Russell Roberts's Blog, page 1425

A Tragi-Comedy

In my latest column for the Pittsburgh Tribune-Review, I expand on a recent comment here at the Cafe in which I describe modern politicians as actors playing for applause – mostly cheap applause.

'Course, A Simpleton Such as Myself Likely Misses The Significant Differences

Here's a letter to the Washington Post:

Eugene Robinson blames the S&P's downgrading of Uncle Sam's credit on the protracted refusal (until the very end) by Uncle Sam – a licentious borrower – to borrow even more ("A downgrade's GOP fingerprints," August 9).  Mr. Robinson scolds, "If you threaten not to pay your bills, people will – and should – take you seriously."

Why is the first remotely serious effort in ages to oblige government not to borrow beyond a certain limit portrayed as fiscal imprudence?

Asked differently, why would creditors be spooked by a debtor's 'threat' to honor his vow to keep his debt from growing?  Creditors, it seems, would applaud the keeping of such a vow.

The downgrade is far more plausibly a consequence of Uncle Sam breaking that vow – and doing so in a way that reveals his cowardly refusal, at the end of the day, to address his addiction to spending greater and greater sums of money now and passing the bills on to taxpayers later.

Sincerely,
Donald J. Boudreaux

Quotations of the Day…

… are, first, from page 123-124 of Thomas Cahill's Mysteries of the Middle Ages (2006):

Plumbing was unknown [in the middle ages]….  Because individual bathing in a copper basin in a drafty castle could lead so easily to chill, then to fever and death, kings and queens seldom bathed more than once a month, those with neither washer woman nor ewerer at their command scarcely more than once or twice a year.  Despite their silks and linens, their frequent changes of costume, their liberal burning of Arabian incense, the royals stank, as did their retinues.  More than this, the chamber pot was the sole device for receiving human waste.  A small castle – or even a large one – might become downright uninhabitable after many weeks of residence by such a throng [ellipsis added].

And yet – and yet - Cahill here describes the stinkingest of the stinkingest rich of the pre-capitalist age.  Let's read Cahill a bit further, to page 188:

What appalls a modern dreamer about the Middle Ages is not so much the distance that lay between peasant and prince as that there was seldom any way of shortening that distance: the peasant would always be a peasant, the prince always a prince.

And yet… the rigid stratification of social roles was shaken by the rise of the merchant class, the medieval bourgeoisie [ellipsis in the original].

Satz on markets

This week's EconTalk is Stanford professor of philosophy Debra Satz talking about why she finds some markets noxious and what ought to be done about it. I take a different approach. It's a civilized conversation between two people who look at the world very differently.

Enough Already

The neocon fury sparked by the recent debt-ceiling deal – a deal that, to hear neocons tell the story, will force Pentagon Generals and Admirals out of their offices and onto Constitution Ave. to beg for spare change from passing motorists – is maddening.  Neocons, after all, are to spending on defense the military what "Progressives" are to spending on education: no amount is ever enough, and any cuts – even any proposed reductions in the projected growth rate of spending – are alleged to foolishly sacrifice this nation's security and future on the altar of some misguided notion that government should be strictly limited in all realms.

I was going to blog on this matter more, but I can do no better than to link to this essay by Reason's exquisitely insightful Shikha Dalmia.

Quotation of the Day…

… is from this short clip of a 1977 interview that my GMU colleague Tom Hazlett (then a student at UCLA) did with Hayek:

Keynes was very capable of rapidly changing his opinion….  He has been so much an intuitive genius, but not much a strict logical reasoner…. I regard him as a real genius, but not as a great economist, you know.  He was not a very consistent or logical thinker.

But the President and Congress MEANT Well

There's a shortage today of low-priced, life-saving drugs for cancer patients.  And the cause – surprise, surprise – is the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  Ezekiel Emanuel, an oncologist teaching at the University of Pennsylvania, explains why in this op-ed appearing in today's New York Times.

Here's are the central paragraphs:

The underlying reason for this [failure of the laws of supply and demand to keep these drugs in adequate supply] is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.

Historically, this "buy and bill" system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up "average wholesale prices." The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug's actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug's price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

The result is clear: in 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211. (These numbers include noncancer drugs as well. )

Quotation of the Day…

… is from page 66 of Sir Henry Sumner Maine's Popular Government (1885):

Yet nothing is more certain, than that the mental picture which enchains the enthusiasts for benevolent democratic government is altogether false, and that, if the mass of mankind were to make an attempt at redividing the common stock of good things, they would resemble, not a number of claimants insisting on the fair division of a fund, but a mutinous crew, feasting on a ship's provisions, gorging themselves on the meat and intoxicating themselves with the liquors, but refusing to navigate the vessel to port.

Who can doubt that Maine would be completely unsurprised by today's events in Washington, DC?

It's a shame that it is necessary to point out here that oppostion to what Maine calls "benevolent democratic government" – by which Maine means largely unlimited democracy – does not imply support for dictatorship, oligarchy, or any other form of top-down, centralized command.  Rather, by far the best alternative to unlimited democracy is a system based upon respect for private property rights and for the patterns of market activities that such rights give rise to.

F.A. Selgin vs. J.M. Skidelsky

Here's a link to George Selgin's and Jamie Whyte's debate with Lord Skidelsky and Duncan Weldon on the virtues and (in my view, overwhelming) vices of Keynesian economics.

I'm glad that George is on the side of sound economics.

I'll offer further thoughts on this debate in subsequent posts.

Quotation of the Day…

… is from page 22 of the first volume of Eli Heckscher's Mercantilism:

[Mercantilism's] first object … was to make the state's purposes decisive in a uniform economic sphere and to make all economic activity subservient to considerations corresponding to the requirements of the state and to the state's domain regarded as uniform in nature.

Economic nationalism in service to the state.  What a lovely goal.