passes the exam significantly better than the doctor who barely flunks it? The correct answer in every instance is “no.”

Do medical licensing exams weed out a large percentage of incompetent doctors? It’s not obvious that they do. Statistics for takers of the <a href="

http:// http://www.usmle.org/news/2002perf.htm”>U.S. Medical Licensing Examination in 2002 indicate that about 85% of first-time takers of the exam from allopathic (conventional) medical schools in the U.S. and Canada successfully complete all three steps of the exam. With re-takes, the percentage successfully completing all three steps is expected to be 97%. Osteopaths have a lower success rate — 60% for first-takers — but they represent only 2% of the first-takers from U.S. and Canadian medical schools.

The only real weeding-out takes place among graduates of medical schools outside the U.S. and Canada. First-takers from those medical schools have only a 34% success rate. This weeding-out may reflect incompetence in English — even though applicants had to pass an English-language proficiency exam — as much as it does incompetence in medicine. These results suggest a simple strategy of avoiding doctors who weren’t trained in the U.S. or Canada — a strategy that many Americans follow instinctively.

As for graduates of medical schools in the U.S. and Canada, you’re on your own. When you go to a licensed doctor for the first time you will probably have no clue about that doctor’s competence. You can avoid the relatively few doctors who have been disciplined because most States now make such information available online. You can get recommendations from family, friends, and acquaintances, but those recommendations may tell you more about a doctor’s “bedside manner” than about his or her competence. And in some large cities you can find lists in local magazines for the “best” doctors, by specialty, though you will have no idea of the criteria underlying such lists. In the end, you’ll simply hope that your doctor is competent, if not warm and fuzzy.

You’ll learn from experience whether your doctor seems competent, just as you’ll learn from experience whether your auto mechanic is competent (and honest) or merely a smiling face. So much for licensing as a boon to consumer choice.

Strategic Vision

Washington’s strategic vision was to break free of British rule. He persevered and the newborn United States survived to childhood.

Lincoln’s strategic vision was to preserve the Union and the ideals of the Declaration of Independence. He persevered and the Union passed tumultuously from adolescence to vigorous adulthood.

Roosevelt’s strategic vision was to cure the adult nation of its Depression. His apparent success — which was owed in fact to a horrific war — sapped the nation’s vigor by leading it into long-term dependence on government.

Reagan’s strategic vision was to cure the nation of its dependence on government, to restore it vigorous adulthood. He failed because the nation’s addiction was too strong to be broken by a mere president, unaided by Congress.

Clinton’s strategic vision — pursued from his adolescence — was to become president. He persevered and the nation sank deeper into senile dependence on government.