Monday, June 8, 2009

Brookings: Consequences of Cap and Trade

Consequences of Cap and Trade. By Warwick McKibbin, Adele Morris, Peter Wilcoxen, and Yiyong Cai
Brookings, Jun 08, 2009


The U.S. Congress continues to debate a potential cap-and-trade program for the control of greenhouse gas (GHG) emissions. The economic effects of such a bill remain in dispute, with some arguing that a cap-and-trade program would create jobs and improve economic growth and others arguing that the program would shift jobs overseas and hit households with large energy price increases.

This report applies a global economic model to evaluate different emission reduction paths and to offer insights to policymakers about how to the design the program to lower the costs of achieving long-run environmental goals. The study examines emissions reduction paths that are broadly consistent with proposals by President Obama, Representatives Waxman and Markey, along with two cost minimizing paths that reach similar goals.


The study estimates that alternative paths to reach an emission reduction target of 83% below 2005 levels by 2050:

• reduce cumulative U.S. emissions by 38% to 49%, about 110 to 140 billion metric tons CO2
• reduce total personal consumption by 0.3% to 0.5%, or about $1 to $2 trillion in discounted present value from 2010 to 2050
• reduce the level of U.S. GDP by around 2.5% relative to what it otherwise would have been in 2050
• reduce employment levels by 0.5% in the first decade, with large differences across sectors
• create an annual value of emission allowances peaking at around $300 billion by 2030, and a total value of about $9 trillion from 2012 to 2050

The different timing of emissions reductions under the various paths explored has significant effects:
• Without banking, in the short run the Obama and Waxman-Markey emission paths result in more gradual carbon price rises than the paths that minimize the present value of abatement costs. In the medium run, Obama and Waxman-Markey targets are relatively more stringent.

Incremental stringency produces high incremental cost, e.g. an extra 8% reduction increases costs by 45%.


For more information about the Climate and Energy Economic Project, please visit

Floating Libertarian paradise

20,000 Nations Above the SeaIs floating the last, best hope for liberty? By Brian Doherty
Reason, July 2009

[See full article at the link above.]

Ideas evolve quickly along the Friedman family tree. The late Milton Friedman, an economist at the University of Chicago, was one of the 20th century’s most respected and influential advocates for classical liberalism. In scholarly books and popular articles he argued that if we want the greatest possible wealth and freedom, government should be restricted pretty much to cops and courts. It shouldn’t be in the business of manipulating or dictating our choices, whether they involve education, the economy, or joining the military.

Milton’s son David took this attitude a step farther in several books on political philosophy and economics. Given the manifest inefficiencies of government, David argued, the healthiest and most efficient social and economic system requires no state at all.

Now David’s son Patri has taken the family tradition one step beyond. Inspired by his dad’s classic 1973 book The Machinery of Freedom, Patri Friedman has concluded that society’s design flaw goes deeper than just government itself. Think of the state as a business—but one with enormously high barriers to entry and enormously high exit costs. As it would in the business world, this set-up breeds sclerosis, inefficiency, and the tendency to treat customers like dirt.

From Patri’s point of view, Milton’s path of steady, sober education about the advantages of liberty wasn’t changing the basic negatives very much. And although David might be right that government isn’t even necessary, the fact remains that governments, however inefficient, control virtually every chunk of planet Earth. Winning control of a piece of land almost necessarily involves bloodshed, with very little likelihood of success. High barriers to entry, indeed. So while the libertarian movement maintained its traditional orientation toward scholarship, journalism, and political activism, governments were busy perpetrating mass murder on a scale no other institution could manage, mucking up market transactions that could improve everyone’s lives, and ruining millions of lives over private but illegal choices, such as consuming disapproved drugs.

Patri Friedman was doing all right himself, living with his wife and child in a mini-commune of sort—the kind people today call an “intentional community”—in Mountain View, California, a bit south of San Francisco. He had a great and challenging job with a great company, Google. But his preoccupation, his passion, lay elsewhere. He thought he had figured out the real underlying problem bedeviling society, and it went deeper than just governments themselves. The real solution, he came to think, would involve the lure of the bounding main, the unbounded horizon, our vast and empty oceans.

Remember those high exit costs? Friedman wondered: What if you could just move—not just you, but everything you own, including your home, and, if your neighbors agreed with you, your whole community? What if you could move all of it where no government would bother you at all, and you could make a new, better society?

Friedman called his theory “dynamic geography.” He remembered a line from his dad’s book The Machinery of Freedom about how differently terrestrial government would behave if everyone lived in trailers and could easily flee state oppression. If land itself could get up and go, the incentive structure of government would change even more, moving it in a libertarian direction.

In the past, such thoughts led many libertarians to dream of space colonization. But you don’t need to leave the planet, Friedman reasoned; just make “land” that can float on the ocean.
And so Friedman is no longer with Google. He is president of something called the Seasteading Institute. He thinks he has a feasible plan to accomplish something neither his father nor his grandfather managed, for all their inspiration to him and hundreds of thousands of others: actually creating a libertarian society. Even if it’s a small, floating one. “I would be sad if it doesn’t happen in my lifetime,” Friedman says. “But even looking at optimistic scenarios, I can see it will take several decades before I can say I really changed the world.”

A Sunken History of Floating Nations

Wayne Gramlich is a voluble, white-bearded tech geek and science fiction fan—the kind of guy who thinks about how things work, and could work, a bit deeper than most people do. A former Sun Microsystems engineer, he became interested in creating free lands on the ocean after stumbling across the website of the Atlantis Project, a.k.a. Oceania, a failed scheme to do just that from the early 1990s. Gramlich took an idle notion about liberated ocean living and turned it into an experimental social and physical engineering project. He set his ideas afloat on the sea of the World Wide Web in the late 1990s under the name “Seasteading: Homesteading the High Seas.”

Gramlich’s solution to building new land on the ocean was cheap and inventive: achieve flotation by lashing together empty two-liter soda bottles; convert the bottle-raft into usable land by covering it with five-mil-thick (roughly fivethousandths of an inch) black plastic sheeting and dirt. (He later realized he had underestimated the power of waves in the open ocean, and he now dismisses his plastic bottle idea as “just a glorified form of suicide.” But in calm waters, it could work.)

Friedman stumbled upon Gramlich’s seasteading manuscript in the early 21st century. The two men began chatting online, realized they lived near each other, and forged a partnership that in April 2008 was formally chartered as the Seasteading Institute. The organization now has two part-time paid employees in addition to Friedman (who is salaried) and Gramlich (who is not, as he spends far less time on the project). It is dedicated to pursuing and proselytizing for ideas and techniques that could allow human beings to live on stateless floating “land” on the ocean. The institute is throwing conferences, patenting aquatic platform designs, sending Friedman to spread the word at far-flung gatherings of tech world bigwigs and libertarian visionaries, and receiving friendly coverage on CNN and in Wired.

To longtime libertarian hands, though, seasteading seems like an old idea, one weighed down by the corpses of many ill-fated plans. Most of these efforts are legend, barely documented by history. Their tales are recounted in moldering tiny-circulation newsletters seen only by enthusiasts (and in 1970s issues of reason). One of the most influential of the small magazines pushing libertarianism in the 1960s was Innovator, and in its latter days the journal’s editors had come to think along the same lines as Friedman, though with far less rigor.

Innovator’s leading theorist of taking to the seas for liberty was an anarchist writer named Kerry Thornley. Thornley’s essays on oceangoing freedom inspired the science fiction writers Robert Shea and Robert Anton Wilson to create an anarchist yellow submarine that was central to the plot of their influential 1975 novel Illuminatus! But when it came to real-world endeavors, Thornley wasn’t the ideal pioneer. Among other things, he was confident that he had been groomed to be a patsy of sorts in the John F. Kennedy assassination, given his previous acquaintance with, and supposed resemblance to, Lee Harvey Oswald. (Before that fateful day in Dallas, Thornley had already written a roman à clef about Oswald, whom he knew from the U.S. Marines.)

Other libertarians, largely in the 1970s, actually attempted to create free nations on the open ocean, sometimes using existing islands and reefs, sometimes using boats or artificial islands. The history of these attempts is equally comic and terrible. The one that most resembles the Seasteading Institute’s efforts was Operation Atlantis, in which Werner Stiefel, an upstate New York pharmaceutical manufacturer, convinced a small gang of eager young libertarians to help him build a ferro-cement boat called “Atlantis II” in 1969. This vessel was supposed to sail down to the Caribbean, where the crew might grab some land in disputed territories such as Anguilla or the Silver Shoals near Haiti, or just use the ship as a staging ground to build some artificial concrete land.

The schemers had their own silver coin, dubbed the “deca”; they got some press in Esquire; and they had their own homemade boat. But the ship sank in a hurricane, attention from the Haitian government forced the project into quiet mode (canceling the highly entertaining newsletter Atlantis News), and no new libertarian Atlantis ever arose in the Caribbean.

The king of the “take over existing land” plan was Mike Oliver, a Nevada-based real estate developer and coin dealer who had published a book called A New Constitution for a New Country in 1968. Oliver had a winning never-say-die approach to his dream. In 1972 he attempted to claim space for a Republic of Minerva on a series of reefs in the southwest Pacific, 260 miles from the tiny kingdom of Tonga. Perhaps create is a better verb than claim: Oliver had to pay dredging boats to build up usable land between a couple of sturdy reefs. Shortly afterward, the king of Tonga conquered the colony with one boat. The land Oliver paid to build eventually was reclaimed by the ocean.

For the rest of the 1970s, Oliver concentrated instead on islands that had the advantage of already existing but the disadvantage of already being governed. He made common cause with separatist groups on the Bahamian island of Abaco and the New Hebrides island of Espiritu Santo. Such conspiring failed to instigate any independent libertarian nations; it just resulted in the arrests of some rebellious natives.

I called Oliver to ask for an interview while researching my 2007 book Radicals for Capitalism. A weight of angry regret and failure seemed to block his throat as he testily informed me he had nothing to say about any past attempts to start a new libertarian nation.

So Why Expect Seasteading to Work?

Patri Friedman, who has been sailing around some of the very reefs on which earlier utopias capsized, is well aware of these past failures and says he has learned from them. The Seasteading Institute’s website is as thorough and thoughtful a guide as you’ll find to the foibles and follies of previous attempts to create new and/or floating nations. And there are some important points of departure that Friedman says will make the difference this time around.

First, seasteading does not require anyone to take over existing terrain. That was hopeless; the land’s all claimed by some government or another, even the parts barely above water. And an open rebellion against an existing regime is unlikely to succeed. Seasteaders therefore will make their own “land.”

Second, seasteading is modular. Unlike various floating nations that never got off the drawing board—the “Freedom Ship,” the “Aquarius Project,” and other pipe dreams—the institute’s plan doesn’t require an upfront multimillion-dollar buy-in. Seasteading can start small, and in fact Friedman is sure it will start small, with tiny family-sized platforms called “coaststeads” near the mainland serving both as proof of concept and a laboratory for working out the kinks before community-sized seasteads are ready to sprout in international waters. Friedman figures the cost of such starter sea homes won’t be too out of line with housing costs on land, especially if people are buying in a communal or time-share fashion. In fact, most recent cost estimates for a particular hotel/resort seasteading design came out to roughly $258 per square foot (without factoring in some assembly and deployment costs), which is quite a bit cheaper than the current price of many single family homes in the San Francisco Bay area.

Third, seasteading isn’t just based in libertarian theorizing and hopes. Friedman knows that seasteads will need to have some business hook, and he’s busy working those angles. There’s SurgiCruise, a nascent floating medical tourism company that is seeking venture funding. If Americans will fly to Mexico, India, or Thailand for cheaper medical care free of U.S. regulatory costs, the idea goes, why wouldn’t they sail 12 miles for it? Among the other first-tier business ideas being bruited about with varying levels of intensity are vacation resorts, sin industries, aquaculture, deep-sea marina services, and universal data libraries free of national copyright laws.

Fourth, because the open ocean plus “dynamic geography” allows for experimentation with governance in any form, seasteading shouldn’t appeal only to libertarians. Sure, any seastead that Friedman would want to live in would get as close to anarchism as can be managed. But he thinks a variety of ideologues should be willing to leap on board, from sustainability-oriented environmentalists to members of various intentional communities, religious or philosophical or whatever, that want to shape their own lives in peace without government interference. Such communities might not be individualist in their internal policies, but they fit within the libertarian framework of seasteading itself, which allows for a wide variety of freely chosen social structures.

In April 2008, Friedman’s vision received a tangible and encouraging business reward: a half-million-dollar stake from Peter Thiel, the libertarian co-founder of PayPal. Friedman’s high profile on the Internet, particularly on his always engaging and interesting LiveJournal blog, coupled with his personal history in the Silicon Valley, had won his project the attention of local programmers and money people. A job interview with Thiel’s venture capital management firm Clarium soon morphed into a meeting with Thiel himself.

Thiel supports many endeavors to create a future filled with wonderful science-fictional ideas, including the Methuselah Mouse Prize for life extension research and the Singularity Institute, which focuses on wild futuristic accomplishments of all sorts. He was a natural audience for Friedman’s vision, and he was sold. As Thiel’s colleague Joe Lonsdale tells me, “To Thiel and others involved in lots ofdifferent innovations in Silicon Valley, this seems like the coolest new thing you could create: a new government. That sounds really neat.”

Seasteading, Friedman insists, should be of interest to any philanthropist who wants to preserve and protect a wider and more secure human future. As he writes in his book-in-progress on seasteading, “The ability to experiment with a new system will produce both internal benefits to the pioneering seasteaders and external benefits to the world. Seasteaders will be able to choose a society which is in harmony with their values. And each society will serve as an experiment, to see how its system works in practice.”

A Seasteaders’ Convention

The First Annual Seasteading Conference, held in October 2008, draws about 50 people to an Embassy Suites meeting room in Burlingame, California. Most but not all of the attendees are male libertarian Americans in the computer industry. Friedman and Gramlich do a lot of the talking, selling the reasons why you should, and the ways that you could, seastead. Representatives of Marine Innovation and Technology, a reputable ocean engineering firm, give detailed discussions of designs for small, relatively affordable, modular and movable seasteads. (The firm later supplied the Seasteading Institute with a design for a floating seven-story hotel-casino resort, patent pending.)

The conference attracts solid, serious people with lucrative occupations and (in at least a few cases) cash to invest. Friedman says he is “pleasantly surprised by the low wacko factor.” He detects hardly any “people who were not competent, not practical, who have a crazy vision and don’t think about how to make [it] a reality.” This already puts the project ahead of most past new-country schemes.

I am struck by how few would-be seasteaders have actual nautical experience, as opposed to lots of clever ideas about flotation, breakwaters (to protect floating domiciles from waves, including the dreaded, superpowerful “rogue waves”), and transportation of seastead-sized objects. One attendee—Mikolaj Habryn, who works for Google—tells me he took a sailing course out of his interest in the topic, but for the most part these are not people with saltwater in their veins. They are computer types, social and physical engineers, and visionaries who for various reasons think experimenting with new social forms is an exciting challenge. Many of them tell me they are not likely to be early adapters living on small-scale experimental seasteads; instead they plan to wait until the business environment offshore has room for their careers, or until the comfort level for landlubbers rises a bit.

This lack of high-seas experience might be just fine. While ocean living creates unique challenges and costs—Friedman refers to these as the “ocean tax,” recognizing that seasteaders must eventually make the cost lower than the “government tax” you suffer on land—most prospective seasteaders think the obstacles can be largely overcome through money and thought. Human beings already know how to generate power on isolated locations off the grid. Wind, solar, and diesel strike Friedman as the most obviously feasible, and the ocean will probably provide a particularly suitable environment for wind power. Although seasteads probably will try to grow their own food, it can be shipped in if needed; the ocean is all about moving big things cheaply.

What about that most time-tested vessel for living on the sea: the boat? Modularly connecting the vehicles into larger communities seems tricky. Friedman’s ideal seasteading community can start small, grow marginally as the idea or the techniques improve enough to attract more people, and be able to both expand and contract as social experiments succeed or fizzle in the judgment of each individual seasteader. He fears boats don’t provide much room for self-sufficiency in food and power, let alone comfortable long-term living, given their space limitations. Finally, he’s leery of the “Just use boats!” line of thinking because ships are simply too old-fashioned to capture the visionary imagination in the way he thinks seasteading must if the movement is to thrive. Still, Friedman has been moved enough by the obvious immediate advantages in cost and proven legal status to think that living on retrofitted old ships might be a reasonable starting point for experimenting with his ideas.

Oil platforms, another existing model of ocean living and working, are cost-effective because they extract a valuable commodity. But seasteaders cannot, and don’t expect to, begin with resource extraction. That would certainly run afoul of both the Law of the Sea Treaty and any number of existing government and corporate interests that claim to have a say over how ocean-based resources should be used and allocated. For the same reason that taking over existing land is a bad idea for nascent seasteaders, anything that suggests a challenge to existing wealth and authority could hobble the movement while it’s still trying to find its sea legs.
Indeed, this aspirationally lawless bunch muses throughout the conference in Burlingame over the extent to which the world would view all seasteaders as a part of the same team, and thus whether seasteads would have to, gulp, police each other to prevent one bad apple from spoiling the bunch. They do not reach a conclusion.

Seasteaders do have a legal adviser: Jorge Schmidt, an attorney who has experience with the Law of the Sea Treaty. Schmidt is careful to tell me there are plenty of unknowns awaiting future floaters, although he approves of Friedman’s basic framework: get your seastead out of the 12-mile range that countries claim full sovereignty over, don’t mess with resources in the 200-mile exclusive economic zone that most nations also assert, and emulate existing ships in international waters by arranging with some nation to obtain a “flag of convenience” marking seasteads as under its protection. In open waters, only nations have rights. Individuals without a stable flag are considered pirates and outlaws.

The seasteading project benefits from the fact that many poorer countries are willing to sell their sovereignty to the highest bidder in a flag-of-convenience process that works to the buyer’s advantage. “I definitely think at the start those countries will want a cut [of whatever economic benefit a seastead produces], but keep in mind we’re in a good negotiating position,” Friedman says. “We can talk to every country in the world and only need one to give us the deal we want, and we can have them bid against each other for how low the cut can be.”

Schmidt speculates that full sovereignty might never happen for seasteads, but that it might not matter. “Maybe we’ll get 95 percent of what we want just paying Tuvalo,” he tells me. “If that’s the case, why go the extra step?” Reality is nine-tenths of the law: “What’s most important is to get things running, to have something concrete that works. Once we have that, the actual dynamics fuel themselves, rather than expectations and theory.”

Getting lost in these worlds of expectation and theory while talking to seasteading enthusiasts and reading their message boards is delightfully bracing, even if it’s difficult in sober moments to imagine their dreams materializing. Surely before it gets to the point of modular anarchy, some nation is going to say, “Screw existing international law; we’re not letting this happen.”

Friedman says something during our first interview in Palo Alto, something that sounds puckish at first but on second and third thought seems more and more true. Libertarians, he says, expend precious time and energy on truly and self-evidently impossible paths toward political change. “Like the Ron Paul movement,” he says. “Lots of libertarians’ effort and millions and millions directed in a way that’s hopeless! For real change [electoral politics is] totally hopeless. Think how much more likely to succeed [libertarians would be] if that amount of resources were put into something that could actually work.” By which he means seasteading. And you have to admit: When you compare it to the likelihood of creating a libertarian world through American politics, seasteading starts to look more and more sensible.

‘We Can’t Build Libertopia’

I have talked to a lot of people about the seasteading concept, normal human beings not particularly familiar with libertarianism or new-country schemes. Everyone offers at least some objections. Friedman and his team have heard them all, and they’ve got answers—or at least suggestive approximations that indicate the various critiques ought not to be deal killers.
Pirates, for example, are far more likely to attack wealthy ships than humble residential platforms. Seasteaders are very likely to have arms and can raise the cost of attacks higher than most pirates will be willing to pay. Storms? You can keep seasteads safe through breakwaters and a spar-and-buoy design in which most of the wave energy hits just a pillar or two while the city sits cozily on a top platform. And yes, tight communal living can be stressful, but residents of places such as Antarctica stations already find a way to muddle through.

Unlike most new-country dreamers, Friedman and his team are winningly scientific, as opposed to scientistic. They are scrupulous about avoiding claims that such-and-such technical solution must work. They are wary of oceandreamer concepts such as “seament” or “ocean thermal energy conversion,” which are based on the premise that both building materials and energy are easily gleanable from the open seas themselves.

And although he remains a happy anarchovisionary, Friedman knows that he and his confederates must take baby steps. He just wants to see marginal improvements in governance, and he is sure “dynamic geography” is the key. Thus, while the goal is to be totally free-floating, he is willing to let seasteads be encased in breakwaters if that’s the cheapest way to keep them safe from the ocean’s ravages.

“We can’t build libertopia,” he says. “Whatever we build will have to have security forces who will bust in your door if they think you’re designing nuclear weapons or funding terrorism.”
This concession is based not on principle but on the pragmatic concern that nukes and terrorism would make seasteads sitting ducks for nation-states. “It will be a bummer,” Friedman adds, “and not what I want ultimately, but with that constraint we can get a lot of freedom, a lot more than we have now.”

Friedman comes across as a consistently calm and reasonable man. So reasonable, in fact, that dealing with the rest of the world’s passions and irrationalities have come to bore and annoy him.That’s why he embraced seasteading to begin with.

As Milton’s grandson says at the conference, the best thing about seasteading is that it doesn’t require any proselytizing to the masses. “Niche social and political movements [try to] argue with everyone they run across and convince the whole country,” he notes, but that’s “stressful and hopeless.” Why not just do it: build a version of the world you want to live in. Then you get to live in it, regardless of whether anyone else is convinced it’s proper or makes sense.

‘We Just Want to Create a Laboratory’

In his introductory talk at the seasteading conference, Friedman calmly tells a series of maddening stories: of men dying of cancer in prison because of stupid immigration restrictions, of tens of millions murdered by states in the 20th century, of people imprisoned and impoverished because of their choice of recreation. The context and political intent are clear: We have to figure out a way to escape governments.

As of this writing, seasteading is still mostly talk and dreams. Raising more money is in abeyance, as the Seasteading Institute doesn’t even have official nonprofit status yet. (The Internal Revenue Service is processing the paperwork.) The patent on the first hotel-casino design is still pending. The publicity generated by the article in Wired, seasteading’s first extensive major print media hit, more than doubled Friedman’s volunteer base within a few weeks.

The current economic crisis, everyone involved notes, makes the institute’s prospects both better and worse in the short term. It’s easier to sell the notion that the world desperately needs some new political and economic systems, but it’s harder to convince people to be charitable, especially toward experimental long shots.

The first real, physical thing the seasteaders plan is a fall 2009 event in the San Francisco Bay called Ephemerisle, a sort of aquatic Burning Man (the annual desert art festival in which Friedman is an enthusiastic participant). They plan to experiment with some flotation designs and begin to feel what a free life at sea might be like.

“You can read all the books you want that say freedom is a better system, but if people in their daily lives are surrounded by cops with guns, where government supplies emergency services, where every product has been regulated and tested by government, it’s hard to wrap your head around the crazy idea that all these things can be provided by a free market,” Friedman tells me. “So let’s do it. Let’s live it. It could be a disaster. People might die. But living it makes it so much more powerful than talking about it.” Through Burning Man, he adds, he’s “seen the power of experience to shape people’s perceptions about what’s possible.”

What will the experience of living on a seastead be like? What social structures will arise on a liberated ocean? Friedman recognizes that it is neither possible nor necessary for him to know. In his words, it’s “an enormous relief to realize that we can just throw up our hands and safely leave some of the questions philosophers have been discussing for millennia unresolved. We just want to create a laboratory for experimenting with social contracts, and a world in which people are free to create societies with groups of like-minded compatriots. The details of those societies are up to you.”

Senior Editor Brian Doherty is the author of This is Burning Man (BenBella), Radicals for Capitalism (PublicAffairs), and Gun Control on Trial (Cato Institute).

Federal President’s Economic Circle

Obama’s Economic Circle Keeps Tensions High. By JACKIE CALMES
TNYT, June 7, 2009

Bipartisan WMD Panel Criticizes Obama Plan To Fund Flu Vaccine

Bipartisan WMD Panel Criticizes Obama Plan To Fund Flu Vaccine. By Spencer S. Hsu
Washington Post, Monday, June 8, 2009

President Obama's contingency plan to help finance production of a swine flu vaccine with funds set aside to develop defenses against biological attacks would weaken the nation's preparedness for terrorism, the leaders of a bipartisan commission on weapons of mass destruction said yesterday.

The White House asked Congress on Tuesday for authority to spend up to $9 billion more for an H1N1 flu vaccine and other preparations against the novel flu strain that first appeared in April.
Of the total, the administration asked Congress to provide $2 billion in "contingent" funding. Another $3 billion could come from the Project BioShield Special Reserve Fund, created in 2004 to field countermeasures against nuclear, biological or chemical threats; $3.1 billion from stimulus funds appropriated to spur economic recovery; and $800 million from the Department of Health and Human Services.

"Using BioShield funds for flu preparedness will severely diminish the nation's efforts to prepare for WMD events and will leave the nation less, not more, prepared," the commission's chairman, former senator Bob Graham (D-Fla.), and vice chairman, former senator James M. Talent (R-Mo.), wrote to Obama in a letter sent yesterday and in another dated Wednesday to his budget director, Peter Orszag.

Raiding BioShield would weaken the ability of private firms to raise credit and sustain long-term research and development on drugs to respond to bioterror threats, for which there is no private market, industry officials said. The former lawmakers said the H1N1 influenza virus poses a public health threat that merits its own funding.

They also encouraged Obama to name Vice President Biden to take charge of the administration's efforts to counter weapons proliferation and WMD terrorism.

"You already know what he offers: long experience working on WMD, an understanding of how to move the levers of power to meet urgent goals, and most important, the unique credibility and stature of his office," Graham and Talent wrote.

The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism, created by Congress in 2007, warned in December that an attack involving such weapons was more likely than not to occur somewhere in the world by the end of 2013, probably involving a biological weapon.

The commission's opposition followed other criticism of the administration's flu vaccine funding plans. Congressional Republicans attacked the White House's request for authority to use up to 1 percent of $311 billion in discretionary stimulus funds, or $3.1 billion, saying Democrats were using the economic recovery money as a "slush fund."

"It's not necessarily the policy issue that we're concerned about," said Jennifer Hing, minority spokeswoman for the House Appropriations Committee. "It's the concern that this could potentially open the door for stimulus monies to be used for other Democratic priorities that turn up, instead of having extra money lying around being used to pay down the deficit."

White House officials said they expect that the request for $2 billion marked "Unanticipated Needs for Influenza" will be adequate for flu preparations, when combined with another $1.5 billion to $2.05 billion that Congress is already set to approve. HHS officials have already committed to spending $1.4 billion and said last month that plans were moving forward to develop as many as two doses of H1N1 flu vaccine for each American, or about 600 million doses, although a formal decision has not been made.

But the president asked for the additional BioShield, stimulus and HHS discretionary funds as a matter of prudence in case the virus mutates into a much more lethal form and a swift and massive response is needed in coming months, Obama aides said.

"Except in extraordinary circumstances, BioShield funds will not be accessed," said Kenneth S. Baer, spokesman for the Office of Management and Budget.

The BioShield fund has $3 billion left of $5.6 billion it was given to spend over 10 years to research and develop medicines to care for Americans after a WMD terrorist attack, an OMB official said.

WaPo Editorial: President Obama's first foray into the details of health-care reform

A Few Symptoms. WaPo Editorial
President Obama's first foray into the details of health-care reform
WaPo, Monday, June 8, 2009

THROUGHOUT the first months of his administration, President Obama was resolutely fuzzy about the details of health-care reform. Last week, he modified that strategy, which was designed to avoid a repetition of the dictated-from-on-high approach of the Clinton health-care debacle. In a letter to Sens. Edward M. Kennedy (D-Mass.) and Max Baucus (D-Mont.), who are leading the legislative process in the Senate, Mr. Obama laid down more specific markers than he had previously about his preferences.

One of the most important was the president's reaffirmation that health-care reform must be fully paid for. "Health care reform must not add to our deficits over the next 10 years -- it must be at least deficit neutral and put America on a path to reducing its deficit over time," Mr. Obama wrote.

Mr. Obama was less clear, however, on how the bill should be paid. The administration's budget identified $635 billion in spending cuts and tax increases over the next decade -- about half the amount needed. But half of that half -- a proposal to generate $326 billion by limiting the value of deductions of those in the top tax bracket -- landed with a thud on Capitol Hill; lawmakers ought to reconsider their opposition to it.

Mr. Obama, for his part, ought to reconsider his aversion to changing the unfair and counterproductive arrangement by which employer-provided health insurance is not treated as income for tax purposes. Following a White House meeting, Mr. Baucus reported that the president was open to limiting the value of this tax-free benefit, and we hope that is what the president meant when he referred in the letter to "appropriate proposals to generate additional revenues." As to the rest of the funding, Mr. Obama spoke vaguely about another $200 to $300 billion in Medicare and Medicaid savings. Details of these savings are supposed to be unveiled this week; we look forward to seeing them but wonder why, if sensible and achievable, they were not included in the administration's original plan. Perhaps of even greater long-run significance, Mr. Obama proposed a kind of supersizing of a group called the Medicare Payment Advisory Commission (MedPAC). This advisory group annually recommends smart changes that would improve Medicare and save money -- and annually sees most of its recommendations ignored by lawmakers who have no appetite for the political heat those changes would generate. Mr. Obama would have MedPAC operate on the model of the military base-closing commission, with its proposals subject to a fast-tracked, up-or-down vote. This would professionalize a process now driven more by politics and lobbying than by sensible health policy, helping control costs of private plans as well as Medicare.

More disappointing was Mr. Obama's restated commitment to a public health insurance option as part of the array of available plans. A public plan is not necessary to maintain a competitive market in health insurance, but including a public plan is almost certain to doom what Mr. Obama says are his hopes for a bipartisan agreement. Given the high stakes involved in an overhaul of this magnitude, it would be unfortunate indeed if health reform were to be a one-party endeavor.

Wanted: A Smarter Immigration Policy

Wanted: A Smarter Immigration Policy. By EDWARD ALDEN
WSJ, Jun 08, 2009

Log onto the Web site of the U.S. Consulate in Chennai and you will see a snapshot of what visa processing is doing to the competitiveness of American companies and research institutions. Click on the link to "Case Status Report," and there is a list of hundreds of visa applications from Indians who await processing. The oldest dates back to 2005, and dozens of others have been pending for a year or more while Washington plods through security background checks.

In recent months I have been in contact with many individuals caught in this Kafkaesque bureaucracy. Most are scientists and engineers who have earned advanced degrees from U.S. universities and are (or were) working for American companies in Silicon Valley, Wall Street and other centers of the U.S. economy.

One had been a researcher at Intel on the latest generation of chip designs; he'd won a national prize for his Ph.D. dissertation for outstanding research in electronic and photonic materials. Another had lived in the U.S. for more than a decade and was doing post-doctoral research at Emory University on vaccine immunology. Still another was a quantitative analyst for a U.S. hedge fund.

Yet when they returned to India -- to attend a brother's wedding or visit a dying parent or simply take a vacation -- they were informed that they could not come back until the U.S. government had done a security screening. Many arrived in India with only a suitcase. By the time I heard of their stories they had been forced to abandon apartments, cars and families in the U.S. while they waited to hear from the State Department.

Of all the initiatives undertaken in the name of homeland security after 9/11, the visa screening requirements for foreign scientists and engineers have probably done the most lasting damage to America's economy -- particularly in the cutting-edge technology fields that are vital to our economic leadership and national security.

The U.S. scientific enterprise depends enormously on talented foreigners. Foreign students and researchers, especially from India and China, comprise more than half of the scientific researchers in the U.S. They earn 40% of the Ph.D.s in science and engineering, and 65% of the computer science doctorates. If we drive them away, the companies that depend on such expertise will leave with them, taking thousands of other jobs that would have been filled by Americans.

Last week, in an encouraging sign that Washington has started to recognize the damage, the Obama administration pledged to throw enough resources at the problem to reduce the months-long screening to no more than two weeks in most cases. With the improvements that have been made in terrorist watch lists and other security screening tools, a decision on whether a visa applicant -- especially one already living and working here -- poses a threat should not take months.

Equally encouraging, the administration's top officials appear to have recognized the importance of the problem. Secretary of State Hillary Clinton used her commencement speech at New York University last month to pledge that she would "streamline the visa process, particularly for science and technology students, so that even more qualified students will come here." Homeland Security Secretary Janet Napolitano has promised a renewed effort to secure the country's borders "without cutting off legitimate trade and tourism."

A lot of ground has been lost in the past eight years, however. While foreign student applications were up sharply in 2007 and 2008 and have finally surpassed their pre-9/11 levels, the U.S. largely missed out on the biggest boom ever in students studying abroad, especially at the graduate level. Other countries have competed aggressively for those students while the U.S. made it so difficult to come here that many opted not to. Foreign student enrollment is about 25% below what it would have been had pre-9/11 trends continued.

While the pledge to speed up security reviews is encouraging, the administration needs to take a more comprehensive look at the impact of post-9/11 visa and travel restrictions. Do we really need, for instance, to do in-person interviews of everyone who seeks a visa, even if they have already been interviewed for visas in the past, and we already have their fingerprints on U.S. government databases? That only wastes scarce consular resources on low-risk travelers. Is it necessary to pull all male travelers from Muslim countries into the long humiliation of secondary screening at the airport, even those who are frequent visitors well-known to U.S. officials? It is time to reassert some common sense.

When the Department of Homeland Security was created in 2003, it set out to build a "smart border," one that would keep out terrorists, criminals and others who would harm the U.S. without driving away the tourists, students, businessmen and skilled employees the country needs. It was the right goal, but too often the government forgot the "smart" part and simply layered on more onerous security measures. The U.S. economy has suffered unnecessary damage. The administration's move last week on visas needs to be the first of many steps to get back on a smarter path.

Mr. Alden, a senior fellow at the Council on Foreign Relations, is the author of "The Closing of the American Border: Terrorism, Immigration and Security Since 9/11" (HarperCollins, 2008).

WSJ Editorial Page on Federal President's Health-Care Reform Program

Obama's Health Cost Illusion.WSJ Editorial
WSJ, Jun 08, 2009

The main White House argument for health-care reform goes something like this: If we spend now on a hugely expensive new insurance program for the middle class, we can save later by reducing overall U.S. health spending. This "tastes great, less filling" theory could stand some scrutiny, not least because it is being used to rush through the greatest social spending program in American history.

What if this particular theory turns out to be a political illusion? What if the speculative cost savings never report for duty, while the federal balance sheet is still swamped with new social obligations that will be impossible to repeal? The only possible outcome will be the nationalization of U.S. health markets, which will mean that almost all care will be rationed by politics.

* * *

Since Medicare was created in 1965, U.S. health spending has risen about 2.7% faster than the economy and on current trend would hit 20% of GDP within a decade. Every public or private attempt to arrest this climb has failed: wage and price controls in the 1970s, the insurance industry's "voluntary effort" in the '80s, managed care in the '90s.

Now the White House -- especially budget chief Peter Orszag -- claims there is new cause for hope. The magic key is the dramatic variations in per patient health spending among U.S. regions. Often there is no relationship between spending and the quality of care, according to a vast body of academic research, most of it coming out of Dartmouth College. If the highest spending areas could be sanded down to the lowest spending areas, about 30% in "waste," or $700 billion each year, would be saved. More than enough to pay for ObamaCare. Or so the theory goes.

But -- how? Mr. Orszag's ideas include more health information technology; emphasizing prevention and healthy living; rejiggering reimbursement policies so doctors and hospitals are paid more for quality care; and funding federal research that compares the effectiveness of medical treatments. These are the lovable bromides of all politicians, and some of them may or may not improve health overall. But there's scant evidence that any of them will ever save real money. There's a reason the Congressional Budget Office can't score them.

Think about comparative effectiveness. Why is low-cost, high-quality Minnesota, say, already making more rational decisions than high-cost, lower-quality Texas? It's ridiculous to suggest that doctors in Rochester have access to clinical information that isn't available in Houston. If it's because the former are simply better physicians, well, medicine isn't Lake Wobegon, where everyone is the Mayo Clinic.

The reality is that after three decades of economic research, the reasons that spending varies are still highly uncertain. As in politics, everything is local in health care. Most of the variation is due to the use of services and mix of care that patients receive, while some relates to labor costs and local prices. The abiding mystery is why practice patterns oscillate so widely, even among hospitals in the same city.

Not surprisingly, variation is greatest when doctors don't agree on the best treatments -- as with back injuries, for example. Another part is technology. New therapies are developed at an astonishing pace. Consider the stent, which props open arteries after a heart attack and was barely used in 1994. By 1998 stents were used in a majority of coronary surgeries. Constant innovation means that there must be trial and error, and thus regional spending variation.

* * *

Such technological change is the most important driver of health spending. Modern medicine can do so much more than it could in the past, but this costs a lot even as it has bought a lot in extending and improving lives. In a 2001 study, David Cutler (an Obama adviser) and Mark McClellan (a Bush adviser) found that the benefits of lower infant mortality and better treatment of heart attacks "have been sufficiently great that they alone are about equal to the entire cost increase for medical care over time."

No less an authority than Mr. Orszag admits that stomping out regional variation means constraining this experimentation. "Future increases in spending could be moderated if costly new medical services were adopted more selectively in the future than they have been in the past and if the diffusion of existing costly services was slowed," Mr. Orszag told Congress last year, when he was CBO director. He was careful to note that "savings are possible without a substantial loss of clinical value," but how does he know? Even if health planners in Washington could arbitrarily reduce spending in high-cost areas, low-value treatments may not be what go over the side.

Another complication is that the Dartmouth research shows spending variation in Medicare, for which uniform, common data are available. But similar data don't exist for the entire health system. Richard Cooper, a professor of medicine at the University of Pennsylvania's Wharton School, has studied regional variation in aggregate health spending, rather than Medicare-only. He found that the areas with the highest quality spend the most on medicine, whatever the mix of private and government funding. Areas with disproportionately high Medicare spending, generally in the South, correlate with the lowest quality -- but at the same time, with very low private spending.

Mr. Cooper's assault on the Dartmouth Atlas is controversial but compelling. He argues that the less-is-more theory is based on the flawed premise that when a region's outcomes did not improve as spending increased, the difference is simply classified as "waste" -- even if it isn't. That's the 30% figure Mr. Orszag likes to cite.

In any case, Medicare reflects the entire practice of medicine only as a funhouse mirror. It simply fixes the prices for thousands of services and procedures, usually well below those of private payers. There is no way of knowing if these administered prices are the "right" level, and, either way, marginal costs adapt to what is paid, creating perverse incentives of their own. Congress also regularly uses Medicare to skew the distribution of medical resources, such as extra payments to teaching hospitals or rural areas.

Above all, Medicare is an ocean of money surrounded by people who want some. It is not only an entitlement to beneficiaries, but a de facto revenue entitlement to hospitals, physicians, nursing homes, durable medical equipment suppliers and the rest. Even a tweak to the Medicare fee schedule is the small-scale equivalent of closing a military base or trimming farm subsidies. The system will never be as rational as Mr. Orszag desires unless it is severed from politics.

* * *

A far better alternative is to increase individual responsibility for medical decisions. In 1965, the average American paid more than half of his health care out of pocket. Spending has since increased sevenfold, but the amount that consumers pay directly hasn't even doubled. When people aren't exposed to the true cost of their care -- though it is paid in foregone wages and higher taxes for public programs -- they consume more care. The research of MIT economist Amy Finkelstein suggests that roughly half of the real increase in U.S. health spending between 1950 and 1990 is due to Medicare and the spread of third-party, first-dollar insurance.

Increasing cost-sharing would discipline the health spending curve and give it a more rational bent. As societies grow richer, it makes sense that people will invest more in their own well-being. Health is a superior good, while the utility of wealth is fairly low if you're dead. The U.S. health cost "crisis" is that we spend so much without incentives to weigh the costs against the benefits.

Yet the entire Obama agenda is about increasing political, rather than individual, control of the health markets. Ted Kennedy's draft health-care bill offers insurance subsidies up to 500% of the poverty line -- for a family of four, that's $110,250. In that kind of world, all costs will climb even higher as people use far more "free" care and federal spending will reach epic levels. Bureaucrats watching the bottom line will try to ration care while simultaneously locked in a death match with interest groups guarding their turf. Congress will join the fray and make things worse, as it always does. Caught in the political crossfire will be patients, as they always are.

* * *

None of the complexities surrounding regional health spending variation would matter as much if the Obama Administration were merely trying to defossilize Medicare and save the federal fisc. But instead it is exploiting the looming bankruptcy of our current entitlements as a pretext to pass the largest entitlement expansion since 1965. And it is selling this agenda with a phony cost-control "plan" that doesn't even exist.

The now-famous Obama-Orszag mantra -- "entitlement reform is health-care reform" -- really means that when they're done, all health care will be an entitlement.

Tobacco, the Tort Bar and Wyeth v. Levine

Tobacco and the Tort Bar. By Mark H Berlind
WSJ, Jun 08, 2009

Congress is on the verge of passing sweeping legislation that would empower the Food and Drug Administration (FDA) to regulate tobacco products. Antitobacco activists are cheering, while some tobacco companies are raising the specter of First Amendment violations. Lost in the debate is the fact that this bill will continue to allow consumers to sue manufacturers that fully comply with the FDA's content and labeling rules.

The FDA tobacco legislation was first introduced in 1996 as part of a comprehensive national tobacco settlement negotiated by public-health groups, attorneys general and tobacco companies. What emerged seemed an equitable balance: Manufacturers would submit to stringent regulatory controls, and there would be significant curbs on smokers' ability to sue them. With the FDA in control of the products and their marketing, the idea was that there ought not to be much basis -- absent outright fraud -- to bring lawsuits against companies that legally supply market demand.

Congress couldn't stomach the thought of providing any liability relief to the industry, so it killed the settlement bill. Cigarettes have remained unregulated by the FDA ever since.

In the meantime, federal and state governments have continued to earn more from cigarette excise taxes than the manufacturers do in profits. As governments have relegated the companies to junior-partner status in the enterprise of feeding Americans' tobacco addiction, it has also saddled them with mounting legal liability and vilification from elected officials.

Today's legislation would impose strict limits on tobacco advertising and labeling, mandate stronger warning labels, and require advance FDA approval of any reduced-risk claims. It would also empower the FDA to change cigarettes' content to make them less addictive and lethal.

However, in a little-noticed provision, the bill also expressly provides that "no provision of this chapter . . . shall be construed to modify or otherwise affect . . . the liability of any person under the product liability law of any State." In other words, the regulatory regime that the legislation would establish can't protect companies from tort liability -- even if they rigorously follow every FDA rule.

This is a bizarre pairing of almost total government involvement in an industry without any government responsibility for, or even modest protection from, the damage claims sure to be generated by that industry for following the law.

The FDA legislation builds on the precedent recently established by the Supreme Court in Wyeth v. Levine. In Wyeth, the Court ruled 6-3 that even if the FDA has approved a drug, the drug maker can still be sued by patients in state court. The majority argued that a litigant is still entitled to claim that the company should have used a stronger warning label than the FDA had required.

But as Justice Samuel Alito observed in his dissenting opinion, "the real issue is whether a state tort jury can countermand the FDA's considered judgment."

The president has proclaimed a "new era of responsibility" for America. But these recent FDA developments -- in which government determines the rules, the business community takes the blame, and trial lawyers take their cut -- seems anything but.

Like elevating the rights of unions over those of secured lenders, the FDA tobacco legislation disturbingly suggests that only those disfavored by the administration will actually be held responsible for anything at all. And it's no secret that the trial bar -- among Mr. Obama's most generous campaign supporters -- has already earned billions from tobacco litigation.

If we truly believe in "responsibility" for businesses, government officials, trial lawyers and ordinary citizens, then regulatory compliance should provide a strong defense against tort claims.

Mr. Berlind is a partner at A.T. Kearney, a global management consulting firm.

WSJ Editorial Page: Intelligence Mudd Bath

Intelligence Mudd Bath. WSJ Editorial
WSJ, Jun 08, 2009

President Obama and CIA Director Leon Panetta have been at pains to say they don't want to punish intelligence officials and agents who had a role in "enhanced interrogation" after 9/11. But tell that to Philip Mudd, who withdrew his nomination late Friday to be the intelligence chief at the Homeland Security Department under pressure from Democrats in Congress.

Mr. Mudd is a well-regarded career intelligence officer who has worked in senior positions at the FBI and CIA, including deputy director of the National Counterterrorism Center. Mr. Obama nominated him on May 4 amid fulsome praise from Homeland Security Secretary Janet Napolitano. But in a statement issued by the White House on the eve of a late spring weekend, Mr. Mudd said he was withdrawing so as not to become "a distraction to the president and his vital agenda."

The truth is that he risked being a distraction to Speaker Nancy Pelosi and Senate Democrats, who suddenly don't want to talk about what they knew about the interrogation techniques they once endorsed and long funded but now denounce. So Ms. Pelosi doesn't have to answer any questions about her changing claims about her CIA briefings, but a foot soldier like Mr. Mudd who did what his country asked him to do to keep the country safe is blackballed.

The White House said Mr. Obama accepted Mr. Mudd's withdrawal "with sadness and regret," but it's clear the President wasn't willing to fight for him. The message that will be heard loud and clear across the intelligence services is that you better not take any risks to keep America safe, because if you get into political trouble Mr. Obama will throw you over the side, albeit with "regret."