The Pregnant Mare’s Lesson

Here again is Avorn:

The former colony is the United States, the time is now; the drug is the family of hormone replacement products that include Prempro and Premarin (manufactured from pregnant mare’s urine, hence its name.)  For decades, estrogen replacement in postmenopausal women was widely believed to have "cardio-protective" properties; other papers in respected medical journals reported that the drugs could treat depression and incontinence, as well as prevent Alzheimer’s disease.  The first large, well-conducted, controlled clinical trial of this treatment in women was not published until 1998; it found that estrogen replacement actually increased the rate of heart attacks in the patients studied.  Another clinical trial published in 2002 presented further evidence that these products increased the risk of heart disease, stroke and cancer.  Further reports a year later found that rather than prevent Alzheimer’s disease, the drugs appeared to double the risk of becoming senile.  The studies resulted in a reduction, but not an end, to the long-term use of these products.

The Social Security Inversion

Everyone seems to agree that in reforming social security we should not cut benefits to the already or soon-to-be retired.  The political reasons for this are obvious but economically and morally the idea is as bankrupt as the program itself.  It’s the current (and past) retirees who have gotten the best deal from social security – many of them did better than they could have done in any other investment.

Ida May Fuller was the first social security recipient.  She paid in a total of $24.75, retired in 1939, lived to be 100 years old in 1975, and in the process collected $22,888.92 in benefits.  Ida May is an extreme example but it is true that for current and past retirees benefit increases, a growing economy and longer life expectancy made social security a real deal.  It’s today’s workers and children for whom social security is a raw deal.  Even if the system does not go bankrupt, current workers will receive a very poor return on their "investment."

In refusing to cut benefits to current and soon-to-be retirees the costs of any reform are forced onto those people for whom the system is already a poor return.  It would be fairer to spread the costs to all recipients especially to those who have benefited from social security the most. 

Daniel Akst to Guest Blog!

Dan Akst is that rarest of breeds, the man of letters who also knows something of business and economics.  His first novel, St. Burl’s Obituary was called "outrageous", "superb", "masterful" and was short-listed for a Pen/Faulkner award.  His second novel, The Webster Chronicle also earned great reviews.  Publishers Weekly called Terry Mathers, the "memorable protoganist" of The Webster Chronicle, "wise, flawed, and all too deeply human." 

Now ordinarily you wouldn’t expect anyone capable of writing a deeply human character to be at all good at economics.  Dan, however, also writes an excellent economics column for the New York Times and periodically writes for also The Wall Street Journal, Slate, and NPR’s Marketplace.  Dan’s economic journalism combines economics, politics and history with great writing.  Here, for example, is one of Dan’s recent pieces from the Wilson Quarterly.  Called Buyer’s Remorse it begins, "There are two things at which Americans have always excelled: One is
generating almost unimaginable material wealth, and the other is feeling bad
about it."  I am also fond of an older piece of Dan’s on digital cash, called The Soul of a New Currency.

We are delighted to have Dan guest blogging with us beginning on Monday.

Where prison is a step up

Charles R. Jenkins, the Vietnam deserter who fled to North
Korea
nearly 40 years ago but was recently returned to Japan with his Japanese
wife (who herself had been kidnapped by the North Koreans), was demoted,
dishonorably discharged and given a 30-day prison sentence. It’s seems a remarkably light punishment for
a deserter. On the other hand, Jenkins
has been living in a prison, without heat, hot water or electric lighting for
nearly forty years It’s hard to see how
we could punish him more than that.  It’s unfortunate so many innocents continue to rot in the prison that is North Korea.

Tyler’s Ideas for Bush’s Second Term

Here from an earlier post are Tyler’s ideas for a second term. Good ideas all. Keep your fingers crossed.

1. Eliminate all farm subsidies, tariffs, quotas and price supports.

2. Tell Western Europe it is paying for its own defense from now on.

3. Admit that the Medicare drug prescription bill was a mistake. Repeal it, and consider a revenue-neutral benefit that does not discriminate against prescription drugs. Introduce means-testing for Medicare to stop that program from bankrupting us. I would rather cut this benefit than repeal the tax cuts [tax shifts, correctly, though spending discipline could turn them into real tax cuts.] The long-run benefits of greater capital accumulation remain significant.

4. Negotiate bilateral free trade agreements as rapidly as possible. Start with Japan, the second largest economy in the world.

5. Strengthen America’s commitment to science. This will have implications for educational policy, immigration policy, and regulatory policy. Don’t restrict stem cell research. Hope that science comes up with affordable and politically sustainable solutions for global warming and clean energy independence. You might have libertarian objections to science subsidies, but the realistic alternative today is more government intervention.

6. Strengthen early warning systems against infectious diseases. Increase research into cures, vaccines, immunity, and the like. We don’t want the world to lose fifty million people to avian flu or some other malady.

7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.

8. Abolish the Department of Education.

9. Abolish the Department of Energy.

10. Repeal all corporate welfare.

11. Repeal the corporate income tax. Repeal the Alternative Minimum Tax. Admittedly these are “ifs,” depending on fiscal considerations.

12. Get on TV and tell the nation that a free economy is a critical source of our strength. Tell them you mean it, and then mean it. Economic growth is the greatest long-run gift we can give to the world.

Lead, IQ and the Wealth of Nations

Ever notice that the politically correct attack any discussion of IQ as unscientific and racist, until the discussion turns to lead? Merely mention lead and the liberals will readily quote studies (for once correctly) showing that even low levels of lead can reduce the IQ of children by 4 to 7 points. For some reason, the objections of test bias, multiple intelligences, and racism disappear in this context.

Here is a New York Times article noting that most of sub-Saharan Africa continues to use leaded gasoline, despite findings from Africa and elsewhere that lead causes higher levels of strokes, heart attacks and other ailments as well as reducing children’s IQ.

Would it be racist to suggest that the recent trend to ban leaded gasoline in Africa could eventually lead to higher economic growth as well as better health?

Halloween Banned!

A school in Puyallup Washington has banned all Halloween activities. Why?

“We have been contacted by followers of the Wiccan religion, and they indicated they have been offended after seeing elementary school depictions of witches with long noses, warts, cauldrons and such,” said Tony Apostle, the superintendent who banned Halloween.

Halloween activities have also been banned elsewhere in the country but for a different reason:

Complaints about Halloween from Pentecostal parents in Texas have forced a significant number of that state’s school districts to cancel in-school parties, said Richard W. Stadelmann, a professor of religious studies at Texas A&M University.

There is a geographical pattern to the grumbling, according to Stadelmann and others. Christian complaints come mostly from the South and Midwest, whereas Wiccan complaints are more likely to come from California and the Pacific Northwest.

The Social Security Burden

Andrew Samwick, who has written extensively on the issue, lays out some of the mathematics of social security debt at Vox Baby.

At present, the Social Security actuaries project an unfunded obligation of $10.4 trillion in the Old-Age, Survivors, and Disability Insurance (OASDI) program. This number comes directly from the 2004 Trustees Report released in March….Note that this is the unfunded part of the obligations–it is over and above all of the payroll taxes (12.4 percent of taxable payroll) and income taxes on benefits that go to support the program under current law….

Is having so much implicit debt a problem? I think so, and the reason is that, just like explicit debt, we accrue interest on implicit debt….if we have an implicit debt of $10.4 trillion, and the real interest rate is 3 percent, then next year, the implicit debt will grow by 0.03*10.4 trillion = $312 billion, up to $10.7 trillion, if the assumptions underlying the projection stay the same….[B]oth the President and Senator Kerry have repeatedly stated that they will not cut benefits for those at or near retirement age. …This, in turn, means that each year that elapses without reform causes the burden of financing the unfunded obligations to be shifted away from one more birth cohort that crosses the threshold of being “at or near retirement.” The more we wait, the larger the burden on future generations…

If I were running the show, both Social Security and Medicare (which has even larger unfunded obligations) would be reformed so that under current law and reasonable economic and demographic assumptions, they are projected to have zero unfunded obligations. This means changing current law to reduce future benefits, raise future taxes, or both.

See also my earlier post, The US Government is Bankrupt.

Gladwell on Prescription Drugs

In the latest New Yorker, Malcolm Gladwell has an excellent article on prescription drugs. In a heartless and cruel post earlier this year I wrote:

People talk about the high price of pharmaceuticals as if high prices lasted forever. In fact, within a year of the expiration of a pharmaceutical’s patents, prices will typically fall by more than 50 percent as generic producers enter the market. Patents nominally last for 20 years but the effective patent life is much lower because patents are typically granted years before a product has cleared FDA review. The effective patent life of the average new pharmaceutical in the 1990s averaged just 12 years (see here for some references)….people who are demanding price controls are not simply asking for lower drug prices they are asking for lower prices on the newest drugs. Lower prices for drugs introduced 15 years ago are already here.

Gladwell gives a nice example:

If you are taking Mevacor for your cholesterol, the 20-mg. pill is two-twenty-five in America and less than two dollars if you buy it in Canada. But generic Mevacor (lovastatin) is about a dollar a pill in Canada and as low as sixty-five cents a pill in the United States…so many other drugs are going to go off-patent in the next few years–including the top-selling drug in this country, the anti-cholesterol medication Lipitor–that many Americans who now pay more for their drugs than their counterparts in other Western countries could soon be paying less.

Generics are often good substitutes for brand-name drugs but because neither the patient nor the doctor typically pay the costs we don’t choose the cheaper generics as much as we should (see here for more analysis).

Tyler asked why other institutions don’t arise to substitute for the cost-control of first party payment. Gladwell notes that such institutions are starting to evolve.

Pharmacy Benefit Managers, or P.B.M.s…build incentives into prescription-drug plans to encourage intelligent patient behavior. If someone wants to take a brand-name oral contraceptive and there is a generic equivalent available, for example, a P.B.M. might require her to pay the price difference. In the case of something like heartburn, the P.B.M. might require patients to follow what’s called step therapy–to try the cheaper H2 antagonists first, and only if that fails to move to a proton-pump inhibitor like omeprazole.

A good idea, especially if PBMs focus on pay for choice rather than restricting choice. I also worry that liability problems will plague PBMs just like they have HMOs and don’t forget that the lack of incentive to choose drugs with an eye to cost will get much worse when the new Medicare drug entitlement program kicks in.