Thursday, September 29, 2016
Thursday, September 22, 2016
The Constitution as a Living Document
The purpose of providing a mechanism for changing a law is so that it can be interpreted strictly, until such time as it makes sense to change it. Changes are the purview of the Legislature, not the Courts or the President. Courts that interpret laws as “living documents” turn a system of laws into rule by fad and whim. Either contracts are contracts, or they cannot be counted on. A society founded on living law is no more sound than a bridge built of putty.
Wednesday, September 21, 2016
Richard Epstein: Clinton's Tax Conceit
Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago.
The notion of diminishing returns from higher taxes at no point informs the key features of the Clinton plan: a four percent income tax surcharge on those earning over $5,000,000 per year; the imposition of the “Buffett rule” that requires an alternative minimum tax of at least 30 percent on those earning more than a million dollars per year; an increased capital gains rate for investments held for less than six years; a hefty increase in the estate tax, by reducing its base to $3.5 million per person from the present $5.45 million per person; an increase in the top rate from 40 percent to 45 percent; and capping the charitable deduction at 28 percent, even for people in a higher individual tax bracket.
Clinton plans to funnel many of these tax dollars into an aggressive form of industrial policy that gives public officials under her guidance the power to decide which businesses in which locations—chiefly inner-cities and depressed neighborhoods—will move to the head of the queue. In addition, she wants to spend more on infrastructure, but has said very little about how to insulate essential improvements and repairs from political intrigue. Clinton’s fatal conceit is that she will be able to manipulate the political levers to give targeted benefits to her preferred constituents, without reducing overall levels of growth.
But her plan will crater. The selective government interventions that she proposes will perversely distort key private decisions on consumption and investment. In a hypothetical tax-free world, investment and consumption decisions are made by individuals seeking out the highest rate of return for their various efforts. At the same time, there is always the impulse for charitable behavior among those individuals—whether to help the poor or to provide educational, artistic, or medical benefits to the community. In general, a legal system that enforces contracts, curtails aggression, and restrains monopolies and cartels will have resources flow to their best use. Secure property rights and voluntary exchange are the foundations for any sound social policy. Within this framework, private actors can establish through repeated interactions the correct relative prices for the goods and services needed for both production and consumption.
Obviously, this ideal system of private property and voluntary exchange does not run on vapors. Someone has to enforce the rights and duties it creates, which requires the collection of tax revenues in order to discharge these key government functions. Ideally, that system of taxation should have two constraints, one distributional and the other aggregate. First, a sound system of taxation should not change the relative prices attached to various alternatives from what they were in a tax-free world. If A prefers X to Y in that hypothetical tax-free world, A should prefer X to Y in a world with taxation. Otherwise, the collective intervention will subsidize inefficient choices. Second, the aggregate levels of expenditure should be set to produce outcomes that give back to each citizen a package of goods and services worth more than the taxes he or she pays to create them. Over-taxation chokes off productive private labor.
There is no perfect way to reach these dual objectives. But in our imperfect world, classical liberal theory offers a good way forward. It favors flat taxes on a broad base of income, or more preferably consumption, to achieve these two ends. The flat tax reduces political discretion in determining who should be taxed, and since no one is exempt from its reach, it gives each person an incentive to search for a uniform tax rate that maximizes the net benefits from funding all public goods. That tax reduces the factional gains from forming political blocs, and it cuts down on the uncertainty that private parties face when making long-term investment decisions.
On the expenditure side, a similar degree of stabilization is achieved by funding public, i.e. nonexclusive, goods that are shared by all alike. This is why the original Constitution limited the objects of taxation to paying the public debt, providing for the common defense, and securing the general welfare of the United States—which excluded all transfer payments between private parties. By securing a stable framework, this system gives the poorest members of society greater opportunities to find gainful employment and other opportunities—at least if not blocked by entry restrictions, including minimum wage laws and strong unions. The challenge of redistribution, intended to redress inequalities in wealth, is not fully addressed by these devices. But charitable deductions create an implicit public subsidy in which a diverse set of private donors, not government officials, make the key policy and management decisions.
The Clinton program rests on an exaggerated sense of the good that government can do. But her plan will backfire in a number of ways. First, by raising the capital gains rate she reduces capital mobility and thus locks people into inferior investments. The higher rates will depress the collection of the capital gains tax, by encouraging people to delay unloading bad investments. Second, by imposing the higher taxation rates on the richest individuals, her program further tamps down on investments made by people whose investment and management skills can best create new jobs for ordinary people. She wrongly thinks that governments can expand opportunities, when its level of entrepreneurial expertise is negligible at best. Unfortunately, we can expect her program to fail just as other government programs have in everything from solar energy to neighborhood cooperatives. Government officials work best when they have focused goals of the type that define a system of limited government. Going further by managing private businesses exponentially increases the risk of cronyism and other forms of misbehavior.
Precisely that will happen, moreover, with her misguided proposal to eliminate capital gains taxation for money invested into depressed areas, which is likely to reproduce the colossal waste that came from overspending in places like Baltimore, where massive federal investment has done nothing to stop crime or the population exodus. The right strategy is the exact opposite: encourage people to move to safer and more prosperous communities, which might jolt the political and civic leaders of places like Baltimore to get off life support. Programs that reward failure only create more failure. No private party would spend its money on such a fruitless mission—and the federal government should not create a useless bureaucracy to decide which supplicants should receive what forms of aid. Nor should it give tax breaks that favor unproductive investments over sensible ones.
Today, ordinary workers are leaving their home states in search of jobs and a better standard of living. They are moving to places like Texas where taxes are lower and labor markets are freer. But these business-friendly environments—and the people living and working there—will suffer if Clinton’s plan to strengthen unions and raise minimum wages is implemented on a national scale.
Similarly, her proposal to cap charitable deductions at 28 percent operates as a tax not only on donors, but also on the individuals who receive these benefits in relatively efficient form. The net effect is to reduce the flow of private support for charitable activities, which will increase the scope of badly run public programs. It would be a national tragedy to reduce the amount of private sharing of wealth. It is not the case that only the rich get hurt by the limitation on charitable deductions. After all, if the wealthy stop making gifts, that improves their own financial position. The real harm, then, is to the recipients of charity, who will receive less. Virtually every charitable entity in the United States should be up in arms at this crude effort to tax them out of existence.
It is equally unwise to impose an alternative minimum tax. That program is only necessary in order to backstop our progressive system of taxation, which is riddled with loopholes. But rather than add complexity, we should simplify and rationalize our basic tax system in ways that make a back-up tax unnecessary. In this regard, taxing capital gains is often a mistake. Even if we do not move to a consumption tax, it makes sense to exempt from immediate taxation receipts that are reinvested in other capital assets.
By this standard, the estate tax is the worst of all possible taxes, because it is a lump sum tax on wealth that distorts decisions on investments and consumption. There is no equity in imposing this tax on those people who die at 60, while deferring the same tax for 30 years for those who die at 90, especially when they may have consumed or given away their wealth tax-free in the interim. The standard argument in favor of the consumption tax is that it reduces the excess tax on savings, in ways that improve intertemporal wealth management. Raising the tax and reducing the exemption will have negative effects on resource management that will reduce taxes that could otherwise be received on dividends and salaries. Yet nothing in the Clinton plan addresses the interplay between tax systems.
There is little doubt that the middle class has suffered from a regime of slow growth. But Clinton’s crude efforts to use new targeted tax revenues to fund industrial policy will only complicate the tax code while frustrating private activities that could grow the economy. A far better approach toward growth is to reduce the barriers to entry in industry after industry. The combination of lower administrative costs, higher legal certainty, and greater private initiative will work far better than any set of progressive gimmicks with their perverse incentives and heightened political intrigue.
Here is RE's assessment of Hillary's tax plan. He points out, correctly, how destructive it is.
---------------------------------------------------
Hillary Clinton has revealed further details of her plan for the fiscal future of the United States. Her vision addresses both sides of the equation: how and from whom taxes should be raised; and how and for whom they should be spent. Her plan is squarely within the progressive tradition. She insists that “The middle class needs a raise,” and that the federal government will pay for the raise by increasing taxes on the top one percent, who once again must be made to pay their “fair share.”The notion of diminishing returns from higher taxes at no point informs the key features of the Clinton plan: a four percent income tax surcharge on those earning over $5,000,000 per year; the imposition of the “Buffett rule” that requires an alternative minimum tax of at least 30 percent on those earning more than a million dollars per year; an increased capital gains rate for investments held for less than six years; a hefty increase in the estate tax, by reducing its base to $3.5 million per person from the present $5.45 million per person; an increase in the top rate from 40 percent to 45 percent; and capping the charitable deduction at 28 percent, even for people in a higher individual tax bracket.
Clinton plans to funnel many of these tax dollars into an aggressive form of industrial policy that gives public officials under her guidance the power to decide which businesses in which locations—chiefly inner-cities and depressed neighborhoods—will move to the head of the queue. In addition, she wants to spend more on infrastructure, but has said very little about how to insulate essential improvements and repairs from political intrigue. Clinton’s fatal conceit is that she will be able to manipulate the political levers to give targeted benefits to her preferred constituents, without reducing overall levels of growth.
But her plan will crater. The selective government interventions that she proposes will perversely distort key private decisions on consumption and investment. In a hypothetical tax-free world, investment and consumption decisions are made by individuals seeking out the highest rate of return for their various efforts. At the same time, there is always the impulse for charitable behavior among those individuals—whether to help the poor or to provide educational, artistic, or medical benefits to the community. In general, a legal system that enforces contracts, curtails aggression, and restrains monopolies and cartels will have resources flow to their best use. Secure property rights and voluntary exchange are the foundations for any sound social policy. Within this framework, private actors can establish through repeated interactions the correct relative prices for the goods and services needed for both production and consumption.
Obviously, this ideal system of private property and voluntary exchange does not run on vapors. Someone has to enforce the rights and duties it creates, which requires the collection of tax revenues in order to discharge these key government functions. Ideally, that system of taxation should have two constraints, one distributional and the other aggregate. First, a sound system of taxation should not change the relative prices attached to various alternatives from what they were in a tax-free world. If A prefers X to Y in that hypothetical tax-free world, A should prefer X to Y in a world with taxation. Otherwise, the collective intervention will subsidize inefficient choices. Second, the aggregate levels of expenditure should be set to produce outcomes that give back to each citizen a package of goods and services worth more than the taxes he or she pays to create them. Over-taxation chokes off productive private labor.
There is no perfect way to reach these dual objectives. But in our imperfect world, classical liberal theory offers a good way forward. It favors flat taxes on a broad base of income, or more preferably consumption, to achieve these two ends. The flat tax reduces political discretion in determining who should be taxed, and since no one is exempt from its reach, it gives each person an incentive to search for a uniform tax rate that maximizes the net benefits from funding all public goods. That tax reduces the factional gains from forming political blocs, and it cuts down on the uncertainty that private parties face when making long-term investment decisions.
On the expenditure side, a similar degree of stabilization is achieved by funding public, i.e. nonexclusive, goods that are shared by all alike. This is why the original Constitution limited the objects of taxation to paying the public debt, providing for the common defense, and securing the general welfare of the United States—which excluded all transfer payments between private parties. By securing a stable framework, this system gives the poorest members of society greater opportunities to find gainful employment and other opportunities—at least if not blocked by entry restrictions, including minimum wage laws and strong unions. The challenge of redistribution, intended to redress inequalities in wealth, is not fully addressed by these devices. But charitable deductions create an implicit public subsidy in which a diverse set of private donors, not government officials, make the key policy and management decisions.
The Clinton program rests on an exaggerated sense of the good that government can do. But her plan will backfire in a number of ways. First, by raising the capital gains rate she reduces capital mobility and thus locks people into inferior investments. The higher rates will depress the collection of the capital gains tax, by encouraging people to delay unloading bad investments. Second, by imposing the higher taxation rates on the richest individuals, her program further tamps down on investments made by people whose investment and management skills can best create new jobs for ordinary people. She wrongly thinks that governments can expand opportunities, when its level of entrepreneurial expertise is negligible at best. Unfortunately, we can expect her program to fail just as other government programs have in everything from solar energy to neighborhood cooperatives. Government officials work best when they have focused goals of the type that define a system of limited government. Going further by managing private businesses exponentially increases the risk of cronyism and other forms of misbehavior.
Precisely that will happen, moreover, with her misguided proposal to eliminate capital gains taxation for money invested into depressed areas, which is likely to reproduce the colossal waste that came from overspending in places like Baltimore, where massive federal investment has done nothing to stop crime or the population exodus. The right strategy is the exact opposite: encourage people to move to safer and more prosperous communities, which might jolt the political and civic leaders of places like Baltimore to get off life support. Programs that reward failure only create more failure. No private party would spend its money on such a fruitless mission—and the federal government should not create a useless bureaucracy to decide which supplicants should receive what forms of aid. Nor should it give tax breaks that favor unproductive investments over sensible ones.
Today, ordinary workers are leaving their home states in search of jobs and a better standard of living. They are moving to places like Texas where taxes are lower and labor markets are freer. But these business-friendly environments—and the people living and working there—will suffer if Clinton’s plan to strengthen unions and raise minimum wages is implemented on a national scale.
Similarly, her proposal to cap charitable deductions at 28 percent operates as a tax not only on donors, but also on the individuals who receive these benefits in relatively efficient form. The net effect is to reduce the flow of private support for charitable activities, which will increase the scope of badly run public programs. It would be a national tragedy to reduce the amount of private sharing of wealth. It is not the case that only the rich get hurt by the limitation on charitable deductions. After all, if the wealthy stop making gifts, that improves their own financial position. The real harm, then, is to the recipients of charity, who will receive less. Virtually every charitable entity in the United States should be up in arms at this crude effort to tax them out of existence.
It is equally unwise to impose an alternative minimum tax. That program is only necessary in order to backstop our progressive system of taxation, which is riddled with loopholes. But rather than add complexity, we should simplify and rationalize our basic tax system in ways that make a back-up tax unnecessary. In this regard, taxing capital gains is often a mistake. Even if we do not move to a consumption tax, it makes sense to exempt from immediate taxation receipts that are reinvested in other capital assets.
By this standard, the estate tax is the worst of all possible taxes, because it is a lump sum tax on wealth that distorts decisions on investments and consumption. There is no equity in imposing this tax on those people who die at 60, while deferring the same tax for 30 years for those who die at 90, especially when they may have consumed or given away their wealth tax-free in the interim. The standard argument in favor of the consumption tax is that it reduces the excess tax on savings, in ways that improve intertemporal wealth management. Raising the tax and reducing the exemption will have negative effects on resource management that will reduce taxes that could otherwise be received on dividends and salaries. Yet nothing in the Clinton plan addresses the interplay between tax systems.
There is little doubt that the middle class has suffered from a regime of slow growth. But Clinton’s crude efforts to use new targeted tax revenues to fund industrial policy will only complicate the tax code while frustrating private activities that could grow the economy. A far better approach toward growth is to reduce the barriers to entry in industry after industry. The combination of lower administrative costs, higher legal certainty, and greater private initiative will work far better than any set of progressive gimmicks with their perverse incentives and heightened political intrigue.
Don Boudreaux asks Hillary some questions
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. Here is his column in the Pittsburgh Tribune.
Your running mate, Tim Kaine, says that you are not to blame for what we now know was your erroneous denial that you, as secretary of State, used your private email server to send classified documents. According to Sen. Kaine, the amount of information that routinely crosses the desks of high government officials makes it “difficult to know” if some materials are classified or not.
If you couldn't figure out how to prudently use an email server, why should the American people trust you to know all that you will need to know in order to reliably oversee the massive economic interventions that you promise will be a hallmark of your administration?
In 2008 you mistakenly described receiving flowers and friendly handshakes in 1996 on a tarmac in Bosnia as, instead, coming “under sniper fire.” No one's 12-year-old memories are perfectly accurate, but shouldn't we be deeply worried about a U.S. president who recalls warm greetings and smiles as having instead been gunmen and bullets?
You often laud your years of experience in Washington as one of the major advantages you have over your political opponent. Yet you have also said that, because you are a woman, “you cannot imagine anyone being more of an outsider” than you would be if you become the first woman president in U.S. history.
How do you reconcile your assurances that your many years in Washington have supplied you with enormous amounts of valuable governing experience with your insistence that you are a Washington “outsider”?
You rightly ridicule Donald Trump for claiming that imports damage the American economy while, as a profit-seeking businessman, importing into America much of what his companies sell here. So how do you explain, for example, your Giorgio Armani jacket? Aren't you — a buyer of imports — also a hypocrite for campaigning against imports?
Speaking of trade, you say that if domestic pharmaceutical prices rise too high, you would arrange for “emergency importation” of drugs. Why is it OK to rely on foreign competition to keep drug prices in check but not to keep the prices of clothing, furniture and food in check?
If imports keep domestic prices in check, why should we Americans have to wait for the president to issue an emergency order before we're allowed to buy less costly imported pharmaceuticals?
In 2005 as a U.S. senator, you introduced the Flag Protection Act, which would have, had it been enacted, made burning the American flag illegal. Each violator of this legislation would have been subject to one year in prison and a fine of $100,000. How do you justify caging and fining someone merely for burning a striped and starred cloth? It's true that many people are offended by flag burning. But an open and free society requires freedom of peaceful expression — and freedom of peaceful expression inevitably offends many people. Do you believe that merely being offended by someone else's peaceful actions is sufficient reason for the state to protect sensitive souls from having to experience such offense? Do you think that freedom of expression is so unimportant that we Americans can discard it and remain a free people?
Don is on target.
----------------------------------------------
Here are some questions for Hillary Clinton:Your running mate, Tim Kaine, says that you are not to blame for what we now know was your erroneous denial that you, as secretary of State, used your private email server to send classified documents. According to Sen. Kaine, the amount of information that routinely crosses the desks of high government officials makes it “difficult to know” if some materials are classified or not.
If you couldn't figure out how to prudently use an email server, why should the American people trust you to know all that you will need to know in order to reliably oversee the massive economic interventions that you promise will be a hallmark of your administration?
In 2008 you mistakenly described receiving flowers and friendly handshakes in 1996 on a tarmac in Bosnia as, instead, coming “under sniper fire.” No one's 12-year-old memories are perfectly accurate, but shouldn't we be deeply worried about a U.S. president who recalls warm greetings and smiles as having instead been gunmen and bullets?
You often laud your years of experience in Washington as one of the major advantages you have over your political opponent. Yet you have also said that, because you are a woman, “you cannot imagine anyone being more of an outsider” than you would be if you become the first woman president in U.S. history.
How do you reconcile your assurances that your many years in Washington have supplied you with enormous amounts of valuable governing experience with your insistence that you are a Washington “outsider”?
You rightly ridicule Donald Trump for claiming that imports damage the American economy while, as a profit-seeking businessman, importing into America much of what his companies sell here. So how do you explain, for example, your Giorgio Armani jacket? Aren't you — a buyer of imports — also a hypocrite for campaigning against imports?
Speaking of trade, you say that if domestic pharmaceutical prices rise too high, you would arrange for “emergency importation” of drugs. Why is it OK to rely on foreign competition to keep drug prices in check but not to keep the prices of clothing, furniture and food in check?
If imports keep domestic prices in check, why should we Americans have to wait for the president to issue an emergency order before we're allowed to buy less costly imported pharmaceuticals?
In 2005 as a U.S. senator, you introduced the Flag Protection Act, which would have, had it been enacted, made burning the American flag illegal. Each violator of this legislation would have been subject to one year in prison and a fine of $100,000. How do you justify caging and fining someone merely for burning a striped and starred cloth? It's true that many people are offended by flag burning. But an open and free society requires freedom of peaceful expression — and freedom of peaceful expression inevitably offends many people. Do you believe that merely being offended by someone else's peaceful actions is sufficient reason for the state to protect sensitive souls from having to experience such offense? Do you think that freedom of expression is so unimportant that we Americans can discard it and remain a free people?
Friday, September 16, 2016
Peggy Noonan nails Hillary
Here is Peggy Noonan's column about Hillary Clinton, in the Wall Street Journal. PN reminds us of the sordid Clinton history that bespeaks of not just lack of ethics, but just plain evil.
Hillary is unsuited to be President.
--------------------------------------------------------
The question came up this week at a political panel: Why don’t people like Hillary Clinton?
Why do they always believe the worst? Why, when some supposed scandal breaks and someone says she’s hiding something, do people, including many of her supporters, assume it’s true?
The answer is that Mrs. Clinton has been in America’s national life for a quarter-century, and in that time people watched, observed and got an impression of her character.
If you give the prompt “Clinton scandal” to someone under 30, they might say “emails,” or Benghazi” or “Clinton Foundation,” or now “health questions.” But for those who are older, whose memories encompass the Clinton era, the scandals stretch back further, all the way to her beginnings as a national figure.
Seventeen years ago, when word first came that Mrs. Clinton might come to New York, a state where she’d never lived, and seek its open U.S. Senate seat, I wrote a book called “The Case Against Hillary Clinton.” It asserted that she would win and use the Senate to run for president, likely in 2008. That, I argued, was a bad thing. In the previous eight years she’d done little to elevate our politics and much to lower it. So I laid out the case as best I could, starting with the first significant scandal of Bill Clinton’s presidency.
It is worth revisiting to make a point about why her poll numbers on trustworthiness are so bad.
Hillary is unsuited to be President.
--------------------------------------------------------
The question came up this week at a political panel: Why don’t people like Hillary Clinton?
Why do they always believe the worst? Why, when some supposed scandal breaks and someone says she’s hiding something, do people, including many of her supporters, assume it’s true?
The answer is that Mrs. Clinton has been in America’s national life for a quarter-century, and in that time people watched, observed and got an impression of her character.
If you give the prompt “Clinton scandal” to someone under 30, they might say “emails,” or Benghazi” or “Clinton Foundation,” or now “health questions.” But for those who are older, whose memories encompass the Clinton era, the scandals stretch back further, all the way to her beginnings as a national figure.
Seventeen years ago, when word first came that Mrs. Clinton might come to New York, a state where she’d never lived, and seek its open U.S. Senate seat, I wrote a book called “The Case Against Hillary Clinton.” It asserted that she would win and use the Senate to run for president, likely in 2008. That, I argued, was a bad thing. In the previous eight years she’d done little to elevate our politics and much to lower it. So I laid out the case as best I could, starting with the first significant scandal of Bill Clinton’s presidency.
It is worth revisiting to make a point about why her poll numbers on trustworthiness are so bad.
Thursday, September 15, 2016
John Cochrane's testimony before the House Committee on Budget
JC's testimony is very interesting - with lots of good ideas about how to increase the economy's growth rate. Here is the link.
Here are some excerpts.
---------------------------------------------------------------
Sclerotic growth is our country's most fundamental economic problem.2 From 1950 to 2000, our economy grew at 3.6% per year.3 Since 2000, it has grown at barely half that rate, 1.8% per year. Even starting at the bottom of the recession in 2009, usually a period of super-fast catch-up growth, it has grown at just over 2% per year. Growth per person fell from 2.3% to 0.9%, and since the recession has been 1.3%.
I'm here to tell you the most plausible answer is simple, clear, sensible, and much more difficult. Our legal and regulatory system is slowly strangling the golden goose of growth. There is no single Big Fix. Each market, industry, law, and agency is screwed up in its own particular way, and needs patient reform.
Economic regulation, law and policy all slow growth by their nature. Growth comes from new ideas, new products, new processes, new ways of doing things, and most of these embodied in new companies. And these upend old companies, and displace their workers, both of whom come to Washington pleading that you save them and their jobs. It is a painful process. It is natural that the administration, regulatory agencies, and you, listen and try to protect them. But every time we protect an old company, an old industry, or an old job, from innovation and competition, we slow down growth.
Regulation is too discretionary --you can't read the rules and know what to do, you have to ask for permission granted on regulators' whim. No wonder that the revolving door revolves faster and faster, oiled by more and more money.
Regulatory decisions take forever. Just deciding on the Keystone Pipeline or California's high speed train --I pick examples from left and right on purpose --takes longer than it did to build the transcontinental railroad in the 1860s. By hand.
Regulation has lost rule-of-law protections. You often can't see the evidence, challenge witnesses, or appeal. The agency is cop, prosecutor, judge, jury and executioner all rolled in to one. [And, a Congressman pointed out during the discussion, recipient of collected fines.]
Most dangerous of all, regulation and associated legal action are becoming more politicized. Each week brings a new scandal. Last week10, we learned how the Government shut down ITT tech, but not the well-connected Laureate International. The IRS still targets conservative groups11. The week before, we learned how the company that makes Epi-pens, headed by the daughter of a Senator, got the FDA to block its competitors, Congress to mandate its products, and jacked up the price of an item that costs a few bucks to $600. This is a bi-partisan danger. For example, presidential candidate Donald Trump has already threatened to use the power of the government against people who donate to opponents' campaigns.12
Congress can take back its control of the regulatory process. Write no more thousand-page bills with vague authorizations. Fight back hard when agencies exceed their authorization. Insist on objective and retrospective cost benefit analysis. Put in rule-of law protections, including discovery of how agencies make decisions. Insist on strict timelines --if an agency takes more than a year to rule on a request, it's granted.
Here are some excerpts.
---------------------------------------------------------------
Sclerotic growth is our country's most fundamental economic problem.2 From 1950 to 2000, our economy grew at 3.6% per year.3 Since 2000, it has grown at barely half that rate, 1.8% per year. Even starting at the bottom of the recession in 2009, usually a period of super-fast catch-up growth, it has grown at just over 2% per year. Growth per person fell from 2.3% to 0.9%, and since the recession has been 1.3%.
I'm here to tell you the most plausible answer is simple, clear, sensible, and much more difficult. Our legal and regulatory system is slowly strangling the golden goose of growth. There is no single Big Fix. Each market, industry, law, and agency is screwed up in its own particular way, and needs patient reform.
Economic regulation, law and policy all slow growth by their nature. Growth comes from new ideas, new products, new processes, new ways of doing things, and most of these embodied in new companies. And these upend old companies, and displace their workers, both of whom come to Washington pleading that you save them and their jobs. It is a painful process. It is natural that the administration, regulatory agencies, and you, listen and try to protect them. But every time we protect an old company, an old industry, or an old job, from innovation and competition, we slow down growth.
Regulation is too discretionary --you can't read the rules and know what to do, you have to ask for permission granted on regulators' whim. No wonder that the revolving door revolves faster and faster, oiled by more and more money.
Regulatory decisions take forever. Just deciding on the Keystone Pipeline or California's high speed train --I pick examples from left and right on purpose --takes longer than it did to build the transcontinental railroad in the 1860s. By hand.
Regulation has lost rule-of-law protections. You often can't see the evidence, challenge witnesses, or appeal. The agency is cop, prosecutor, judge, jury and executioner all rolled in to one. [And, a Congressman pointed out during the discussion, recipient of collected fines.]
Most dangerous of all, regulation and associated legal action are becoming more politicized. Each week brings a new scandal. Last week10, we learned how the Government shut down ITT tech, but not the well-connected Laureate International. The IRS still targets conservative groups11. The week before, we learned how the company that makes Epi-pens, headed by the daughter of a Senator, got the FDA to block its competitors, Congress to mandate its products, and jacked up the price of an item that costs a few bucks to $600. This is a bi-partisan danger. For example, presidential candidate Donald Trump has already threatened to use the power of the government against people who donate to opponents' campaigns.12
Congress can take back its control of the regulatory process. Write no more thousand-page bills with vague authorizations. Fight back hard when agencies exceed their authorization. Insist on objective and retrospective cost benefit analysis. Put in rule-of law protections, including discovery of how agencies make decisions. Insist on strict timelines --if an agency takes more than a year to rule on a request, it's granted.
Tuesday, September 13, 2016
Does Hillary have Parkinson's disease?
Sunday, September 11, 2016
Charles Krauthammer has Obama's number
Here is a column by Charles Krauthammer. CK is on target, sadly.
-----------------------------------------------------------
This happened Saturday at Hangzhou airport. Yes, in China. If the Chinese didn't invent diplomatic protocol, they surely are its most venerable and experienced practitioners. They've been at it for 4,000 years. They are the masters of every tributary gesture, every nuance of hierarchical ritual. In a land so exquisitely sensitive to protocol, rolling staircases don't just disappear at arrival ceremonies. Indeed, not one of the other G-20 world leaders was left stranded on his plane upon arrival.
Did President Xi Jinping directly order airport personnel and diplomatic functionaries to deny Barack Obama a proper welcome? Who knows? But the message, whether intentional or not, wasn't very subtle. The authorities expressed no regret, no remorse, and certainly no apology. On the contrary, they scolded the press for even reporting the snub.
No surprise. China's ostentatious rudeness was perfectly reflective of the world's general disdain for President Obama. His high-minded lectures about global norms and demands that others live up to their "international obligations" are no longer amusing. They're irritating.
Foreign leaders have reciprocated by taking this administration down a notch knowing they pay no price. In May 2013, Vladimir Putin reportedly kept the U.S. secretary of state cooling his heels for three hours outside his office before deigning to receive him. Even as Obama was hailing the nuclear deal with Iran as a great breakthrough, the ayatollah vowed "no change" in his policy, which remained diametrically opposed to the "U.S. arrogant system." The mullahs followed by openly conducting illegal ballistic-missile tests - calculating, correctly, that Obama would do nothing. And when Iran took prisoner ten American sailors in the Persian Gulf, made them kneel, and broadcast the video, what was the U.S. response? Upon their release, John Kerry publicly thanked Iran for its good conduct.
Why should Xi treat Obama with any greater deference? Beijing illegally expands into the South China Sea, meeting only the most perfunctory pushback from the United States. Obama told CNN that he warned Xi to desist or "there will be consequences." Is there a threat less credible?
Putin annexes Crimea and Obama crows about the isolation he has imposed on Russia. Look around. Moscow has become Grand Central Station for Middle East leaders seeking outside help in their various conflicts. As for Ukraine, both the French president and the German chancellor have hastened to Moscow to plead with Putin to make peace. Some isolation.
Iran regularly harasses our vessels in the Persian Gulf. Russian fighters buzzed a U.S. destroyer in the Baltic Sea. And just Wednesday, a Russian fighter flew within ten feet of an American military jet. The price they paid? Being admonished that such provocations are unsafe and unprofessional. An OSHA citation is more ominous.
Add to that American acquiescence not only to ransoming hostages held by Iran but also to delivering the loot by unmarked plane filled with stacks of cold (untraceable) cash, like a desert drug deal. Why the stealth? Obviously to conceal the manner of the transaction from Congress and the American public. Some humiliations are so grotesque that even the Obama team can't miss it.
Now the latest. At the G-20, Obama said he spoke to Putin about cyberwarfare, amid revelations that Russian hackers have been interfering in our political campaigns. We are more technologically advanced, both offensively and defensively, in this arena than any of our adversaries, said Obama, but we really don't want another Cold War-style arms race.
Instead, we must all adhere to norms of international behavior.
It makes you want to weep. This KGB thug adhering to norms? He invades Ukraine, annexes Crimea, bombs hospitals in Aleppo - and we expect him to observe cyber-code etiquette? Rather than exploit our technological lead - with countermeasures and deterrent threats - to ensure our own cyber safety?
We're back to 1929 when Secretary of State Henry Stimson shut down a U.S. code-breaking operation after it gave him decoded Japanese telegrams. He famously explained that "gentlemen do not read each other's mail."
Well, comrade, Putin is no gentleman. And he's reading our mail.
-----------------------------------------------------------
Incident in Hangzhou: Obama's humiliation in China is a sign --- and the world is paying attention
The president of the United States lands with all the majesty of Air Force One, waiting to exit the front door and stride down the rolling staircase to the red-carpeted tarmac. Except that there is no rolling staircase. He is forced to exit - as one China expert put it rather undiplomatically - through "the ass" of the plane.This happened Saturday at Hangzhou airport. Yes, in China. If the Chinese didn't invent diplomatic protocol, they surely are its most venerable and experienced practitioners. They've been at it for 4,000 years. They are the masters of every tributary gesture, every nuance of hierarchical ritual. In a land so exquisitely sensitive to protocol, rolling staircases don't just disappear at arrival ceremonies. Indeed, not one of the other G-20 world leaders was left stranded on his plane upon arrival.
Did President Xi Jinping directly order airport personnel and diplomatic functionaries to deny Barack Obama a proper welcome? Who knows? But the message, whether intentional or not, wasn't very subtle. The authorities expressed no regret, no remorse, and certainly no apology. On the contrary, they scolded the press for even reporting the snub.
No surprise. China's ostentatious rudeness was perfectly reflective of the world's general disdain for President Obama. His high-minded lectures about global norms and demands that others live up to their "international obligations" are no longer amusing. They're irritating.
Foreign leaders have reciprocated by taking this administration down a notch knowing they pay no price. In May 2013, Vladimir Putin reportedly kept the U.S. secretary of state cooling his heels for three hours outside his office before deigning to receive him. Even as Obama was hailing the nuclear deal with Iran as a great breakthrough, the ayatollah vowed "no change" in his policy, which remained diametrically opposed to the "U.S. arrogant system." The mullahs followed by openly conducting illegal ballistic-missile tests - calculating, correctly, that Obama would do nothing. And when Iran took prisoner ten American sailors in the Persian Gulf, made them kneel, and broadcast the video, what was the U.S. response? Upon their release, John Kerry publicly thanked Iran for its good conduct.
Why should Xi treat Obama with any greater deference? Beijing illegally expands into the South China Sea, meeting only the most perfunctory pushback from the United States. Obama told CNN that he warned Xi to desist or "there will be consequences." Is there a threat less credible?
Putin annexes Crimea and Obama crows about the isolation he has imposed on Russia. Look around. Moscow has become Grand Central Station for Middle East leaders seeking outside help in their various conflicts. As for Ukraine, both the French president and the German chancellor have hastened to Moscow to plead with Putin to make peace. Some isolation.
Iran regularly harasses our vessels in the Persian Gulf. Russian fighters buzzed a U.S. destroyer in the Baltic Sea. And just Wednesday, a Russian fighter flew within ten feet of an American military jet. The price they paid? Being admonished that such provocations are unsafe and unprofessional. An OSHA citation is more ominous.
Add to that American acquiescence not only to ransoming hostages held by Iran but also to delivering the loot by unmarked plane filled with stacks of cold (untraceable) cash, like a desert drug deal. Why the stealth? Obviously to conceal the manner of the transaction from Congress and the American public. Some humiliations are so grotesque that even the Obama team can't miss it.
Now the latest. At the G-20, Obama said he spoke to Putin about cyberwarfare, amid revelations that Russian hackers have been interfering in our political campaigns. We are more technologically advanced, both offensively and defensively, in this arena than any of our adversaries, said Obama, but we really don't want another Cold War-style arms race.
Instead, we must all adhere to norms of international behavior.
It makes you want to weep. This KGB thug adhering to norms? He invades Ukraine, annexes Crimea, bombs hospitals in Aleppo - and we expect him to observe cyber-code etiquette? Rather than exploit our technological lead - with countermeasures and deterrent threats - to ensure our own cyber safety?
We're back to 1929 when Secretary of State Henry Stimson shut down a U.S. code-breaking operation after it gave him decoded Japanese telegrams. He famously explained that "gentlemen do not read each other's mail."
Well, comrade, Putin is no gentleman. And he's reading our mail.
Friday, September 09, 2016
A good movie
Just watched the movie "Sweeney Todd" on Netflix. It is really good - see it, if you can.
Scott Alexander on Drug Prices
Here is a link to an informative article by Scott Alexander on drug prices. SA covers a lot of ground and you will find out why the discussion by politicians, the media, and, possibly, you and your friends, is largely misguided.
SA considers outcomes only through 2060, ignoring that a lower growth rate of effectiveness for drugs leads to a far higher long term savings and life expectancy shortfall than he notes. I think this makes his conclusions conservative, in the sense that the life expectancy shortfall more than offsets the cost savings - by a lot.
Here are a few excerpts.
----------------------------------------------------------
Generic drugs are overpriced because we’re morons who can’t come up with a decent regulatory regime. Brand-name drugs are overpriced because of a deliberate decision to overprice them to encourage research.
The economic argument goes: the more profitable new drugs are, the more incentive a company has to make them. If we didn’t reward pharmaceutical companies for inventing new drugs, then they wouldn’t go through the $2.5 billion, ten-year hassle of seeking FDA approval with no guarantee of success. The way we reward them is by giving them a twenty-year monopoly when they can charge lots of money without anybody telling them not to.
But I guess now I have to. So. Lit review time. I searched the economics literature for studies, models, and arguments used to calculate whether price regulation would decrease drug development, and if so, how the benefits and risks balanced out. Here’s what I’ve got:
So by my count, there are eight-and-a-half studies concluding that price regulation would hurt new drug innovation, and one-half of a study concluding that it wouldn’t. I’ve tried to eliminate all the studies sponsored by the pharmaceutical industry from this list, but I might have missed some, and I am always skeptical of anything that says anything the pharmaceutical industry approves of even I can’t trace the money directly.
One source I do trust is RAND, a think tank which is generally well-respected and pretty objective (despite the name, they are not associated with Ayn Rand or Rand Paul). InRegulating Drug Prices: US Policy Alternatives In A Global Context, they write:
In other words, such prices would be good in the short term as we get all the currently-existing drugs for very cheap:
But bad in the long-term as pharmaceutical innovation declines and we have fewer interventions available to protect our health:
Given the value they place on human life, they argue that this money-for-life-years trade is net negative:
All of this sounds sort of boring and economics-y when you read it like this, and maybe your eyes are glazing over. So let me put this in context. In 2060 there will probably be 420 million Americans and 523 million Europeans. And suppose that whatever changes we make in drug regulations today last for one human lifespan, so that everybody has a chance to be 55-60. So about a billion people each losing about 0.7 years of their life equals 700 million life-years. Since some people live in countries outside the US and Europe [citation needed] and they also benefit from First-World-invented medications, let’s round this up to about a billion life-years lost.
What was the worst thing that ever happened? One strong contender is Mao’s Great Leap Forward, in which ineffective agricultural reforms and very effective purges killed 45 million people. Most of these people were probably already adults, and lifespan in Mao’s China wasn’t too high, so let’s say that each death from the Great Leap Forward cost what would otherwise be twenty healthy life years. In that case, the worst thing that has ever happened until now cost 45 million * 20 = 900 million life-years.
Once again, RAND’s calculations plus my own Fermi estimate suggest that prescription drug price regulation would cost one billion life-years, which would very slightly edge out Communist China for the title of Worst Thing Ever.
And there’s another way we’re not quite on the same team. I’m on Team Left-Libertarian, which luckily is so confusing and contradictory that I can define it however I want. And today it means that while I’m not opposed to all regulation in principle, I at least get really scared when somebody pushes for regulation today and promises to check whether it will have bad consequences tomorrow. I think that’s how we got in this mess where the generics industry is so regulated that EpiPens cost hundreds of dollars, and even if Vox and I are on the same object-level team of Make Epi-Pens Cost Less, I worry we are not on the same meta-level team of Learn From The Fact That Epi-Pens Cost So Much And Worry That The Same Kind Of Thinking That Caused The Epi-Pen Problem Will Probably Cause Other Problems Too.
So the second moral of the story is that almost all gains in prescription drug prices are to be found not in price regulation bringing prices down from $32,000 to $22,000, but in switching from monopoly brand-name drugs that cost $32,000 to heavily-competitive generic drugs that cost $100.
Pristiq is the brand-name of desvenlafaxine, a new antidepressant which is still brand-name only. Desvenlafaxine sounds a lot like venlafaxine – which is Effexor, an old antidepressant which is available in generic. In fact, desvenlafaxine is a tiny change to the venlafaxine molecule which may or may not have any interesting medical benefit over the original, and which was invented solely to have something whose patent hasn’t expired.
Wyeth, the company that makes Pristiq, says that it’s better than Effexor because it doesn’t have as many drug-drug interactions. But Effexor doesn’t really have clinically significant drug-drug interactions, and this seems to be them just saying random stuff and hoping people believe them. There are no good head-to-head studies comparing Pristiq to Effexor, but if you try to piece together a comparison from unrelated studies (not recommended, but we’ll do it anyway) Effexor actually seems better than its newer cousin. Even the data I took from drug rating databases shows patients preferring Effexor to Pristiq by quite a lot. Carlat Psychiatry, which is psychiatrists’ insider news site on pharmacology developments, has a blog post called Top Five Reasons To Forget About Pristiq. Most of the well-informed psychiatrists I know agree that Pristiq is a slightly worse version of an older antidepressant with no proven advantages.
A month’s supply of Effexor costs $20. A month’s supply of Pristiq costs $300. So let me amend the paragraph above. Pristiq is a slightly worse version of an older antidepressant with no proven advantages that also costs fifteen times as much.
It should come as no surprise to anyone familiar with the state of psychiatry that it is thesecond most-prescribed antidepressant in the USA, with three million prescriptions per month.
Why would this happen? The relevant study is called Pharmaceutical Industry-Sponsored Meals And Physician Prescribing Patterns For Medicare Beneficiaries, so you know it’s going to be good. It shows that doctors who often eat drug-company-sponsored free lunches are more than twice as likely to prescribe Pristiq as doctors who rarely eat such lunches. This matches my observations perfectly. Doctors prescribe Pristiq because they don’t know very much about antidepressants, but they attend free lunches by pharmaceutical companies who tell them that Pristiq is great, and they believe it. If this surprises you, be more cynical.
I’m looking at the price of Pristiq in Canada, and it seems to range around $120 to $250. So if we instituted price regulations like Canada’s, we might lower the cost of Pristiq from $300 to $150. If we convinced doctors to prescribe Effexor instead, it would be $20, plus I really do believe Effexor is genuinely better.
Pristiq is far from alone in this. I don’t have good statistics, but I bet that at least half of brand-name prescriptions in the US are more like Pristiq (attempts to rip people off) than like Harvoni (genuinely wonderful breakthroughs in medical science).
So one of the best ways to deal with expensive brand-name drugs is to stop using expensive brand name drugs for no reason.
SA considers outcomes only through 2060, ignoring that a lower growth rate of effectiveness for drugs leads to a far higher long term savings and life expectancy shortfall than he notes. I think this makes his conclusions conservative, in the sense that the life expectancy shortfall more than offsets the cost savings - by a lot.
Here are a few excerpts.
----------------------------------------------------------
Generic drugs are overpriced because we’re morons who can’t come up with a decent regulatory regime. Brand-name drugs are overpriced because of a deliberate decision to overprice them to encourage research.
The economic argument goes: the more profitable new drugs are, the more incentive a company has to make them. If we didn’t reward pharmaceutical companies for inventing new drugs, then they wouldn’t go through the $2.5 billion, ten-year hassle of seeking FDA approval with no guarantee of success. The way we reward them is by giving them a twenty-year monopoly when they can charge lots of money without anybody telling them not to.
But I guess now I have to. So. Lit review time. I searched the economics literature for studies, models, and arguments used to calculate whether price regulation would decrease drug development, and if so, how the benefits and risks balanced out. Here’s what I’ve got:
So by my count, there are eight-and-a-half studies concluding that price regulation would hurt new drug innovation, and one-half of a study concluding that it wouldn’t. I’ve tried to eliminate all the studies sponsored by the pharmaceutical industry from this list, but I might have missed some, and I am always skeptical of anything that says anything the pharmaceutical industry approves of even I can’t trace the money directly.
One source I do trust is RAND, a think tank which is generally well-respected and pretty objective (despite the name, they are not associated with Ayn Rand or Rand Paul). InRegulating Drug Prices: US Policy Alternatives In A Global Context, they write:
In other words, such prices would be good in the short term as we get all the currently-existing drugs for very cheap:
But bad in the long-term as pharmaceutical innovation declines and we have fewer interventions available to protect our health:
Given the value they place on human life, they argue that this money-for-life-years trade is net negative:
All of this sounds sort of boring and economics-y when you read it like this, and maybe your eyes are glazing over. So let me put this in context. In 2060 there will probably be 420 million Americans and 523 million Europeans. And suppose that whatever changes we make in drug regulations today last for one human lifespan, so that everybody has a chance to be 55-60. So about a billion people each losing about 0.7 years of their life equals 700 million life-years. Since some people live in countries outside the US and Europe [citation needed] and they also benefit from First-World-invented medications, let’s round this up to about a billion life-years lost.
What was the worst thing that ever happened? One strong contender is Mao’s Great Leap Forward, in which ineffective agricultural reforms and very effective purges killed 45 million people. Most of these people were probably already adults, and lifespan in Mao’s China wasn’t too high, so let’s say that each death from the Great Leap Forward cost what would otherwise be twenty healthy life years. In that case, the worst thing that has ever happened until now cost 45 million * 20 = 900 million life-years.
Once again, RAND’s calculations plus my own Fermi estimate suggest that prescription drug price regulation would cost one billion life-years, which would very slightly edge out Communist China for the title of Worst Thing Ever.
And there’s another way we’re not quite on the same team. I’m on Team Left-Libertarian, which luckily is so confusing and contradictory that I can define it however I want. And today it means that while I’m not opposed to all regulation in principle, I at least get really scared when somebody pushes for regulation today and promises to check whether it will have bad consequences tomorrow. I think that’s how we got in this mess where the generics industry is so regulated that EpiPens cost hundreds of dollars, and even if Vox and I are on the same object-level team of Make Epi-Pens Cost Less, I worry we are not on the same meta-level team of Learn From The Fact That Epi-Pens Cost So Much And Worry That The Same Kind Of Thinking That Caused The Epi-Pen Problem Will Probably Cause Other Problems Too.
So the second moral of the story is that almost all gains in prescription drug prices are to be found not in price regulation bringing prices down from $32,000 to $22,000, but in switching from monopoly brand-name drugs that cost $32,000 to heavily-competitive generic drugs that cost $100.
Pristiq is the brand-name of desvenlafaxine, a new antidepressant which is still brand-name only. Desvenlafaxine sounds a lot like venlafaxine – which is Effexor, an old antidepressant which is available in generic. In fact, desvenlafaxine is a tiny change to the venlafaxine molecule which may or may not have any interesting medical benefit over the original, and which was invented solely to have something whose patent hasn’t expired.
Wyeth, the company that makes Pristiq, says that it’s better than Effexor because it doesn’t have as many drug-drug interactions. But Effexor doesn’t really have clinically significant drug-drug interactions, and this seems to be them just saying random stuff and hoping people believe them. There are no good head-to-head studies comparing Pristiq to Effexor, but if you try to piece together a comparison from unrelated studies (not recommended, but we’ll do it anyway) Effexor actually seems better than its newer cousin. Even the data I took from drug rating databases shows patients preferring Effexor to Pristiq by quite a lot. Carlat Psychiatry, which is psychiatrists’ insider news site on pharmacology developments, has a blog post called Top Five Reasons To Forget About Pristiq. Most of the well-informed psychiatrists I know agree that Pristiq is a slightly worse version of an older antidepressant with no proven advantages.
A month’s supply of Effexor costs $20. A month’s supply of Pristiq costs $300. So let me amend the paragraph above. Pristiq is a slightly worse version of an older antidepressant with no proven advantages that also costs fifteen times as much.
It should come as no surprise to anyone familiar with the state of psychiatry that it is thesecond most-prescribed antidepressant in the USA, with three million prescriptions per month.
Why would this happen? The relevant study is called Pharmaceutical Industry-Sponsored Meals And Physician Prescribing Patterns For Medicare Beneficiaries, so you know it’s going to be good. It shows that doctors who often eat drug-company-sponsored free lunches are more than twice as likely to prescribe Pristiq as doctors who rarely eat such lunches. This matches my observations perfectly. Doctors prescribe Pristiq because they don’t know very much about antidepressants, but they attend free lunches by pharmaceutical companies who tell them that Pristiq is great, and they believe it. If this surprises you, be more cynical.
I’m looking at the price of Pristiq in Canada, and it seems to range around $120 to $250. So if we instituted price regulations like Canada’s, we might lower the cost of Pristiq from $300 to $150. If we convinced doctors to prescribe Effexor instead, it would be $20, plus I really do believe Effexor is genuinely better.
Pristiq is far from alone in this. I don’t have good statistics, but I bet that at least half of brand-name prescriptions in the US are more like Pristiq (attempts to rip people off) than like Harvoni (genuinely wonderful breakthroughs in medical science).
So one of the best ways to deal with expensive brand-name drugs is to stop using expensive brand name drugs for no reason.
Monday, September 05, 2016
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