New Jersey Governor Jon Corzine, in a recent article in the New Jersey Star-Ledger, declared that there is “no easy way out of the [state’s] deficit.” This may be true, but it was sure easy getting there.
1966 was the year I started work after graduating High School. 1966 was also the year our sales tax went into effect. Ten years later, in 1976, a “minimal” income tax took effect.
Since then, both taxes have risen more or less steadily, while the state’s fiscal condition has been on a generally deteriorating trajectory. Today, the New Jersey State government is in its worst financial condition ever, even as the state’s income (top rate 9.0%) and sales (at 7%) taxes are at all-time highs.
Clearly, increasing revenues have not brought fiscal sanity. Quite to the contrary, this rising revenue stream has resulted in the opening of the spending floodgates. The sales tax was enacted as a means to “reduce the inequalities of New Jersey’s localism”, according to Thomas J. Fleming (New Jersey: a History). Income redistribution, in other words. This made Trenton a magnet for every “activist” and special interest group seeking to impose its version of a “good cause” or “charity” on others through some state program or other, or simply to feather its own financial nest at the expense of taxpayers.
The income tax, of course, was enacted in response to the ultimatum issued by the judicial tyrants of the New Jersey Supreme Court, who threatened to shut down the public schools if an alternative to the property tax wasn’t found to fund the schools. This opened the door to the now very familiar method of “improving” education by throwing money at the problem. We all know where that got us.
Now, incredibly, the Governor wants to raise taxes again (disguised as toll hikes). Meanwhile, in what he termed a “cold turkey” budget, Governor Corzine today released his 2008-2009 New Jersey State spending plan. Total spending will be cut $500 million. That’s it. For context, consider that the NJ State budget increased from $24.1B in 2003-04 to $33.5B in 2007-08. That’s $9.4 billion, or 39% in just four years! The cut, again, will be just $500 million. And that is before the legislature gets its hands on it.
Ronald Reagan once said “the closest thing you will ever see to eternal life on earth is a government program”. Well, the governor is looking to prove him right. In his budget, Mr. Corzine proposes to cut or freeze spending pretty much across the board. But this is a euphemism for doing nothing, because catch-up spending can always be added later. Cutting a budget item is like cutting out only part of a malignant tumor. A truly long-term solution requires that the engine of spending growth be removed. The only way to reduce spending long term is to eliminate programs.
In addition to the obvious necessity to cut waste, unnecessary jobs, etc., what should be done is to end or privatize existing “sacred cow” state programs. For example, the property tax relief and aid to municipalities programs amounts to taking money from taxpayers, cycling it through state bureaucracies, then returning it right back to the taxpayers (though not the same taxpayers). The drug of “free” taxpayer money to towns, schools, hospitals, etc., is a disincentive to efficiency, an incentive to exaggerate “need” (i.e., inflate costs) to justify more state “aid”, a source of corruption (ex., the Coniglio case), and an expansion of control over the recipients by the state and special interests. Eliminate those schemes and institute corresponding cuts to the income and sales taxes.
State-run charitable programs are not the proper role of government. They should be gradually phased out, leaving enough time for private, voluntary charitable efforts to gear up to take over. Charity is a worthwhile undertaking, but no one has a right to wave the banner of charity while forcing others to pay for it. If a majority of the state’s residents support these state efforts, then there should be no trouble replacing them with private donations. If not, then what is the justification for continuing them? An individual, and only an individual, has the right to determine when, to whom, and in what amount he will donate to charity based on his own values and affordability. Tax-funded charity, like tax-funded religion, is a violation of individual rights and should be ended. Of course, additional sales and income tax cuts should accompany these phase-outs.
Governor Corzine says:
"It is not enough to just reject the toll proposal. If you don't like that alternative, give me another viable approach to significantly reduce debt and fund important, vital transportation improvements."
The problem here is that once the debt is paid down, we will be stuck permanently with the higher taxes…excuse me, tolls. He asks for suggestions. Here’s one.
The state’s debt, which I believe is in the neighborhood of $35 billion or about $4000 per capita, can be attacked with a dedicated, separate tax, which would automatically disappear, when the debt is paid off. One viable option, I believe, may be a yearly percentage wealth tax on existing personal assets, after a reasonable exclusion at the lower end. It is true that the politicians got us into this debt mess, and suggesting a tax makes me gag. But it must be remembered who elected them. Since people tend to accumulate personal assets as they age, a wealth tax would fall less heavily on the young who, as newer voters, are the least responsible for the debt. I think also that this type of tax is less damaging than an income tax, because income represents the production of new wealth, while existing assets represents old wealth, and thus it would not be as much of a discouragement to productive work.
The temptation to make it permanent must be eliminated through some kind of ironclad “contract” with the state’s residents. But this new debt-repayment levy may fly because people would realize that it is temporary, intended for a specific purpose, and will not fall into the hands of the Trenton establishment. This idea of a dedicated debt-repayment levy must be accompanied by a moratorium on new state borrowing, and an actual shrinkage of state government and income and sales taxes (I prefer that these taxes be eliminated, but that would be too much to hope for.). It would also free up the existing gas tax, which is currently bogged down in debt service, for road improvements. This should head off the need for an increase in that tax.
I don’t like the idea of a wealth tax. This idea is presented only as a demonstration, to make a point. I don’t like the idea of any new tax, to tell you the truth. "The Power to Tax Is the Power to Destroy". As an Objectivist, advocating any kind of coercive government levy is objectionable. But the debt is real, and the debt-holders deserve to be repaid. Some have suggested bankruptcy, but I think repudiating the debt would be unconscionable. Much as I abhor taxes, especially new ones, the people of New Jersey have a moral obligation to repay the debt. Given this, an automatically expiring repayment plan is something worth considering as part of an overall effort aimed at unwinding the welfare state.
I’m sure these suggestions will ruffle many feathers, to put it mildly. And I certainly don’t think any wholesale wipeout of state programs is in the offing. But thinking “outside the box”, questioning the unquestionable, mentioning the unmentionable, challenging the status quo and the given is the only way to arrest the deteriorating condition we find ourselves in. What the Governor’s plan amounts to is a con game… a continuation of the same old pattern. Mr. Corzine desperately wants to keep the tax-and-spend game going so he can advance his aggressive welfare state agenda. Waiting in the wings is a state takeover of the pre-schools, day care centers, health care, etc., all under the heading of “universal” this or that. And there is the new payroll tax to fund the proposed “paid family leave insurance” scheme.
I have only scratched the surface. There are issues not discussed here that tie into Trenton’s fiscal problems, such as the need for radical reform in education (tax credits) and health care (massive deregulation). Many issues affecting the state must be addressed, at least in part, at the national level. For example, the reason that hospitals need “charitable assistance” (a current state program) is because of the federal law called EMTALA, which requires them to treat everyone regardless of ability to pay. And there is the question of the unfunded public employee benefits.
But the 30 to 40 year pattern of rising taxes accompanied by an even faster rise in spending must not only stop, but be reversed. Steadily expanding government is fiscal insanity and a growing threat to our individual liberty. A radical new direction is the only viable long-term option.
Wednesday, February 27, 2008
Friday, February 22, 2008
A Moral Outrage
The failures of socialized medicine keep multiplying. But when the New York Times starts publishing articles negative on government-run health care, you know that the pressure of the inherent contradictions and injustice of these abominable systems must be reaching a critical point.
In Great Britain, Debbie Hirst had contracted breast cancer. However, the National Health Service there denied coverage for the cutting edge treatment called Avastin. Not willing to give up, she decided to pay for the drug out of her own pocket. The cost; $120,000. But she was undaunted. According to the article:
So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.
By December, she had raised $20,000 and was preparing to sell her house to raise more.
This, however, is not the end of the story:
But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor.
“He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview.
“I said, ‘Where does that leave me?’ He said, ‘If you pay for Avastin, you’ll have to pay for everything’ ” — in other words, for all her cancer treatment, far more than she could afford.
Is your blood boiling yet? Well:
But in a final irony, Mrs. Hirst was told early this month that her cancer had spread and that her condition had deteriorated so much that she could have the Avastin after all — paid for by the health service. In other words, a system that forbade her to buy the medicine earlier was now saying that she was so sick she could have it at public expense.
Now, said Mrs. Hirst:
“It may be too bloody late
“I’m a person who left school at 15 and I’ve worked all my life and I’ve paid into the system, and I’m not going to live long enough to get my old-age pension from this government,” she added.
She also knows that the drug can have grave side effects. “I have campaigned for this drug, and if it goes wrong and kills me, c’est la vie,” she said. But, she said, speaking of the government, “If the drug doesn’t have a fair chance because the cancer has advanced so much, then they should be raked over the coals for it.”
If you think that there must be some morally compelling reason for the decisions of Britain’s NHS, think again. The bloody fingerprints of egalitarianism are all over this case:
Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.
Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.
“That way lies the end of the founding principles of the N.H.S.,” Mr. Johnson said.
In other words, a woman suffering from breast cancer and is able to pay her own way is to be sacrificed …literally…for no better reason than that someone else cannot do the same.
Ayn Rand identified the nature of this evil atrocity. She called it hatred of the good for being the good”.
The American advocates of socialized medicine (evasively called “universal health care”) call themselves compassionate. But this is the real nature, and the result, of the “compassion” of a system that first takes your money and in return places your vital health care decisions in the hands of egalitarian government bureaucrats.
This topic was brought to my attention by Noodlefood post of 02/22/08
For more on this topic, see:
Better To Be Equal Than Good
Hatred Of The Good
Post Reference 24
In Great Britain, Debbie Hirst had contracted breast cancer. However, the National Health Service there denied coverage for the cutting edge treatment called Avastin. Not willing to give up, she decided to pay for the drug out of her own pocket. The cost; $120,000. But she was undaunted. According to the article:
So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.
By December, she had raised $20,000 and was preparing to sell her house to raise more.
This, however, is not the end of the story:
But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor.
“He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview.
“I said, ‘Where does that leave me?’ He said, ‘If you pay for Avastin, you’ll have to pay for everything’ ” — in other words, for all her cancer treatment, far more than she could afford.
Is your blood boiling yet? Well:
But in a final irony, Mrs. Hirst was told early this month that her cancer had spread and that her condition had deteriorated so much that she could have the Avastin after all — paid for by the health service. In other words, a system that forbade her to buy the medicine earlier was now saying that she was so sick she could have it at public expense.
Now, said Mrs. Hirst:
“It may be too bloody late
“I’m a person who left school at 15 and I’ve worked all my life and I’ve paid into the system, and I’m not going to live long enough to get my old-age pension from this government,” she added.
She also knows that the drug can have grave side effects. “I have campaigned for this drug, and if it goes wrong and kills me, c’est la vie,” she said. But, she said, speaking of the government, “If the drug doesn’t have a fair chance because the cancer has advanced so much, then they should be raked over the coals for it.”
If you think that there must be some morally compelling reason for the decisions of Britain’s NHS, think again. The bloody fingerprints of egalitarianism are all over this case:
Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.
Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.
“That way lies the end of the founding principles of the N.H.S.,” Mr. Johnson said.
In other words, a woman suffering from breast cancer and is able to pay her own way is to be sacrificed …literally…for no better reason than that someone else cannot do the same.
Ayn Rand identified the nature of this evil atrocity. She called it hatred of the good for being the good”.
The American advocates of socialized medicine (evasively called “universal health care”) call themselves compassionate. But this is the real nature, and the result, of the “compassion” of a system that first takes your money and in return places your vital health care decisions in the hands of egalitarian government bureaucrats.
This topic was brought to my attention by Noodlefood post of 02/22/08
For more on this topic, see:
Better To Be Equal Than Good
Hatred Of The Good
Post Reference 24
Monday, February 18, 2008
"Exxon's Lonely Battle", and the "Stimulus"
Almost from the first day he took office, President Bush has been accused of being in the pockets of the oil companies. If only there were even a smidgen of truth to that. The fact is, Bush has done nothing that I can determine to retaliate against the looting thugs of the world who “nationalize” (i.e., steal) the assets of America’s oil companies.
One example is Bolivia, where Exxon-Mobil lost a $1 billion dollar investment in oil and gas projects begun under legitimately negotiated contracts that were unilaterally abrogated by the government there. I don’t know whether or by how much Exxon may have been “compensated” for its loss, but their property was stolen regardless.
The nationalization of Exxon’s assets by Venezuela is another outrage. In both cases, the oil industry “lapdog”, President Bush, did nothing in defense of this great American Company. There was no high profile verbal public lashing of either Bolivia or Venezuela. There was no diplomatic hardball such as a freeze on national relations with those looters. Nothing.
Meanwhile, Exxon-Mobil has taken to the courts against Venezuela’s parasitic little dictator Hugo Chávez. After winning the first round with the $315 million freeze of Petróleos de Venezuela’s (Venezuela’s state oil company) assets, Chávez threatened to cut off oil shipments to the United States in retaliation. But should Exxon-Mobil have to fight this battle on its own, given the blatant injustice perpetrated against it?
In a piece entitled Exxon's Lonely Battle, Thomas A. Bowden of the Ayn Rand Institute states:
“Now Exxon is fighting a lonely battle in the courts, facing down an armed dictatorship that sneers at private property rights and dares anyone to defy its might… If there is anything the President of the United States should 'comment on,' it is the brazen theft of American property by a thuggish, petulant dictator.”
The fact is, the theft of American oil assets has been going on for decades, with the American Government doing virtually nothing. The Middle Eastern oil-rich nations have been getting fat on “nationalized” assets of Western Oil Companies since at least the 1950s. No wonder the Bin Ladens of the world see America as a paper tiger.
Meanwhile here at home, the economic “stimulus” package is getting ready to do its magic. But as I pointed out in my post of 02/09/08, you can’t consume your way to prosperity. In an excellent essay on Forbes.com, Ayn Rand Institute Executive Director Yaron Brook lays out the best “plan” for getting the economy going… get the government out of the way. Here are some excerpts:
“Economic growth means an increase in the amount of wealth that exists in a country--and all wealth must be produced. Houses, health care, air-conditioning and transportation do not come ready-made from nature. We have them only to the extent that individuals and businesses bring them into existence.
“The focus of today's stimulus packages on consumer spending is therefore completely backward. Consumption is a consequence of production. This fact is ignored by the Bush plan, which attempts to achieve prosperity through $100 billion in deficit-spending. Though this might bring the appearance of prosperity, in the same way that an unemployed man appears prosperous if he goes on a shopping spree with his credit cards, the reality will be the opposite.
“The economic stimulus that would result from drastically cutting government regulation and spending (and thus taxation) is almost unimaginable.
“What our economy needs is not a stimulation package, but a liberation package.”
The article touches on some of the myriad ways our governments, both federal and state, hamper economic growth. When you read this as well as consider the cases of the oil and the pharmaceutical companies (Post of 02/17/08), is it any wonder that our economy is in a funk?
One example is Bolivia, where Exxon-Mobil lost a $1 billion dollar investment in oil and gas projects begun under legitimately negotiated contracts that were unilaterally abrogated by the government there. I don’t know whether or by how much Exxon may have been “compensated” for its loss, but their property was stolen regardless.
The nationalization of Exxon’s assets by Venezuela is another outrage. In both cases, the oil industry “lapdog”, President Bush, did nothing in defense of this great American Company. There was no high profile verbal public lashing of either Bolivia or Venezuela. There was no diplomatic hardball such as a freeze on national relations with those looters. Nothing.
Meanwhile, Exxon-Mobil has taken to the courts against Venezuela’s parasitic little dictator Hugo Chávez. After winning the first round with the $315 million freeze of Petróleos de Venezuela’s (Venezuela’s state oil company) assets, Chávez threatened to cut off oil shipments to the United States in retaliation. But should Exxon-Mobil have to fight this battle on its own, given the blatant injustice perpetrated against it?
In a piece entitled Exxon's Lonely Battle, Thomas A. Bowden of the Ayn Rand Institute states:
“Now Exxon is fighting a lonely battle in the courts, facing down an armed dictatorship that sneers at private property rights and dares anyone to defy its might… If there is anything the President of the United States should 'comment on,' it is the brazen theft of American property by a thuggish, petulant dictator.”
The fact is, the theft of American oil assets has been going on for decades, with the American Government doing virtually nothing. The Middle Eastern oil-rich nations have been getting fat on “nationalized” assets of Western Oil Companies since at least the 1950s. No wonder the Bin Ladens of the world see America as a paper tiger.
Meanwhile here at home, the economic “stimulus” package is getting ready to do its magic. But as I pointed out in my post of 02/09/08, you can’t consume your way to prosperity. In an excellent essay on Forbes.com, Ayn Rand Institute Executive Director Yaron Brook lays out the best “plan” for getting the economy going… get the government out of the way. Here are some excerpts:
“Economic growth means an increase in the amount of wealth that exists in a country--and all wealth must be produced. Houses, health care, air-conditioning and transportation do not come ready-made from nature. We have them only to the extent that individuals and businesses bring them into existence.
“The focus of today's stimulus packages on consumer spending is therefore completely backward. Consumption is a consequence of production. This fact is ignored by the Bush plan, which attempts to achieve prosperity through $100 billion in deficit-spending. Though this might bring the appearance of prosperity, in the same way that an unemployed man appears prosperous if he goes on a shopping spree with his credit cards, the reality will be the opposite.
“The economic stimulus that would result from drastically cutting government regulation and spending (and thus taxation) is almost unimaginable.
“What our economy needs is not a stimulation package, but a liberation package.”
The article touches on some of the myriad ways our governments, both federal and state, hamper economic growth. When you read this as well as consider the cases of the oil and the pharmaceutical companies (Post of 02/17/08), is it any wonder that our economy is in a funk?
Sunday, February 17, 2008
Merck- Villain or Victim?
Merck recently settled a “Medicaid fraud claim” by agreeing to pay the government $650 million dollars to cover “overcharges” to the government-run program. This is the 18th such case to be “settled” against drugmakers since 2001. According to a report in the NJ Star-Ledger, “The Justice Department has said it is looking at about 150 other cases, now under court seal, of alleged drug company misconduct involving billions of dollars in overcharges.”
So are the companies that produce the medicines that millions of people rely on for their healthcare a bunch of sleazy fraudsters? Or are they victims of heavy-handed governmental coercion?
To unravel these questions, it is first important to understand the difference between private action and government action. Private action, by its very nature, is non-coercive. The use of force is legally prohibited, leaving private individuals and organizations (corporations, labor unions, etc.) free to deal with one another by voluntary means only. Government, on the other hand, is the domain of legalized force.
With this crucial distinction in mind, consider the position of the drug companies vis-à-vis the government. The drug companies pit their economic power (which derives solely from production of goods valuable to their customers) against the government’s political power (which derives solely from the barrel of a gun. As Ronald Reagan correctly observes, “government’s only weapons are force and coercion.”).
To begin with, the drug companies do not deal with their customers directly as companies in most other fields do. A huge portion of their customer base has been coercively taken over by government, in the form of medicare and medicaid. These programs for the elderly and the low-income folks forces the drug companies to “negotiate” with the government for the sale of their products (i.e., for their livelihoods). How do these “negotiations” determine the price of their drugs? Well, “Drugmakers are required by law to offer to Medicaid, the federal and state health-care program for the poor, the same discounts they offer to big managed-care plans and hospital chains (emphasis added).” They are coerced, in other words.
Thus, the price that the government pays for drugs is a constantly floating number that is determined by the latest private contract. Every discount extended by the drugmakers in their private dealings automatically extends to their medicaid “customers”, by law (i.e., by force). Put another way, the government’s “weapons [of] force and coercion” extend into every private contract between drugmakers and private insurance companies, HMOs, etc. This means that the state’s nose must necessarily snoop into every private pharmaceutical company contract in order to determine if it is getting its lawful (i.e., coerced) price. How does it do this? With “whistleblowers”… those civic-minded folks like Mr. Steinke who “exposed” Merck’s “kickbacks that were disguised as fees paid to physicians for training, consultation or market research.”
“Under the [government’s very own] False Claims Act, whistleblowers are given a percentage of any award, as an incentive to disclose wrongdoing and help the government prosecute the case (emphasis added).” Merck’s “kickbacks” “to induce physicians to use its products” is “fraud”. The government’s “incentives” to “whistleblowers” is just fine and dandy. Our civic-minded and “very grateful” Mr. Steinke will receive a cool $68 million bucks for his efforts. “Very grateful”, indeed!
More fundamentally, is it wrong for a drugmaker to structure its private contracts (to “game”, even, the government’s price rule technicalities) in a way to maximize the profits on its own products, in light of the government’s coercive intrusion of legally requiring the company to automatically extend its best discounts to medicaid? Is it not acting rationally and morally, in light of the state’s price-fixing violation of its right to sell its products at mutually agreed-upon prices and terms of sale? In short, is the drugmaker a villain or a victim?
It is instructive to note that of the 18 “false claims” cases, including Merck’s, cited by Taxpayers Against Fraud in a sidebar to the article, every case was settled out of court. Is this an indication of mass “guilt” on the part of the pharmaceutical industry, or is there something else at work here? Merck spokesman Ron Rogers “said the settlement does not constitute an admission of any liability or wrongdoing… Merck believes its pricing, sales and marketing practices were consistent with all regulations…[and that] the company had a fundamental disagreement with the government over the interpretation of the rules.”
If so, then why not fight it out in court? Merck and most drugmakers are certainly profitable enough to afford such a fight. Or why not simply refuse to sell their drugs to the government’s medicare and medicaid, thus avoiding the need to structure contracts with one eye on the government’s coercive and immoral price-fixing controls? The answer by now should be clear. It must be remembered that the companies are legally disarmed private organizations going up against an entity that’s “only weapons are force and coercion.”…and which has a legal monopoly on the use of such weapons.
Picture a liquor storeowner during prohibition confronted by an Al Capone surrounded by hulking trench-coated “associates”. Well, the government’s “associates” include the arbitrary power of the Justice Department’s Antitrust division, the taxing and auditing power of the IRS, the “oversite” authority of congressional committees with subpoena power, and the FDA through whose bureaucracy the drugmakers must get approval before marketing of its products can begin, among other regulatory agencies.
The organized crime analogy may be a bit unfair here. But the private drugmakers are up against an adversary that has life and death control over them. Fight back vigorously or refuse to sell its valuable products to the state-run programs, and a drugmaker may find itself under an “unrelated” Justice Department Anti-trust criminal investigation, an IRS audit, or have its executives hauled before a congressional committee for a public lashing. And just try to get your next drug through the FDA. Is it any wonder that they meekly “settle” these “fraud” cases? Talk about a conflict of interest!
So to repeat, are the companies that produce the medicines that millions of people rely on for their healthcare a bunch of sleazy fraudsters? Or are they victims of heavy-handed governmental coercion?
The pharmaceutical industry may not be squeaky clean, ethically. Big Pharma is a product of our mixed economy, playing the special-interest, pressure-group warfare game in Washington and in state capitals. Late last year, for example, Merck tried to use its political muscle to impose mandatory (i.e., government imposed) use of its cervical cancer drug. So perhaps there is an element of “play with fire, get burned” here. But the millions in donations to politicians they make is as much a self-preservation tactic as it is an attempt to gain legislative advantage (as is the case with most special interest groups).
Never the less, perhaps the self-righteous hysteria of the press headlines and of posturing politicians shouldn’t be taken at face value. And let’s remember who has coercive power over whom, and who it is that actually produces the drugs that are the object of these “fraud” cases.
Post Reference 23
So are the companies that produce the medicines that millions of people rely on for their healthcare a bunch of sleazy fraudsters? Or are they victims of heavy-handed governmental coercion?
To unravel these questions, it is first important to understand the difference between private action and government action. Private action, by its very nature, is non-coercive. The use of force is legally prohibited, leaving private individuals and organizations (corporations, labor unions, etc.) free to deal with one another by voluntary means only. Government, on the other hand, is the domain of legalized force.
With this crucial distinction in mind, consider the position of the drug companies vis-à-vis the government. The drug companies pit their economic power (which derives solely from production of goods valuable to their customers) against the government’s political power (which derives solely from the barrel of a gun. As Ronald Reagan correctly observes, “government’s only weapons are force and coercion.”).
To begin with, the drug companies do not deal with their customers directly as companies in most other fields do. A huge portion of their customer base has been coercively taken over by government, in the form of medicare and medicaid. These programs for the elderly and the low-income folks forces the drug companies to “negotiate” with the government for the sale of their products (i.e., for their livelihoods). How do these “negotiations” determine the price of their drugs? Well, “Drugmakers are required by law to offer to Medicaid, the federal and state health-care program for the poor, the same discounts they offer to big managed-care plans and hospital chains (emphasis added).” They are coerced, in other words.
Thus, the price that the government pays for drugs is a constantly floating number that is determined by the latest private contract. Every discount extended by the drugmakers in their private dealings automatically extends to their medicaid “customers”, by law (i.e., by force). Put another way, the government’s “weapons [of] force and coercion” extend into every private contract between drugmakers and private insurance companies, HMOs, etc. This means that the state’s nose must necessarily snoop into every private pharmaceutical company contract in order to determine if it is getting its lawful (i.e., coerced) price. How does it do this? With “whistleblowers”… those civic-minded folks like Mr. Steinke who “exposed” Merck’s “kickbacks that were disguised as fees paid to physicians for training, consultation or market research.”
“Under the [government’s very own] False Claims Act, whistleblowers are given a percentage of any award, as an incentive to disclose wrongdoing and help the government prosecute the case (emphasis added).” Merck’s “kickbacks” “to induce physicians to use its products” is “fraud”. The government’s “incentives” to “whistleblowers” is just fine and dandy. Our civic-minded and “very grateful” Mr. Steinke will receive a cool $68 million bucks for his efforts. “Very grateful”, indeed!
More fundamentally, is it wrong for a drugmaker to structure its private contracts (to “game”, even, the government’s price rule technicalities) in a way to maximize the profits on its own products, in light of the government’s coercive intrusion of legally requiring the company to automatically extend its best discounts to medicaid? Is it not acting rationally and morally, in light of the state’s price-fixing violation of its right to sell its products at mutually agreed-upon prices and terms of sale? In short, is the drugmaker a villain or a victim?
It is instructive to note that of the 18 “false claims” cases, including Merck’s, cited by Taxpayers Against Fraud in a sidebar to the article, every case was settled out of court. Is this an indication of mass “guilt” on the part of the pharmaceutical industry, or is there something else at work here? Merck spokesman Ron Rogers “said the settlement does not constitute an admission of any liability or wrongdoing… Merck believes its pricing, sales and marketing practices were consistent with all regulations…[and that] the company had a fundamental disagreement with the government over the interpretation of the rules.”
If so, then why not fight it out in court? Merck and most drugmakers are certainly profitable enough to afford such a fight. Or why not simply refuse to sell their drugs to the government’s medicare and medicaid, thus avoiding the need to structure contracts with one eye on the government’s coercive and immoral price-fixing controls? The answer by now should be clear. It must be remembered that the companies are legally disarmed private organizations going up against an entity that’s “only weapons are force and coercion.”…and which has a legal monopoly on the use of such weapons.
Picture a liquor storeowner during prohibition confronted by an Al Capone surrounded by hulking trench-coated “associates”. Well, the government’s “associates” include the arbitrary power of the Justice Department’s Antitrust division, the taxing and auditing power of the IRS, the “oversite” authority of congressional committees with subpoena power, and the FDA through whose bureaucracy the drugmakers must get approval before marketing of its products can begin, among other regulatory agencies.
The organized crime analogy may be a bit unfair here. But the private drugmakers are up against an adversary that has life and death control over them. Fight back vigorously or refuse to sell its valuable products to the state-run programs, and a drugmaker may find itself under an “unrelated” Justice Department Anti-trust criminal investigation, an IRS audit, or have its executives hauled before a congressional committee for a public lashing. And just try to get your next drug through the FDA. Is it any wonder that they meekly “settle” these “fraud” cases? Talk about a conflict of interest!
So to repeat, are the companies that produce the medicines that millions of people rely on for their healthcare a bunch of sleazy fraudsters? Or are they victims of heavy-handed governmental coercion?
The pharmaceutical industry may not be squeaky clean, ethically. Big Pharma is a product of our mixed economy, playing the special-interest, pressure-group warfare game in Washington and in state capitals. Late last year, for example, Merck tried to use its political muscle to impose mandatory (i.e., government imposed) use of its cervical cancer drug. So perhaps there is an element of “play with fire, get burned” here. But the millions in donations to politicians they make is as much a self-preservation tactic as it is an attempt to gain legislative advantage (as is the case with most special interest groups).
Never the less, perhaps the self-righteous hysteria of the press headlines and of posturing politicians shouldn’t be taken at face value. And let’s remember who has coercive power over whom, and who it is that actually produces the drugs that are the object of these “fraud” cases.
Post Reference 23
Saturday, February 9, 2008
The Howell's Check is in the Mail
It seems that the crew and passengers of the SS Minnow knew more about economics than do most of our leading economists and politicians. The bipartisan “economic stimulus” package just enacted in Washington is so illogical that it is hard to take it seriously. The plan is for government to raid the nation’s savings, via borrowing, in order to pass out checks for “consumers” to “spend our way to an economic recovery”.
Don’t get me wrong. With the taxes we pay, I’ll take the “rebate”. But as far as economic policy goes, I can only say, GIVE ME A BREAK!
This is bad economics based on a false premise…that consumption is 70% of the economy. This false premise is partly a result of the way we “measure” the economy. GDP is essentially a quantitative figure that tells you how much money is changing hands during a specific time period. But, essentially, consumption is the end of economic activity. Production is its meat and bones. This bill ignores production.
To illustrate my point, I’ll use an analogy.
When the SS Minnow of that old sit-com show Gilligan’s Island became marooned on that uncharted island, what was their first response? Did Gilligan, the Skipper, and their assortment of tourists immediately rush out and begin spending their money? Better yet, why didn’t the millionaire Howells just hand out clumps of cash to all the others so they could’ve started consuming their way to a vibrant island economy?
“But Mike”, you say, “there was nothing to buy!” “Why not ?”, I ask. “Because”, you say, “That island was uninhabited by humans! How could there have been anything to buy and consume when there where no people around to make anything to buy?” OOPS! But wait. No problem, President Bush, or Hillary, or Barack, or congressional leaders or talking heads assures the Gilligan Islanders. “Consumption is 70% of the economy,” they say in unison. “Just start consuming, and prosperity will spring to life on your little island!”
Of course, Gilligan, the Skipper too, the millionaire and his wife, the movie star, the professor and Mary Ann knew better. They went immediately to work fashioning tools to build shelter, cultivate the ground to grow crops, hunt for food, etc. It seems the Gilligan Islanders knew some things most of our leaders today can’t seem to grasp.
Money is not wealth.
The things humans need to survive and thrive are not found free in nature. They must be made.
And, above all, production comes before consumption!
What a profound discovery by those islanders!
Do these basic facts of human existence change in an advanced industrial economy of 300 million? What is missing is an understanding of what spending really is. When you spend money that you have earned by productive work on goods or services, what you are actually doing is engaging in trade. You are exchanging the product of your work, as represented by those dollars, for the product of the work of others. A sale is really an exchange (a trade), not between a consumer and a producer, but between two producers.
The fact that the item you received may be consumed by you does not change the fact that it first had to be produced. In fact, consumption is not fundamentally a part of the economy at all. It is the goal and end result of the economy. Essentially, the "economy" is your production and that of every other participant. The economy is 100% production and trade, in that order. (I’m not here referring to GDP, which measures money changing hands. I’m referring to what actually constitutes the real economy.)
If our political leaders really wanted to “spur” the economy, they would recognize that the source of “economic growth” is not “money in consumers pockets”. It is the minds and productive work of individuals working for their own benefit. And then they would look to remove or reduce the barriers and disincentives that restrain the production that leads to trade and finally consumption.
They should take steps such as cut taxes on income (current production), capital gains (future production), savings and investment (capital for future production), permanently, as well as cut or at least put a moratorium on new government regulations (costs on current and future production). They should focus on the source of wealth, not it’s consumption.
The current snake oil “stimulus” package reverses cause and effect and will thus do more harm than good, reducing long term economic growth by consuming the “seed corn” of future production, the nation’s savings. If the Gilligan Islanders faced a shortfall in their food stocks for the upcoming months (i.e., a recession), should their first response be to throw a banquet and feast on their remaining stockpiles? Or should they harbor their existing food reserves (i.e., their savings), and then embark on an effort to plant a larger crop, expand their hunting activities, etc. (i.e., expand production)?
The answer is obvious. And so is the answer to the current economic situation.
That silly little 1960s sitcom, Gilligan's Island, taught us more economic common sense than our current political leaders and many of our prominent economic thinkers gazing down from their academic ivory towers.
Don’t get me wrong. With the taxes we pay, I’ll take the “rebate”. But as far as economic policy goes, I can only say, GIVE ME A BREAK!
This is bad economics based on a false premise…that consumption is 70% of the economy. This false premise is partly a result of the way we “measure” the economy. GDP is essentially a quantitative figure that tells you how much money is changing hands during a specific time period. But, essentially, consumption is the end of economic activity. Production is its meat and bones. This bill ignores production.
To illustrate my point, I’ll use an analogy.
When the SS Minnow of that old sit-com show Gilligan’s Island became marooned on that uncharted island, what was their first response? Did Gilligan, the Skipper, and their assortment of tourists immediately rush out and begin spending their money? Better yet, why didn’t the millionaire Howells just hand out clumps of cash to all the others so they could’ve started consuming their way to a vibrant island economy?
“But Mike”, you say, “there was nothing to buy!” “Why not ?”, I ask. “Because”, you say, “That island was uninhabited by humans! How could there have been anything to buy and consume when there where no people around to make anything to buy?” OOPS! But wait. No problem, President Bush, or Hillary, or Barack, or congressional leaders or talking heads assures the Gilligan Islanders. “Consumption is 70% of the economy,” they say in unison. “Just start consuming, and prosperity will spring to life on your little island!”
Of course, Gilligan, the Skipper too, the millionaire and his wife, the movie star, the professor and Mary Ann knew better. They went immediately to work fashioning tools to build shelter, cultivate the ground to grow crops, hunt for food, etc. It seems the Gilligan Islanders knew some things most of our leaders today can’t seem to grasp.
Money is not wealth.
The things humans need to survive and thrive are not found free in nature. They must be made.
And, above all, production comes before consumption!
What a profound discovery by those islanders!
Do these basic facts of human existence change in an advanced industrial economy of 300 million? What is missing is an understanding of what spending really is. When you spend money that you have earned by productive work on goods or services, what you are actually doing is engaging in trade. You are exchanging the product of your work, as represented by those dollars, for the product of the work of others. A sale is really an exchange (a trade), not between a consumer and a producer, but between two producers.
The fact that the item you received may be consumed by you does not change the fact that it first had to be produced. In fact, consumption is not fundamentally a part of the economy at all. It is the goal and end result of the economy. Essentially, the "economy" is your production and that of every other participant. The economy is 100% production and trade, in that order. (I’m not here referring to GDP, which measures money changing hands. I’m referring to what actually constitutes the real economy.)
If our political leaders really wanted to “spur” the economy, they would recognize that the source of “economic growth” is not “money in consumers pockets”. It is the minds and productive work of individuals working for their own benefit. And then they would look to remove or reduce the barriers and disincentives that restrain the production that leads to trade and finally consumption.
They should take steps such as cut taxes on income (current production), capital gains (future production), savings and investment (capital for future production), permanently, as well as cut or at least put a moratorium on new government regulations (costs on current and future production). They should focus on the source of wealth, not it’s consumption.
The current snake oil “stimulus” package reverses cause and effect and will thus do more harm than good, reducing long term economic growth by consuming the “seed corn” of future production, the nation’s savings. If the Gilligan Islanders faced a shortfall in their food stocks for the upcoming months (i.e., a recession), should their first response be to throw a banquet and feast on their remaining stockpiles? Or should they harbor their existing food reserves (i.e., their savings), and then embark on an effort to plant a larger crop, expand their hunting activities, etc. (i.e., expand production)?
The answer is obvious. And so is the answer to the current economic situation.
That silly little 1960s sitcom, Gilligan's Island, taught us more economic common sense than our current political leaders and many of our prominent economic thinkers gazing down from their academic ivory towers.
Saturday, February 2, 2008
Rudy's Monkey Wrench
No sooner did I comment at a family dinner that I believed there would be significant surprises in the 2008 presidential election when, a day later, Rudy Giuliani pulled out of the race and endorsed John McCain.
As an early supporter of Giuliani, this was a bit of a disappointment to me. I had considered him to be the best candidate out there. Actually, the only decent one.
However, his endorsement of McCain doesn’t sway me on him. Regardless of any rhetoric to the contrary, McCain’s attack on free speech (the McCain-Feingold campaign finance law), and his call for mandatory national service for all 18 year-olds firmly establishes his statist credentials.
While I have stated my clear opposition to Mitt Romney, primarily because of his socialistic Massachusetts healthcare scheme, I may have to re-think my stated refusal to vote for him. He is clearly the lessor of two evils (between he and McCain) in the Tuesday New Jersey primary. Right now, I plan to vote for Giuliani (who is still on the ballot) as a “protest” vote, but that may change.
If John McCain is the GOP nominee, I may seriously have to consider casting my first ever vote for a Democrat come November. This makes me want to puke. But, as we have seen with George W. Bush, having a liberal or moderate Republican masquerading as a conservative in the White House does tremendous harm by demoralizing and disarming the Right while emboldening the Left. Under Bush, the left’s agenda was advanced more than under Bill Clinton’s Administration.
A McCain presidency would be Bush times two. At least a Hillary (or Obama) presidency would (or maybe I should say could) unite the Right into a solid wall of opposition making it a lot harder for her to advance the worst aspects of her agenda. A good example of what I am talking about would be the 1993 failure of Hillarycare, when despite a Dem. Congress, Mrs. Clinton’s healthcare socialization scheme crashed and burned against a monolithic Republican wall of opposition. Under McCain, the Right would be split and weakened, as many Republicans would feel obliged to support “their” president. We saw this happen with W.
Unless something drastic happens, like McCain openly repudiating his worst prior positions or the Democrats nominating a reincarnated Mussolini or something, I cannot help to bring to power this wolf in sheep’s clothing.
Meanwhile, on the “surprise” front, New Jersey’s own Steve Forbes, a former GOP presidential contender whom I would vote for in a heart beat, recently raised the possibility of a third-party ticket of NYC Mayor Mike Bloomberg with Al Gore (yes, THAT Al Gore) as his running mate.
Stay tuned for more surprises…and monkey wrenches.
As an early supporter of Giuliani, this was a bit of a disappointment to me. I had considered him to be the best candidate out there. Actually, the only decent one.
However, his endorsement of McCain doesn’t sway me on him. Regardless of any rhetoric to the contrary, McCain’s attack on free speech (the McCain-Feingold campaign finance law), and his call for mandatory national service for all 18 year-olds firmly establishes his statist credentials.
While I have stated my clear opposition to Mitt Romney, primarily because of his socialistic Massachusetts healthcare scheme, I may have to re-think my stated refusal to vote for him. He is clearly the lessor of two evils (between he and McCain) in the Tuesday New Jersey primary. Right now, I plan to vote for Giuliani (who is still on the ballot) as a “protest” vote, but that may change.
If John McCain is the GOP nominee, I may seriously have to consider casting my first ever vote for a Democrat come November. This makes me want to puke. But, as we have seen with George W. Bush, having a liberal or moderate Republican masquerading as a conservative in the White House does tremendous harm by demoralizing and disarming the Right while emboldening the Left. Under Bush, the left’s agenda was advanced more than under Bill Clinton’s Administration.
A McCain presidency would be Bush times two. At least a Hillary (or Obama) presidency would (or maybe I should say could) unite the Right into a solid wall of opposition making it a lot harder for her to advance the worst aspects of her agenda. A good example of what I am talking about would be the 1993 failure of Hillarycare, when despite a Dem. Congress, Mrs. Clinton’s healthcare socialization scheme crashed and burned against a monolithic Republican wall of opposition. Under McCain, the Right would be split and weakened, as many Republicans would feel obliged to support “their” president. We saw this happen with W.
Unless something drastic happens, like McCain openly repudiating his worst prior positions or the Democrats nominating a reincarnated Mussolini or something, I cannot help to bring to power this wolf in sheep’s clothing.
Meanwhile, on the “surprise” front, New Jersey’s own Steve Forbes, a former GOP presidential contender whom I would vote for in a heart beat, recently raised the possibility of a third-party ticket of NYC Mayor Mike Bloomberg with Al Gore (yes, THAT Al Gore) as his running mate.
Stay tuned for more surprises…and monkey wrenches.
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