Thursday, January 04, 2007
The Hundred Hours war
Yesterday afternoon, the Democrats released their legislative agenda for the first week. Recognizing that most of it is there to position Democrats for the next round, I actually like most of it on its face. I have struck through the items that I think are both unwise and consequential, and left everything that I actually support or think is relatively harmless and might, possibly, do some good. My annotations appear in italics.
Tuesday, January 9 - Implement the 9/11 Commission RecommendationsHere's a good summary of the 9/11 Commissions recommendations. Many have been implemented. The claim that they have not been implemented is mostly political, although I am sure more could be done (how much progress has been made on item 31, for example?). Still, it is obvious we are not being creative and that a lot of the energy has gone out of the administration in the last five years. If the Democrats can light fires under these ideas and others, then it is a good thing.
Wednesday, January 10 - Increase the Minimum WageI have read no end of argument among economists about the minimum wage over the years, and my gut tells me that everybody is a little bit right. A higher minimum wage will hurt some very unskilled workers a lot, especially if they already live in low wage areas, by killing off their jobs. It will also help a lot of people at the low end a little by pushing up their wages. Either way, I am not nearly as concerned by an increase in minimum wage laws as by other factors that make the labor market more sticky, including labor unions and new interpretations of anti-discrimination laws. If we pop the minimum wage it may diminish the political interest in amending the labor laws, which would be an excellent political trade.Thursday, January 11 - Expand Stem Cell ResearchI have always thought that both sides of the embryonic stem cell debate were being a bit disingenuous. Five years ago, when it first surfaced, I wondered whether the opponents were not -- at least in part -- looking to score a debating point in the abortion argument. The left was even more disingenuous, though: there was never going to be a shortage of fetal stem cell research, because it was going to proceed unimpeded in many other countries with fine scientists. The only people who genuinely suffered from the Bush administration's policy were American professors who wanted to do their work in universities, rather than moving to the private sector or moving to England, Canada, Australia or any number of perfectly good countries that have continued to subsidize the research. For my part, I am generally opposed to government funding for scientific research, so a specific exclusion for fetal stem cell research did not bother me even though I do not subscribe to the moral argument of its opponents. If our government is going to fund scientific research, though, I'm happy for it to include embryonic stem cell work.
Friday, January 12 -Allow Negotiation for Lower Prescription Drug Costs"Allowing negotiation" by the federal government for lower prescription drug prices is identical, or virtually identical, to government regulation of pricing of drugs. This would save the health care system money in the short term, but it would suck the capital out of investment in new drugs because it would lower the modeled rate of return on new compounds at the margin. It would appear to be a great idea for a few years, and then we would begin to pay the price in lost innovation. I have no interest in running that risk.
Wednesday, January 17 - Cut Interest Rates on Student LoansWhile I think this is a bad idea because it will amount to yet another means by which universities can avoid getting their own financial house in order (as most other American institutions have in the last twenty years), we already so wastefully over-subsidize higher education that a little bit more won't really hurt. I do know this, though: It is highly unlikely to benefit any student after the first year or so, because universities will almost certainly use the interest subsidy program as another reason to justify tuition increases above the rate of inflation. So do it, but do it knowing that it is a gift from the Democrats to their lock-step voters in the acadamy.
Thursday, January 18 - End Subsidies for Big Oil and Invest in Renewable Energy
I support this effort not because I am against "Big Oil" -- regular readers know that I have huge admiration for the big energy companies -- or because I think the Democrats will do a good job with it, but because we need the debate. Everybody agrees we need to do something about energy, but nobody agrees what the objective should be. Is the goal lower energy prices, fewer carbon emissions, or less importation of oil (either because we do not want to rely on dirtbag countries, or we do not want to finance them). These are not obviously compatible objectives, and politicians have specialized in obscuring that incompatibility. Let's hear what the Democrats have to say, especially about nuclear power.
18 Comments:
By 
, at
Thu Jan 04, 08:34:00 AM:
Just fyi, China negotiates with producers of iron ore. I wasn't aware that this meant China set global iron ore prices.
The argument about Medicare is hyperbolic. Surely negotiation involves the consent of producers, no? It never ceases to amaze me that how big farma fans find no problem with drugs companies making huge rents on drugs sold widely around the world solely on the back of the fraction of American consumers. No doubt that rents inspire abundant investment (e.g. cancer drugs that extend the life of patients for a month, drugs that fix you up if your restless legs when you can't be asked to take a walk, a new generation of impotency drugs, etc.), but, even if you make the highly questionable assumption that this investment is socially productive, it certainly doesn't constitute efficiency if you're an American (outside the industry of course).
If you guys want to make an intellectual point, surely the guns ought to be ported across the border.
By 
SR, at
Thu Jan 04, 09:01:00 AM:
Brilliant: support fetal stem cell research, and then limit the prices at which drug companies can sell the resulting theraputics. Oh wait, and why exactly are they going to invest the money required to produce the theraputics that arise via basic science research when they won't be able to recoup that investment?
By TigerHawk, at
Thu Jan 04, 09:26:00 AM:
Actually, Anonymous, I totally support using American diplomatic and other pressure to encourage foreign countries to de-regulate healthcare, especially with regard to pricing and advertising.
By Gordon Smith, at
Thu Jan 04, 09:39:00 AM:
Negotiating for a better deal is not "setting" prices. This seems a simple idea for anyone who doesn't want to see our government unnecessarily subsidize one of the most profitable industries in the world.
Negotiating will save taxpayers money.
Let's not pretend that without welfare, Big Pharma won't be able to do R&D. That's absurd.
By skipsailing, at
Thu Jan 04, 11:00:00 AM:
Please explain this mechanism:
...see our government unnecessarily subsidize one of the most profitable industries in the world.
How do these subsidies actually work?
thanks
By , at
Thu Jan 04, 12:20:00 PM:
That's fine TH, but by also supporting big pharma in making sure US consumers shoulder the burden of their cost of capital (and then some) means that other countries can have their cake and eat it too. Any policy seeking to make progress in that regard- and more substantial than aimless lip service- would absolutely require holding the gun to these country's head that is reciprocal price caps in the US (e.g. some % of the average price of a basket of developed countries).
skipsailing- think of a farmer dictating the price you pay for flour. This is how the subsidy works.
By , at
Thu Jan 04, 12:31:00 PM:
If cutting the "subsidies" to the oil business is a great idea that the Democratic party claims it is, what happens if/when the price at the pump jumps? Will they claim credit for that, too?
With regards to negotiating prices with "Big Pharma" (whatever that is):
There are several tiers of perscription drugs, and any negotiated price (controls) would only impact the "newest" drugs that are patented and exclusive to one company. The Federal gov. could always use the club of granting manufacturing rights to non-patent holders to lower costs; just imagine what that would do to innovation and research!
So before jumping with glee or jumping off a cliff, we should wait and see what really happens. I would wager that this won't be as revolutionary and much more marginal than its proponents advertise. But it will make for great soundbites on "TV" (does anyone still watch the Evening News?), you can bet on that.
-David
By TigerHawk, at
Thu Jan 04, 12:40:00 PM:
Screwy, on this topic you just don't know whereof you speak.
When the government is a monopsonistic buyer (as the government would be in negotiating drug prices for patients on government healthcare programs, with respect to those patients), the setting of prices is the same as regulating for all intents and purposes. Sorry. If you believe that it is substantively different, you are just wrong. If you are making a technical argument to score a political debating point, well, fine.
As for R&D, the point is this: That if you lower the rate of return on pharma R&D (regardless of who does it), fewer projects will clear the rate of return hurdles required to get financing. So, yes, R&D will continue to be done, but increasingly only for blockbuster therapies. If you need a drug for a relatively rare disorder -- MS is the example that most concerns me -- you have cause for concern, because it will be much more difficult to obtain financing for new R&D on less-than-blockbuster therapies if you lower the modeled rate of return.
Sorry, Screwy, but if you believe what you wrote you just don't understand how capital moves in our economy.
Now, you might say that the huge cost savings available by cutting the returns on drugs can be plowed into other health measures so that the public health consequences are still advantageous across the population. That might be true. But you simply cannot win your argument that a big reduction in the profitability of drugs will have no impact on the development of new drugs.
By Dawnfire82, at
Thu Jan 04, 12:50:00 PM:
"because universities will almost certainly use the interest subsidy program as another reason to justify tuition increases above the rate of inflation"
The tuition at the University of Texas - Austin almost doubled from when I was a freshmen to when I was a senior...
By , at
Thu Jan 04, 01:30:00 PM:
TH, China is a monopolistic buyer of iron ore for its steel industry. Is it your position that China sets the global price of iron ore? Citigroup is the monopolistic buyer for a number of businesses that exist under its corporate aegis. Does it set the price of, for example, staplers and computer monitors?
The argument is highly specious.
By Dan Trabue, at
Thu Jan 04, 03:46:00 PM:
"If cutting the "subsidies" to the oil business is a great idea that the Democratic party claims it is, what happens if/when the price at the pump jumps? Will they claim credit for that, too?"
I doubt it. It will be a good thing, nonetheless. Our gas prices are seriously underpriced and that is to our detriment.
By , at
Thu Jan 04, 04:22:00 PM:
Just as an aside to the "Big Pharma" price negotiation debate, I used to be affiliated with several people that worked at Bank One, one of the predecessors to the present mega bank, JP Morgan/Chase. Bank One was a pretty big outfit, in its own right, and it too, purchased computer hardware and software "in bulk".
They were constantly "behind the curve" in new applications and new network hardware. While most of the world had moved on to Windows NT and hub networks, this major institution still had offices where token-ring networks, etc were in use. The inflexibility of purchasing and that good old "buying in bulk" to keep the price down cost them dearly in modernization and interconectability of their systems, probably a greater cost than their false economics of "bulk purchasing". Not quite sure where this connects to "Big Pharma", but when you try to control the market and purchase price too much (such as government ratcheting down the price on key pharmaceuticals), there are unfortunate side effects that may not be apparent at first or even second glance.
Iron ore is a worldwide commodity, and producers will shave costs thin to get bulk purchasing guarantees to keep their mills operating at maximum efficiency. This is not quite how ALL drug companies operate (I actually have worked at two different ones), but is somewhat similar to some of the generic makers, who have little or no R&D costs, as they make LEGAL copy cat drugs (after patents expire, that is).
R&D costs and the the whole clinial trial process are expensive in ways that most of us cannot fathom, and represent years of dedicated work before the first dollar is returned. Fixing these costs is a tricky matter.
Dan,
I wonder how the working class guy will react to the whole notion that gas prices are "too low"? Gasoline is about the equivalent of $6/gallon in France (~ 1.2 E/liter), based on pricing I observed there in October and the exchange rate of the Euro to the dollar. And it is not very popular with the French, believe me. They laugh when we complain about $3/gallon gas. Is that a good pragmatic, political platform to run on? "We gave you $3/gallon gas, and you'll like it! It's good for you!"
-David
By Dan Trabue, at
Thu Jan 04, 04:49:00 PM:
"Is that a good pragmatic, political platform to run on?"
Hell, no! It's one reason why you'll never have to worry about me winning an office anywhere!
Doesn't mean it ain't right, though...
By , at
Thu Jan 04, 05:13:00 PM:
David,
If you want to see industrial scale negotiations you ought to attend a meeting between Walmart and its paean suppliers (yes, that's plural, as in they orchestrate bidding wars such that executives and salesmen have to bear in mind going in the bare minimum they require to remain going concerns). But, as the rhetoric goes, that's "innovation"- good for capitalism and the consumer- while if government raises a peep about getting stuck with the CEO's Christmas bonus people shout "price cap". Horse hockey.
Also btw, high gas prices are, in large part, a function of refining and pipeline capacity, something the oil majors ensure through less than lawful methods, remain tight. Increasing government's share of the take to that which has been legislated or even legislated before the giveaways, or more, (within reason) is unlikely to have much if any effect.
By , at
Thu Jan 04, 05:42:00 PM:
Anon 5:13 pm:
I actually used to work for a guy that was a salesmanager for Sherwin Williams (paint company) that was in those sorts of bulk marketing presentations to K-Mart, Wal-mart, etc., and he hated it because it was so arbitrary, as to the real QUALITY of the product that the retailer was actually getting; It was also a cattle call (funny to see guys making 6-figure salaries at a catlle call, I guess), as they kept these guys on their toes for hours waiting to make their sales pitch. Of course, it guaranteed a low price at the store. Sherwin-Williams produced a range of paint products, and the one they mass marketed to people like K-mart/Wal-mart was at the bottom rung of 'quality'. You get what you pay for, I guess.
In Europe, gas prices are to a large extent a product of the tax structure, designed to keep driving down and use of public transportation up. France has a really great intercity train system (when they're not on strike, heh, a joke), but the pension system for the public transport people is out of control due to government subsidies paid for by....gas taxes!.
I don't understand what you mean by "less than lawful means"? You mean that maximizing profit by rationalizing prodution capacity is unlawful, or that the government should fix the profit margin of the oil companies? The government already taxes the gas at the pump (retail), and taxes the corporate profits. If oil company profits are lower and gas sales drop, won't that lower the government's tax revenues? Just wondering.
-David
By Lanky_Bastard, at
Thu Jan 04, 06:27:00 PM:
What I find grating isn't the cost, it's the inequality. Pharma negotiates with France and then charges Medicare to the hilt. That takes advantage of Americans while giving the French a bargain. That sounds like a scam, and it's created the impetus for negotiated prices.
I don't think we should negotiate prices. I do think we should put tarrifs on exports to make them equal to the cost Medicare pays. Sure research needs to be supported, but France and Canada aren't paying their share. If they want to be healthy, their taxes can pay what our taxes pay (which will still be less than those of us without Medicare).
By Dawnfire82, at
Fri Jan 05, 12:56:00 PM:
If you start dallying with tariffs and such with certain other nations in mind, they're likely to retaliate.
By , at
Fri Jan 05, 01:02:00 PM:
David,
I'm talking about collusion. Academic studies have shown that in ogopolistic industry structures, collusion does not have to be overtly orchestrated, to be effectively implemented, (i.e. to inspire monopolistic business practice). So when I say, "less than legal means", I don't attest to have any proof of overtly illicit behavior, (although I wouldn't be surprised if there were any), I mean only that I possess an awareness of the reality of the US energy market, in particular its highly ogopolistic refining and distribution component (part of the reason why government probes into price gouging always focuses on the retailer- it's the red herring to try to persuade the public everything is above board).
Also by the way, there are indications that significant collusion exists in this industry beyond simple market share data. For example, Pat Robertson announced a plan to restart a refinery in Southern California some years back and claims he was told by his would be financier, a major financial center bank, that oil majors were threatening to withdraw their multi-million dollar business if they helped finance the deal. He blamed their pressure on financing and through other means on scuttling that deal. Now, I concede that allegations do not add up to proof, but if one bears in mind that oil companies are acutely aware of the legendary inelasticity of demand for their product to price, are profit-seeking entities, (and how), are powerful and can purchase influence across all manner of institutions (political, commercial and, yes, even the press), not to mention buy elections (see recent California vote), then one would have to be exceptionally naive to think business practices don't involve the use of that power, i.e. collusion. The fact that I work in finance makes it even more difficult for me to overlook. Specifically, I have found, without fail, that the easiest way to predict where the graft is, is to look for where it could go unnoticed, (and, fyi, it's rampant).
