Month: November 2003

The forthcoming energy bill

Here is Andrew Sullivan, quoting John McCain and commenting on him:

“I’m not saying that this bill won’t generate some energy. It will certainly fuel the coffers of big oil and gas corporations. It will propel the wealthy special interests. And it will boost the deficit into the stratosphere. Indeed, this legislation can be fairly called the Leave no Lobbyist Behind Act of 2003.
There are also four proposals known as ‘green bonds’ for construction of commercial buildings that will cost taxpayers $227 million to finance approximately $2 billion in private bonds. One of my favorite green bond proposals is a $150 million riverfront area in Shreveport, Louisiana. This river walk has about 50 stores, a movie theater and a bowling alley. One of the new tenants in this Louisiana Riverwalk is a Hooters restaurant. Yes my friends. Here we have an energy bill subsidizing both hooters and polluters.” – Senator John McCain, on the monstrosity otherwise known as the Energy Bill. How any principled, small-government, free-market Republican could vote for this vast waste of public money is beyond me. But we’re beginning to realize that GOP has nothing to do with small government or fiscal sobriety. It’s a vehicle for massive debt and catering to the worst forms of corporate welfare. Thank God for McCain. Bush should veto this bill, until it is de-porked. He won’t, of course. He has yet to veto a single big-spending bill. He doesn’t seem to give a damn about what is happening to the fiscal health of this country.

For a less polemical assessment, but ultimately a similar evaluation of the substance, see the ever-reliable Lynne Kiesling, start at this permalink and scroll downwards for running commentary and links.

Addendum: Senators from both parties criticize the bill as well, read here.

Howard Dean disappoints me

After years of government deregulation of energy markets, telecommunications, the airlines and other major industries, Democratic presidential candidate Howard Dean is proposing a significant reversal: a comprehensive “re-regulation” of U.S. businesses.

And what are the proposed candidates for such a re-regulation?

…utilities, large media companies and any business that offers stock options. Dean did not rule out “re-regulating” the telecommunications industry, too.

He also said a Dean administration would require new workers’ standards, a much broader right to unionize and new “transparency” requirements for corporations that go beyond the recently enacted Sarbanes-Oxley law.

Somehow either Dean or the source article left out mutual funds.

OK, some of these are complex issues, where you might argue that laissez-faire is impossible, and that more regulation could be better than current hybrid structures. But we are not choosing policy today. For the time being, forget the detailed debates, and ponder what this suggests about Dean’s instincts, what kind of campaign he will run, and what kind of voters he will appeal to. Ugh, and the libertarians should have never wondered whether Dean might be a small government guy in disguise.

Blood supply and the FDA

Have you ever heard of Chagas disease? It is rare in the United States but common in Latin America, where 18 million people are infected and 50,000 die of it every year. Some little thingie crawls down your mouth and sucks your blood when you are sleeping (lovely), beware the thatched hut, and next thing you know, maybe about ten or thirty years later, your weakened heart or organs explode. There is no known vaccine, cure, or treatment.

Chagas is now making its way into the United States blood supply. Ideally, all donated blood should be screened for Chagas. But, can you believe this, the FDA needs to approve all blood tests of this kind. They haven’t approved any test for Chagas, nor have they shown much urgency in this regard, here is the full story.

About 30 tests are currently in use in Latin America, but none would appear to meet the FDA’s accuracy guidelines. In the meantime it appears someone would prefer that we have no test at all.

The New York Times put it as follows:

The failure of the blood industry and its regulators to develop a test since it was endorsed by a Blood Products Advisory Committee in 1989 seems to be a combination of bureaucratic inertia and divided responsibility for such a decision. Blood banks cannot use a test that the F.D.A. has not approved. The agency usually defers to its advisory committees, which have many experts from blood banks as members.

“It’s a political process that is not always fully engaged,” said Dr. Stuart J. Kahn of the Infectious Disease Research Institute, a Seattle group hunting cures for tropical diseases.

Whatever you think of the FDA as a regulator of drugs, this kind of bureaucratic control is hard to understand. Now it is longer enough for you to beware the thatched hut, you have to worry about the blood supply as well.

Glenn Hubbard’s consistency test

Glenn Hubbard (registration required), in a Financial Times review of Robert Rubin’s new book, throws down the gauntlet. You might recall that Hubbard was one of the architects of Bush’s dividend tax cut plan.

Hubbard argues that deficit-cutting is motivated by the view that lower real interest rates will stimulate private investment. But then private investment must be sensitive to price incentives, and a tax cut on investment returns should stimulate investment as well. He describes Rubin (and others) as believing in an asymmetric response, whereby investment is interest-sensitive but not tax-sensitive. Either investment is price-sensitive or it is not, and we should hold a consistent attitude for either lower interest rates and lower tax rates.

My take: Hubbard is right. We should not hastily conclude, however, that a tax cut on dividends was the best way to go. Dividends transfer money from one pot to another, and this is distinct from constituting a real net rate of return. I would sooner have cut and reformed the corporate income tax. In the meantime, however, let us all apply this consistency test to ourselves, are you listening deficit hawks?

Tax Incentives for Organ Donation

It looks like Wisconsin will soon let organ donors take up to a $10,000 tax deduction to cover travel expenses, lodging, and lost income. I have mixed feelings. I am in favor of compensating donors or their families for organ donation but the net tax break is quite small. More importantly, one of the costs of the current system is that we rely on live donors far too much. Although I encourage, respect and admire donors, we should not kid ourselves, donation is not easy and not riskless. It can take a month or more to recover from the operation. We rely on live donors to an increasing extent only because of the shortage of cadaveric donors. All else being equal, therefore, I would prefer to see financial compensation for cadaveric donation or for signing your organ donor card.

Private Schooling in India

The NYTimes reports on “an educational revolution” in India where the government schools are so bad that private schooling is exploding among the very poorest of the poor. Already over 17 percent of all kindergarten, primary and secondary schools are in the private sector and in the big cities the proportion is much higher. Jean Dreze, an economist who helped write a national assessment predicts “within 10 to 15 years, government schools will be almost wiped out.”

A description of a public and private school next door to one another explains why a farmer earning $22 a month will spend nearly a fifth of his income ($4) sending his child to a private school.

In the government school, only two of the three teachers assigned for 273 students were present on a recent day. Around 50 children sat on the floor in a gloomy classroom, while 40 more sat on the grass outside, as their classroom had been under repair since August. One teacher did paperwork, while the other floated between the two groups, not actually teaching either.

At the private school next door, where the teacher-student ratio is 1 to 25, a group of smartly uniformed children stood outside counting loudly in English under their teacher’s watchful eye. They then marched in orderly single file into a classroom with blackboard and benches.

The children next door wrestled, and watched.

Amartya Sen complains that “no developed” country educates itself using private schools. Yet, the private schools of India have much in common with the private schools of nineteenth century England, Wales and America. Contrary to common belief, attendance and literacy rates in England and Wales, for example, were 90 percent or above before any major state involvment in schools. James Mill (father of John Stuart) illustrated the parallel with modern India when he wrote in 1813, “We have met with families in which, for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school. (Quoted in E.G. West’s classic Education and the State).

Furthermore, India is not alone in relying on private schools in the wake of the failure of government. Private schools are even more common in Colombia, Brazil, Argentina, Indonesia and elsewhere.

For more see James Tooley’s chapter, from which I have drawn, in The Voluntary City (I am one of the editors.)

The new Beatles album

OK, so I took off from work today to go buy Let It Be…Naked. How often do we get truly new material from these guys as a group? Working under the supervision of Paul McCartney, they’ve cut out Phil Spector’s overproduction and remastered everything. The bottom line: you’ve never heard the album before. “The Long and Winding Road,” a song I used to find unlistenable, is now a gem. Nothing is made worse. This will never be the Beatles’s best album, but buy it if you have any interest at all.

Then buy Laibach’s take on Let It Be, direct from Slovenia, the Beatles’s songs set to mock martial, heavy metal techno stomp-rock, one of the least recognized great albums I know, and no that is not a joke.

While we are on the topic of culture, Chris Mooney has an excellent post defending the commercialization of The Lord of the Rings.

People hate flexible prices

They really do. Consider L. Chester Carter, who raised the prices of his ice and gasoline after Hurricane Isabel, only ten cents more a gallon for gasoline. He also took on the added burdens of running generators, bringing in ice, and cooking for emergency workers. He nonetheless claims to have experienced a public outrage against his pricing behavior, here is the full story.

His description of what happened is perhaps more to the point:

“What I did was what the state and federal governments couldn’t do: Stay open and deliver services to the general public,”

Here are links to my earlier postings on price-gouging. We now hear that more than 40 price-gouging complaints were levied in Virginia, after this year’s storms. Virginia officials are considering writing the state’s first anti-gouging law, comparable to a law already on the books in Florida.

No doubt, this is voter-driven. This example, if nothing else, should tip us off about what kind of economic policy you can get in a democracy.

Addendum: Kevin Brancato discusses other anti-gouging laws.

Being a bigot is exhausting, and makes you stupider

People with implicit racial prejudices are left mentally exhausted after interacting with someone from a different race, perhaps because they are trying to quell their feelings.

The new study, the first of its kind, shows that areas in the brain associated with self-control light up in white people with implicit racial biases when they are shown images of black people.

Furthermore, the study showed that the level of this brain activity correlated very closely with poor performance in a test of thinking ability given right after a face-to-face interview with a black person. The researchers believe this indicates that the subject’s mental resources have been temporarily drained by their efforts to suppress their prejudices.

Here is the full story.

The Mutual Fund Scandal – much ado about nothinig

Let’s take it for granted that insiders have used the peculiar pricing practices of the mutual fund industry to transfer some profits from buyers. According to some accounts, hundreds of millions of dollars have been transferred in this way (see Tyler’s posts here and here). But remember mutual fund buyers get quarterly statements showing their returns net of all chicanery. Is it so hard to believe that buyers make their decisions based upon their actual returns? A mutual fund that performs poorly is a mutual fund that performs poorly regardless of whether this was due to bad investment decisions, high expense ratios, or a slick transfering of funds. A few investors might buy and then accept any return as a matter of luck but the marginal investor can and does move funds around easily (what market is more contestable?) – not to mention the institutional investors. As a result, it makes little difference whether the managers get their return through the above-board expense ratio or the under-handed exploitation of stale pricing.

Sure, there may be some exploitation at the margin but this is akin to banks that charge fees for “free checking” or restaurants that include a gratuity in their bill. It’s annoying and the occasional consumer may be dunned but once consumer and competitor responses are taken into account the net transfer is small.

If you doubt the above, assume that we eliminate all under-handed practices. Do you think that consumers will now earn higher returns? Or, do you think, that other fees will rise to make up the difference? I predict the latter. The only danger is that in their haste to make political hay the politicians will end up passing some dumb law that makes everyone worse off.

End Phase 3

Harvard neurologist Peter Lansbury argues in the WP that we should end mandatory Phase 3 clinical trials for new pharmaceuticals. Aside from the expense of Phase 3 trials (hundres of millions of dollars) and years of delay he writes that:

There are also scientific reasons to replace Phase 3. The reasoning behind the Phase 3 requirement — that the average efficacy of a drug is relevant to an individual patient — flies in the face of what we now know about drug responsiveness. Very few drugs are effective in all individuals. In fact, most are not effective in large portions of the population, for reasons that we are just beginning to understand.

It’s much easier to get approval for drugs that are marginally effective in, say, half the population than drugs that are very effective in a small fraction of patients. This statistical barrier discourages the pharmaceutical industry from even beginning to attack diseases, such as Parkinson’s, that are likely to have several subtypes, each of which may respond to a different drug. These drugs are the underappreciated casualties of the Phase 3 requirement; they will never be developed because the risk of failure at Phase 3 is simply too great.

Lansbury also recognizes the importance of off-label prescribing and how it flies in the face of FDA power.

Once the FDA has approved a drug based on its effectiveness against one condition, it can be prescribed for any other condition. This practice recognizes that your physician is best equipped to evaluate all the available information and advise whether you could benefit from a particular drug. About 40 to 50 percent of all drug use is for such unapproved, or “off-label,” uses. Some drugs that “failed” in Phase 3 trials for one condition, but were approved for another, are still widely prescribed for the first because physicians agree that the evidence shows they can be effective.

I agree with Lansbury’s analysis and so do a lot of physicians. See my papers Assessing the FDA via the Anomaly of Off-Label Drug Prescriptions and Do Off-Label Drug Practices Argue Against FDA Efficacy Requirements? Testing an Argument by Stuctured Conversations with Experts.

Terrorism futures are back

Yes, those terrorism futures, here is a story from The old group, Net Exchange, is behind the current revival, but this time without a Pentagon connection.

The idea is being marketed as a research tool:

In response to the highly charged criticisms that ended the Pentagon’s association with the project, Polk [a Net Exchange spokesman] noted the market is designed mainly as a research tool, not unlike the Iowa Electronics Markets, which have done a pretty good job of predicting the outcomes of presidential elections.

“It is potentially an interesting alternative to Gallup polls or to specialists reporting from the region,” Polk said. “It’s a way of going directly to individuals in the region or outside who have knowledge or interest in the political and economic events in the area.”

Polk said Net Exchange would initially limit the amount of money traders could invest in the market, so that people won’t be profiting from violence or upheaval in the region.

What’s more, the futures contracts would be based on general questions, such as the likelihood that the King of Jordan will be overthrown at some point during the second quarter of 2004, for example, rather than on specific acts or events, which could lend themselves to manipulation by terrorists.

My prediction: These markets require legal tolerance, given that they otherwise violate anti-gambling rules or fall under regulatory jurisdiction. I’ll bet that this revival is shut down pretty quickly.

My view: Most of the movements in asset prices are noise, rather than based on fundamentals. The main problem with the idea is that the price movements, even if “unbiased” in the mathematical sense, feed us a steady stream of misinformation about world affairs. I also could imagine public panic resulting, or bad events being accelerated into greater likelihood, imagine how Jordanese politics is altered if the betting market says the King of Jordan is a goner.

Road Pricing

Adrian Moore of the Reason Foundation writes:

A new report from Deloitte Research is one of the best overviews of the current state of the art of road pricing that I’ve seen. It provides an in-depth assessment of London’s 2003 area-pricing scheme, as well as up-to-date discussions of corridor pricing (e.g., California’s 91 Express Lanes), national schemes (like Germany’s forthcoming GPS-based tolling of all heavy trucks), and future integrated schemes (in which pricing would become the predominant means of paying for surface transportation).

Executive Summary. Full Report.

Looking for a new job?

Mexicans in Tijuana will pay you up to $1500 a piece to drive them across the border. If you are caught you receive no more than a slap on the wrist, the first time you are caught that is.

At the most, 1 in 50 vehicles is searched. Today’s Wall Street Journal describes smuggling as “a mini employment boom” for single mothers, military personnel, and especially teenagers.

My prediction: This can’t last forever.

Or, if you are looking for another job, you can drink pesticides, for $200 a day. I’d rather drive across the border.