Putinism's Piranha Stage. By BRET STEPHENS
Russia's prime minister turns on his loyal friends.
WSJ, Jun 09, 2009
Time was when Oleg Deripaska was Vladimir Putin's best pet. The Russian metals magnate, a skiing buddy of Mr. Putin, was supposed to be the money behind Russia's 2014 Olympic dream. He was big on "patriotic" activities like supporting the Bolshoi. And he had taken the lesson of the ghosts of oligarchs past, which was never to question Mr. Putin's methods, much less his grip on power.
So what was Mr. Deripaska doing last week in the crummy little town of Pikalyovo, 130 miles from St. Petersburg, being led around one of his cement factories by a fire-breathing Mr. Putin, who likened the tycoon to a "cockroach" on Russian national TV?
"You have made thousands of people hostage to your ambitions, your lack of professionalism -- or maybe simply your trivial greed," Mr. Putin berated Mr. Deripaska, before forcing him to pay all outstanding wages and sign a contract for the factory. "Where is the social responsibility of business?" Following which the Russian prime minister was greeted by cheers from the grateful workers.
Welcome to the third stage of Putinism. In Stage One, Mr. Putin played the role of the determined technocratic modernizer who wanted to do nothing more than impose the rule of law on a young democracy spinning into anarchy. This stage ended in October 2003, with the arrest and subsequent conviction and imprisonment of oligarch Mikhail Khodorkovsky on dubious charges of tax evasion and fraud.
In Stage Two, Mr. Putin dispensed with the technocratic mien and, Bonaparte-like, effectively crowned himself czar, surrounded by a new breed of loyal oligarchs and ex-KGB cronies. They generously help themselves to other people's investments, foreign energy companies especially. This stage lasted as long as the rise in energy prices, culminating with last year's invasion of Georgia.
Now we're at Stage Three, in which Mr. Putin morphs into Hugo Chávez, as high-handed as before but with a populist twist. This is the stage in which guys like Mr. Deripaska allow themselves to be publicly humiliated by Mr. Putin, thinking they're taking one for the team when, in fact, they're taking it in the neck.
Here you must be thinking: It couldn't have happened to a nicer guy. Mr. Deripaska rose out of the so-called Aluminum Wars of the 1990s, in which battles for corporate control were waged at a price of dozens of lives. He was once denied a U.S. entry visa "amid concerns about the accuracy of statements he made" to the FBI, according to a 2007 story in this newspaper. (Bob Dole's law firm later resolved the problem for him.) Last year, Mr. Deripaska dismissed issues of press freedoms and democracy as so much humbug, while insisting that "it is a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want."
Whoops. Since offering that sage comment, the Russian economy has tanked, unemployment has jumped, the flow of credit has seized up, and Mr. Deripaska has lost about 90% of his previously estimated worth. Small factory towns like Pikalyovo have become the locus of potential civil unrest. In December, riot police had to be flown from Moscow to Vladivostok to deal with protests there. Last week's protest caused a traffic jam stretching a couple hundred miles.
Barring an improbable surge in commodity prices, it's only going to get worse. And while Mr. Putin can play the hero in Pikalyovo, he won't be able to do it for hundreds of other similarly situated towns, even if he winds up hounding Mr. Deripaska and friends into bankruptcy.
So what comes next? Conceivably, Mr. Putin could allow Mr. Deripaska and other oligarchs to rationalize their businesses through a combination of sales and closures. That's about as likely as the Obama administration choosing not to run GM.
More likely, Mr. Putin will try to harness anti-oligarch sentiments by expropriating their assets, keeping the factories running, and getting the state to purchase their output with increasingly worthless rubles. Inflation in Russia is already at 14%; he might gamble that Russians will put up with a spell of hyperinflation until the global economy recovers or a Middle East crisis sends oil prices soaring. (Look for Russia to play an especially unhelpful role vis-à-vis Iran.)
That's the system by which the Soviet Union carried on decade after dreary decade, the only difference being that the old Soviet leadership was sustained by sealed borders, a huge army, foreign adventurism, ideological confidence, and a massive apparatus of fear. Russia probably won't go that way, but don't discount the possibility.
In college I knew a guy who stocked his fish tank with goldfish and piranhas. First the piranhas ate the goldfish. It was horrible to watch. Then he stopped feeding the piranhas, so they ate each other. This was more interesting since there was no fish to feel sorry for. Finally one piranha was left. I don't remember my classmate restocking the tank. The champion piranha starved. This is the theory and logic of third-stage Putinism.
Tuesday, June 9, 2009
The Media Fall for Phony 'Jobs' Claims
The Media Fall for Phony 'Jobs' Claims. By WILLIAM MCGURN
The Obama Numbers Are Pure Fiction.
WSJ, Jun 09, 2009
Tony Fratto is envious.
Mr. Fratto was a colleague of mine in the Bush administration, and as a senior member of the White House communications shop, he knows just how difficult it can be to deal with a press corps skeptical about presidential economic claims. It now appears, however, that Mr. Fratto's problem was that he simply lacked the magic words -- jobs "saved or created."
"Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."
Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."
Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.
And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision. Harvard economist and former Bush economic adviser Greg Mankiw calls it a "non-measurable metric." And on his blog, he acknowledges the political attraction.
"The expression 'create or save,' which has been used regularly by the President and his economic team, is an act of political genius," writes Mr. Mankiw. "You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus."
Mr. Obama's comments yesterday are a perfect illustration of just such a claim. In the months since Congress approved the stimulus, our economy has lost nearly 1.6 million jobs and unemployment has hit 9.4%. Invoke the magic words, however, and -- presto! -- you have the president claiming he has "saved or created" 150,000 jobs. It all makes for a much nicer spin, and helps you forget this is the same team that only a few months ago promised us that passing the stimulus would prevent unemployment from rising over 8%.
It's not only former Bush staffers such as Messrs. Fratto and Mankiw who have noted the political convenience here. During a March hearing of the Senate Finance Committee, Chairman Max Baucus challenged Treasury Secretary Timothy Geithner on the formula.
"You created a situation where you cannot be wrong," said the Montana Democrat. "If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."
Now, something's wrong when the president invokes a formula that makes it impossible for him to be wrong and it goes largely unchallenged. It's true that almost any government spending will create some jobs and save others. But as Milton Friedman once pointed out, that doesn't tell you much: The government, after all, can create jobs by hiring people to dig holes and fill them in.
If the "saved or created" formula looks brilliant, it's only because Mr. Obama and his team are not being called on their claims. And don't expect much to change. So long as the news continues to repeat the administration's line that the stimulus has already "saved or created" 150,000 jobs over a time period when the U.S. economy suffered an overall job loss 10 times that number, the White House would be insane to give up a formula that allows them to spin job losses into jobs saved.
"You would think that any self-respecting White House press corps would show some of the same skepticism toward President Obama's jobs claims that they did toward President Bush's tax cuts," says Mr. Fratto. "But I'm still waiting."
The Obama Numbers Are Pure Fiction.
WSJ, Jun 09, 2009
Tony Fratto is envious.
Mr. Fratto was a colleague of mine in the Bush administration, and as a senior member of the White House communications shop, he knows just how difficult it can be to deal with a press corps skeptical about presidential economic claims. It now appears, however, that Mr. Fratto's problem was that he simply lacked the magic words -- jobs "saved or created."
"Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."
Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."
Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.
And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision. Harvard economist and former Bush economic adviser Greg Mankiw calls it a "non-measurable metric." And on his blog, he acknowledges the political attraction.
"The expression 'create or save,' which has been used regularly by the President and his economic team, is an act of political genius," writes Mr. Mankiw. "You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus."
Mr. Obama's comments yesterday are a perfect illustration of just such a claim. In the months since Congress approved the stimulus, our economy has lost nearly 1.6 million jobs and unemployment has hit 9.4%. Invoke the magic words, however, and -- presto! -- you have the president claiming he has "saved or created" 150,000 jobs. It all makes for a much nicer spin, and helps you forget this is the same team that only a few months ago promised us that passing the stimulus would prevent unemployment from rising over 8%.
It's not only former Bush staffers such as Messrs. Fratto and Mankiw who have noted the political convenience here. During a March hearing of the Senate Finance Committee, Chairman Max Baucus challenged Treasury Secretary Timothy Geithner on the formula.
"You created a situation where you cannot be wrong," said the Montana Democrat. "If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."
Now, something's wrong when the president invokes a formula that makes it impossible for him to be wrong and it goes largely unchallenged. It's true that almost any government spending will create some jobs and save others. But as Milton Friedman once pointed out, that doesn't tell you much: The government, after all, can create jobs by hiring people to dig holes and fill them in.
If the "saved or created" formula looks brilliant, it's only because Mr. Obama and his team are not being called on their claims. And don't expect much to change. So long as the news continues to repeat the administration's line that the stimulus has already "saved or created" 150,000 jobs over a time period when the U.S. economy suffered an overall job loss 10 times that number, the White House would be insane to give up a formula that allows them to spin job losses into jobs saved.
"You would think that any self-respecting White House press corps would show some of the same skepticism toward President Obama's jobs claims that they did toward President Bush's tax cuts," says Mr. Fratto. "But I'm still waiting."
Canada's ObamaCare Precedent
Canada's ObamaCare Precedent. By DAVID GRATZER
Governments always ration care by making you wait. That can be deadly.
WSJ, Jun 09, 2009
Congressional Democrats will soon put forward their legislative proposals for reforming health care. Should they succeed, tens of millions of Americans will potentially be joining a new public insurance program and the federal government will increasingly be involved in treatment decisions.
Not long ago, I would have applauded this type of government expansion. Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.
My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.
The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.
Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist.
Indeed, Canada's provincial governments themselves rely on American medicine. Between 2006 and 2008, Ontario sent more than 160 patients to New York and Michigan for emergency neurosurgery -- described by the Globe and Mail newspaper as "broken necks, burst aneurysms and other types of bleeding in or around the brain."
Only half of ER patients are treated in a timely manner by national and international standards, according to a government study. The physician shortage is so severe that some towns hold lotteries, with the winners gaining access to the local doc.
Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts.
Ironically, as the U.S. is on the verge of rushing toward government health care, Canada is reforming its system in the opposite direction. In 2005, Canada's supreme court struck down key laws in Quebec that established a government monopoly of health services. Claude Castonguay, who headed the Quebec government commission that recommended the creation of its public health-care system in the 1960s, also has second thoughts. Last year, after completing another review, he declared the system in "crisis" and suggested a massive expansion of private services -- even advocating that public hospitals rent facilities to physicians in off-hours.
And the medical establishment? Dr. Brian Day, an orthopedic surgeon, grew increasingly frustrated by government cutbacks that reduced his access to an operating room and increased the number of patients on his hospital waiting list. He built a private hospital in Vancouver in the 1990s. Last year, he completed a term as the president of the Canadian Medical Association and was succeeded by a Quebec radiologist who owns several private clinics.
In Canada, private-sector health care is growing. Dr. Day estimates that 50,000 people are seen at private clinics every year in British Columbia. According to the New York Times, a private clinic opens at a rate of about one a week across the country. Public-private partnerships, once a taboo topic, are embraced by provincial governments.
In the United Kingdom, where socialized medicine was established after World War II through the National Health Service, the present Labour government has introduced a choice in surgeries by allowing patients to choose among facilities, often including private ones. Even in Sweden, the government has turned over services to the private sector.
Americans need to ask a basic question: Why are they rushing into a system of government-dominated health care when the very countries that have experienced it for so long are backing away?
Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.
Governments always ration care by making you wait. That can be deadly.
WSJ, Jun 09, 2009
Congressional Democrats will soon put forward their legislative proposals for reforming health care. Should they succeed, tens of millions of Americans will potentially be joining a new public insurance program and the federal government will increasingly be involved in treatment decisions.
Not long ago, I would have applauded this type of government expansion. Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.
My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.
The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.
Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist.
Indeed, Canada's provincial governments themselves rely on American medicine. Between 2006 and 2008, Ontario sent more than 160 patients to New York and Michigan for emergency neurosurgery -- described by the Globe and Mail newspaper as "broken necks, burst aneurysms and other types of bleeding in or around the brain."
Only half of ER patients are treated in a timely manner by national and international standards, according to a government study. The physician shortage is so severe that some towns hold lotteries, with the winners gaining access to the local doc.
Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts.
Ironically, as the U.S. is on the verge of rushing toward government health care, Canada is reforming its system in the opposite direction. In 2005, Canada's supreme court struck down key laws in Quebec that established a government monopoly of health services. Claude Castonguay, who headed the Quebec government commission that recommended the creation of its public health-care system in the 1960s, also has second thoughts. Last year, after completing another review, he declared the system in "crisis" and suggested a massive expansion of private services -- even advocating that public hospitals rent facilities to physicians in off-hours.
And the medical establishment? Dr. Brian Day, an orthopedic surgeon, grew increasingly frustrated by government cutbacks that reduced his access to an operating room and increased the number of patients on his hospital waiting list. He built a private hospital in Vancouver in the 1990s. Last year, he completed a term as the president of the Canadian Medical Association and was succeeded by a Quebec radiologist who owns several private clinics.
In Canada, private-sector health care is growing. Dr. Day estimates that 50,000 people are seen at private clinics every year in British Columbia. According to the New York Times, a private clinic opens at a rate of about one a week across the country. Public-private partnerships, once a taboo topic, are embraced by provincial governments.
In the United Kingdom, where socialized medicine was established after World War II through the National Health Service, the present Labour government has introduced a choice in surgeries by allowing patients to choose among facilities, often including private ones. Even in Sweden, the government has turned over services to the private sector.
Americans need to ask a basic question: Why are they rushing into a system of government-dominated health care when the very countries that have experienced it for so long are backing away?
Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.
Judges and 'Bias'
Judges and 'Bias'. WSJ Editorial
WSJ, Jun 09, 2009
The march away from a credible, accountable judiciary took another leap yesterday, as a 5-4 Supreme Court majority gave federal judges unprecedented oversight of state court recusal standards. This is more damaging than it sounds.
West Virginia's Massey coal company CEO Don Blankenship spent some $3 million in 2004 on the judicial election of Brent Benjamin to the state Supreme Court of Appeals, including donations to outside groups. When a case involving Massey later came before Judge Benjamin's court and he ruled in favor of Massey, the loser sued and claimed a denial of due process because the judge didn't recuse himself. According to the Supreme Court's majority in Caperton v. Massey, a judge who receives support that has a "significant and disproportionate influence" on his election can't then be trusted to be neutral on the bench.
Heretofore, judges needed to recuse themselves on due process grounds only if they had a direct financial interest in a case, and in criminal contempt cases in which the judge provoked the original courtroom outburst. Under Justice Anthony Kennedy's Caperton standard, judges must now recuse if there is a "probability of bias." But this would seem to be open to, well, judicial interpretation. If $3 million in donations meets the probable bias test, what about $1 million, or $10,000? For that matter, should we assume judges feel a "debt of hostility" toward those who contribute to opponents?
In his dissent, Chief Justice John Roberts lists 40 questions that represent only "a few uncertainties that quickly come to mind." The majority opinion "requires state and federal judges simultaneously to act as political scientists (why did candidate X win the election?), economists (was the financial support disproportionate?) and psychologists (is there likely to be a debt of gratitude?)"
Justice Kennedy tries to limit any judicial chaos by insisting that not every campaign contribution would demand recusal, and that this is an "exceptional case." But the support for this position by such opponents of judicial elections as the Brennan Center for Justice and the George Soros-funded Justice at Stake gives away the game.
These groups hope to brand all judicial elections with the taint of inevitable bias, and five Justices have now gone a long way to validating that claim. One result will be that far more decisions by elected judges will be challenged for bias, further tying up the courts and giving average citizens the impression that all judges can be bought. The ultimate goal of these groups is to have all judges selected by a club of lawyers and insiders that makes judges less accountable to average citizens.
Recusal standards are better handled at the state level, where individual judges are presumed to be impartial in their courtrooms. States have made their own rules for selecting judges, either through elections, or judicial selection commissions, or some variation of executive appointment and legislative confirmation. Allowing federal courts to second-guess state judges opens the door to unprecedented federal meddling.
Justice Kennedy may have indulged this intervention because his jurisprudence has always tended toward a presumption of judges as a superior, anointed class. He probably finds elections an untidy business. Yet the flood of challenges to judicial impartiality that he is unleashing will taint the entire judiciary by making most decisions appear personal. The cost of Mr. Kennedy's regrettable opinion will be a parade of Caperton motions, and a long shadow of doubt on courts across the country.
WSJ, Jun 09, 2009
The march away from a credible, accountable judiciary took another leap yesterday, as a 5-4 Supreme Court majority gave federal judges unprecedented oversight of state court recusal standards. This is more damaging than it sounds.
West Virginia's Massey coal company CEO Don Blankenship spent some $3 million in 2004 on the judicial election of Brent Benjamin to the state Supreme Court of Appeals, including donations to outside groups. When a case involving Massey later came before Judge Benjamin's court and he ruled in favor of Massey, the loser sued and claimed a denial of due process because the judge didn't recuse himself. According to the Supreme Court's majority in Caperton v. Massey, a judge who receives support that has a "significant and disproportionate influence" on his election can't then be trusted to be neutral on the bench.
Heretofore, judges needed to recuse themselves on due process grounds only if they had a direct financial interest in a case, and in criminal contempt cases in which the judge provoked the original courtroom outburst. Under Justice Anthony Kennedy's Caperton standard, judges must now recuse if there is a "probability of bias." But this would seem to be open to, well, judicial interpretation. If $3 million in donations meets the probable bias test, what about $1 million, or $10,000? For that matter, should we assume judges feel a "debt of hostility" toward those who contribute to opponents?
In his dissent, Chief Justice John Roberts lists 40 questions that represent only "a few uncertainties that quickly come to mind." The majority opinion "requires state and federal judges simultaneously to act as political scientists (why did candidate X win the election?), economists (was the financial support disproportionate?) and psychologists (is there likely to be a debt of gratitude?)"
Justice Kennedy tries to limit any judicial chaos by insisting that not every campaign contribution would demand recusal, and that this is an "exceptional case." But the support for this position by such opponents of judicial elections as the Brennan Center for Justice and the George Soros-funded Justice at Stake gives away the game.
These groups hope to brand all judicial elections with the taint of inevitable bias, and five Justices have now gone a long way to validating that claim. One result will be that far more decisions by elected judges will be challenged for bias, further tying up the courts and giving average citizens the impression that all judges can be bought. The ultimate goal of these groups is to have all judges selected by a club of lawyers and insiders that makes judges less accountable to average citizens.
Recusal standards are better handled at the state level, where individual judges are presumed to be impartial in their courtrooms. States have made their own rules for selecting judges, either through elections, or judicial selection commissions, or some variation of executive appointment and legislative confirmation. Allowing federal courts to second-guess state judges opens the door to unprecedented federal meddling.
Justice Kennedy may have indulged this intervention because his jurisprudence has always tended toward a presumption of judges as a superior, anointed class. He probably finds elections an untidy business. Yet the flood of challenges to judicial impartiality that he is unleashing will taint the entire judiciary by making most decisions appear personal. The cost of Mr. Kennedy's regrettable opinion will be a parade of Caperton motions, and a long shadow of doubt on courts across the country.
Holder Winks at Voter Intimidation
Holder Winks at Voter Intimidation. By HANS A. VON SPAKOVSKY
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
Leonard: Why many MEPs don't believe in the European Union
Europe's Self-Hating Parliamentarians. By Mark Leonard
Why many MEPs don't believe in the European Union.
WSJ, Jun 09, 2009
The European Parliament is in the throes of an early midlife crisis. Although newspaper headlines are focused on the strong performance of center-right parties, the 2009 vote is more likely to be remembered for the election of so many self-hating parliamentarians.
A substantial minority of members (MEPs) see their role as reducing rather than expanding the European Union's power. This is a remarkable change for a body that fought tooth-and-nail to extend its authority every time a new EU treaty was negotiated.
The paradox of the European Parliament is that as its power has grown, the public's interest in its activities has declined. Each election has brought lower voter turnout than the one before. Even more brutal than this year's turnout: Many of parliament's new members don't believe that the body in which they sit should be allowed to exist.
Take the colorful Geert Wilders, whose anti-Islamic-immigrant party shot up to second place in the Netherlands with 17% of the vote after the Christian Democrats, who won 19.9%. He ran on a manifesto that included a pledge to abolish the European Parliament. In the United Kingdom, the two biggest parties were the Conservative Party (committed to abolishing the Lisbon Treaty) and the Independence Party (committed to getting Britain out of the EU). The British National Party picked up two seats with its pledge to "end the blood-sucking scam" of the EU.
In Austria, the xenophobic Freedom Party got 13% of the vote with a call to remove the EU from Austria's affairs. A party set up to protest against the abuses of the European Parliament managed to pick up 17.9% of the vote. Anti-European populists also picked up significant support in Hungary, Denmark, Slovakia and Finland.
This trend tells us a lot about the dynamics of the EU as a political system. From the beginning, European integration has been defined by two trends: technocracy and populism.
On the one hand, the EU is the ultimate technocratic project. The so-called Monnet approach -- named after the key architect of European integration, the French official Jean Monnet -- is designed to generate a consensus among European diplomats for limited projects of practical cross-border cooperation. Each of these projects should lead to further integration in various policy areas.
The success of the technocrats has been phenomenal. They created first a coal and steel community, then a customs union, then a single market and even a single currency.
It was the very success of the EU as a bureaucratic phenomenon that fueled a populist backlash. This first started as a localized phenomenon, with Margaret Thatcher famously demanding a refund for Britain in the 1980s. Now, it is a pan-European force. The populists come from the left and right, but their common complaint is that the EU is an elite conspiracy, a project to build "Europe against the people." In its place, they plan to mobilize the "people against Europe."
Though people in Brussels talk about technocracy and populism as opposites, in fact they are mutually reinforcing. The more EU leaders try to remove European integration from national politics, the more brittle the EU's legitimacy becomes, which in turn means that policy makers want to further evade public opinion. And the more technocratic the EU becomes, the stronger the calls for democracy and referendums, which in turn create a space for populist parties to emerge.
Since the moment that Jean Monnet turned his mind to uniting Europe, technocracy has been a cornerstone of the EU. Populism has now been sanctified as part of the EU's structure through the introduction of referendums and elections to the European Parliament.
If national and EU officials are going to avoid total gridlock going forward, they will need to deepen their understanding of the domestic politics of the 27 states of the EU and spend time analyzing and engaging public opinion.
In order for the EU to emerge from its midlife crisis, the next generation of EU technocrats will need to be populists as well.
Mr. Leonard is executive director of the European Council on Foreign Relations.
Why many MEPs don't believe in the European Union.
WSJ, Jun 09, 2009
The European Parliament is in the throes of an early midlife crisis. Although newspaper headlines are focused on the strong performance of center-right parties, the 2009 vote is more likely to be remembered for the election of so many self-hating parliamentarians.
A substantial minority of members (MEPs) see their role as reducing rather than expanding the European Union's power. This is a remarkable change for a body that fought tooth-and-nail to extend its authority every time a new EU treaty was negotiated.
The paradox of the European Parliament is that as its power has grown, the public's interest in its activities has declined. Each election has brought lower voter turnout than the one before. Even more brutal than this year's turnout: Many of parliament's new members don't believe that the body in which they sit should be allowed to exist.
Take the colorful Geert Wilders, whose anti-Islamic-immigrant party shot up to second place in the Netherlands with 17% of the vote after the Christian Democrats, who won 19.9%. He ran on a manifesto that included a pledge to abolish the European Parliament. In the United Kingdom, the two biggest parties were the Conservative Party (committed to abolishing the Lisbon Treaty) and the Independence Party (committed to getting Britain out of the EU). The British National Party picked up two seats with its pledge to "end the blood-sucking scam" of the EU.
In Austria, the xenophobic Freedom Party got 13% of the vote with a call to remove the EU from Austria's affairs. A party set up to protest against the abuses of the European Parliament managed to pick up 17.9% of the vote. Anti-European populists also picked up significant support in Hungary, Denmark, Slovakia and Finland.
This trend tells us a lot about the dynamics of the EU as a political system. From the beginning, European integration has been defined by two trends: technocracy and populism.
On the one hand, the EU is the ultimate technocratic project. The so-called Monnet approach -- named after the key architect of European integration, the French official Jean Monnet -- is designed to generate a consensus among European diplomats for limited projects of practical cross-border cooperation. Each of these projects should lead to further integration in various policy areas.
The success of the technocrats has been phenomenal. They created first a coal and steel community, then a customs union, then a single market and even a single currency.
It was the very success of the EU as a bureaucratic phenomenon that fueled a populist backlash. This first started as a localized phenomenon, with Margaret Thatcher famously demanding a refund for Britain in the 1980s. Now, it is a pan-European force. The populists come from the left and right, but their common complaint is that the EU is an elite conspiracy, a project to build "Europe against the people." In its place, they plan to mobilize the "people against Europe."
Though people in Brussels talk about technocracy and populism as opposites, in fact they are mutually reinforcing. The more EU leaders try to remove European integration from national politics, the more brittle the EU's legitimacy becomes, which in turn means that policy makers want to further evade public opinion. And the more technocratic the EU becomes, the stronger the calls for democracy and referendums, which in turn create a space for populist parties to emerge.
Since the moment that Jean Monnet turned his mind to uniting Europe, technocracy has been a cornerstone of the EU. Populism has now been sanctified as part of the EU's structure through the introduction of referendums and elections to the European Parliament.
If national and EU officials are going to avoid total gridlock going forward, they will need to deepen their understanding of the domestic politics of the 27 states of the EU and spend time analyzing and engaging public opinion.
In order for the EU to emerge from its midlife crisis, the next generation of EU technocrats will need to be populists as well.
Mr. Leonard is executive director of the European Council on Foreign Relations.
WSJ Editorial page On Lebanese Elections
Cedar Evolution. WSJ Editorial
WSJ, Jun 09. 2009
In one of the year's most important elections, the Lebanese people voted Sunday and Iran's mullahs lost. The celebrations in Beirut were spontaneous, as were the sighs of relief in Washington, most Arab and European capitals and Jerusalem.
The result is a victory for moderation in the Middle East and a check on Tehran's regional ambitions. The Western-friendly "March 14" coalition increased its majority by one, winning 71 of 128 seats. Hezbollah -- the terrorist "Party of God" created in 1983 and since underwritten and armed by Tehran -- and its allies lost a seat to keep 57.
The outlook for Lebanon shifted far more dramatically than those numbers might suggest. In the last election, "March 14" ran as partners with Hezbollah. This time the Sunni, Christian and Druze coalition -- led by the son of former Prime Minister Rafik Hariri, who was assassinated in 2005 -- won its own mandate.
Iran spent millions on Hezbollah's campaign, and new redistricting lines favored them too. But Lebanese voters rebuffed the Shiite radicals who terrorize Beirut's democracy; no fewer than six members of parliament in the last parliamentary term were gunned down.
This being Lebanon, talks on building a governing coalition are bound to be difficult. But in the bigger picture, this election marks a step forward since the 2005 Cedar Revolution ended the Syrian occupation. And it's a vindication of America's policy of democracy promotion. In Pakistan, Turkey, Iraq and now Lebanon, extremist Muslim parties didn't fare as well as feared at reasonably free polls, and often lost ground. The outcome in Lebanon is another good reason for the Obama Administration to make democracy a priority of its so-called new relationship with the Muslim world -- even if George W. Bush also happened to think it was a good idea.
WSJ, Jun 09. 2009
In one of the year's most important elections, the Lebanese people voted Sunday and Iran's mullahs lost. The celebrations in Beirut were spontaneous, as were the sighs of relief in Washington, most Arab and European capitals and Jerusalem.
The result is a victory for moderation in the Middle East and a check on Tehran's regional ambitions. The Western-friendly "March 14" coalition increased its majority by one, winning 71 of 128 seats. Hezbollah -- the terrorist "Party of God" created in 1983 and since underwritten and armed by Tehran -- and its allies lost a seat to keep 57.
The outlook for Lebanon shifted far more dramatically than those numbers might suggest. In the last election, "March 14" ran as partners with Hezbollah. This time the Sunni, Christian and Druze coalition -- led by the son of former Prime Minister Rafik Hariri, who was assassinated in 2005 -- won its own mandate.
Iran spent millions on Hezbollah's campaign, and new redistricting lines favored them too. But Lebanese voters rebuffed the Shiite radicals who terrorize Beirut's democracy; no fewer than six members of parliament in the last parliamentary term were gunned down.
This being Lebanon, talks on building a governing coalition are bound to be difficult. But in the bigger picture, this election marks a step forward since the 2005 Cedar Revolution ended the Syrian occupation. And it's a vindication of America's policy of democracy promotion. In Pakistan, Turkey, Iraq and now Lebanon, extremist Muslim parties didn't fare as well as feared at reasonably free polls, and often lost ground. The outcome in Lebanon is another good reason for the Obama Administration to make democracy a priority of its so-called new relationship with the Muslim world -- even if George W. Bush also happened to think it was a good idea.
Obama Tells American Businesses to Drop Dead
Obama Tells American Businesses to Drop Dead. By Kevin Hassett
June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.
Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.
I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.
“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?
At issue is Obama’s policy to end the deferral of multinational taxation.
The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.
Tax Burden
U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.
The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.
Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.
Encourage Overseas Sales
Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”
So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.
It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.
Inexplicable Stance
So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.
If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.
Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.
I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.
“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?
At issue is Obama’s policy to end the deferral of multinational taxation.
The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.
Tax Burden
U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.
The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.
Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.
Encourage Overseas Sales
Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”
So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.
It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.
Inexplicable Stance
So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.
If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
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
SUMMARY
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.
KEY FINDINGS
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%.
LEARN MORE
For more information about the Climate and Energy Economic Project, please visithttp://www.brookings.edu/topics/climate-and-energy-economics.aspx
Brookings, Jun 08, 2009
SUMMARY
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.
KEY FINDINGS
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%.
LEARN MORE
For more information about the Climate and Energy Economic Project, please visithttp://www.brookings.edu/topics/climate-and-energy-economics.aspx
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).
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).
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.
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.
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, 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.
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, 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.
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