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  • I’m Waiting for the “DUH!!” Factor to Kick In

    Posted by James R. Rummel on July 23rd, 2004 (All posts by )

    One of my co-workers subscribes to the WSJ and he allows me to read it after he’s done with them. Saves me some money, although I doubt the WSJ business staff would approve of this example of fiscal responsibility.

    There was an article on page A11 of the Thursday, July 22, 2004 edition of the paper. It was G. Thomas Sims, and it was entitled “Europe Sees Limits on Growth”. Nothing new here, just the same old same old that everyone’s been saying for the past few years. Everyone who’s not blinded by their own prejudices, that is.

    Back in 2000 the European Union saw a growth rate of 3.5%, which means that it was possible that the EU was about to do as well as the US. Unfortunately, that seems to have been the high water mark. This year, even the European Central Bank is pegging growth at 2.0% to 2.5%, which is wildly optimistic. J.P. Morgan says it’s 1.5% to 2% at best, while Credit Suisse First Boston says that it’s gonna be 1.4%.

    So how’s the US doing? Pretty good, I’d say. If I’m reading this chart right, we’re looking at about double the European rate. AND we’re doing it without fear of runaway inflation, which is what the Europeans might just have in store for them.

    But it’s just not GDP growth and inflation. In the 1980′s, Europe’s annual productivity was growing at 1.9%. It’s since dropped to 0.9% in the period from 1996 to 2003. And how is the US doing? Although it can always be better, compared to the EU we’re kicking hinder and taking names.

    Some of you are wondering why I’m comparing the EU and the US. Apples/oranges and all that. My reply is that the main motivating factor for forming the EU in the first place was to create an entity that could compete with the US. So far they aren’t doing all that great a job.

    Mr. Sims states that there’s a variety of reasons why the EU is having trouble. Some, like low birth rates, just have to be lived with without any clear way to improve them. But there are also a slew of “structural problems” that are hampering the Europeans. Mr. Sims doesn’t go into too much detail here, but he mentions the amazingly short work week that European workers enjoy, as well as fat unemployment benefits that don’t do much to encourage people to find a job.

    What’s my opinion? I’m just some guy who’s interested in history and certainly lacking in even the most basic skills to understand the economy, but even I can see that Europe has got to get it’s house in order. They rely on the US for their own defense, and they enjoy historically low military spending. Even so they’re having trouble? How come they’re not using the “Peace Dividend” provided by the US military to jump ahead?

    Someone’s screwing up big time. But don’t ask me who, or what can be done to fix it.

     

    48 Responses to “I’m Waiting for the “DUH!!” Factor to Kick In”

    1. In-Cog-Nito Says:

      Them’ lazy Europeans…

      One could argue that because they aren’t having kids, there is less incentive for them to go that extra mile work wise.

    2. Tom Bridgeland Says:

      As anti-American as the Euros are now, I could see something like the old USSR forming. An economic basket-case with nukes opposed to the US.

    3. Patch Adams Says:

      In 20 years, over half of Western Europeans are going to be of retirement age. Many of those will be living on generous government pensions. This greying of Europe is one of the most profound problems Europe and the greater world faces, especially when you consider that the world really has only 3 main economic engines: the US, Europe, and Japan. As we all know, Japan has had serious stagnation problems for over a decade now. A severely diminished Euro economic engine, therefore, is akin to knocking another leg out from under the table.

      The problem faced by much of Western Europe dwarfs that of the United States (not that we don’t have issues with our gov’t pension system either). Sadly, a combination of mass protests and weak political leadership means that this crucial problem is yet to be addressed.

      I mean, it’d sure be nice to work 36 hrs/week, take 6 weeks vacation/year and retire at 55 on a nice fat pension. But it would also be nice to not have to spend my “golden years” begging for money.

      Lets hope they get it figured out, because a bankrupt Europe is baaaaad for the world.

    4. Chris Says:

      I believe they are just slackers..I mean you have only to look at the Tour de France to see that

      :)

    5. DSpears Says:

      I read the same article and yes, there was nothing new except the total lack of emphasis on Europe’s single biggest problem: Socialism. Their welfare state, of which their pension systems are only a part is the real problem. The shorter work week, compulsory unionism and protectionist policies are as well. No mention at all that most of these countries cofiscate up to 50% of all economic product for govenrment uses.

      The best description I have ever heard of this is “Eurosclerosis”.

      May we never catch that dreaded disease.

      Side note: The Wall Street Journal, unlike the New York Times, Washigton Post, etc. certainly doesn’t have the problem of their editorial opinions biasing their news coverage. The tone, tenor and focus of most of the reporting is decidedly not “conservative”. Any article on Europe’s economic problems that doesn’t mention their pervading welfare state just doesn’t get it. After reading the WSJ editorial page and the rest of the paper all these years, it’s obvious that there is no conservative litmus test applied to new hires, or any pressure form the inside to avoid common leftist misconceptions.

    6. Tom Bridgeland Says:

      Why is it that all socialist states seem to have falling birthrates? I am not refering to dictatorships like China, but the social democracies like Japan and Europe. Something about that system just seems to swamp the normal drive to reproduce.

    7. rdbrewer Says:

      The ostensible purpose for the EU may have been to compete with America economically, but the real reason–if there is such a thing–might be an expansion of French power and influence through a war of diplomacy. They do appear to intend to dominate the EU.

    8. peter Says:

      My grain of salt.
      Last year Goldman Sachs did a study whose focus was to study the productivity trends between the US and Europe.
      They found that most of the difference could be explained by the divergence in demographic trends. The shorter work week impact was limited thanks to an increase in productivity.

    9. James R. Rummel Says:

      “Last year Goldman Sachs did a study whose focus was to study the productivity trends between the US and Europe.
      They found that most of the difference could be explained by the divergence in demographic trends. The shorter work week impact was limited thanks to an increase in productivity.”

      The European productivity rate used to be 1.9% and is now 0.9%. That means that the Europeans are less than 1/2 as productive as they used to be.

      BUT, if the work week went from 40 hours to 35 hours, that means that they’re actually working about 88% of what they used to.

      If what you’re saying is true, then shouldn’t the productivity rate have fallen to 88% instead of 47%? in fact, it looks to me that the Europeans are both working shorter hours and only doing half the work they used to while on the job.

      Like I said, I’m not an economist and I lack the most basic of skills to understand complex models. But this doesn’t seem complex at all and the numbers still don’t add up.

      I can’t seem to find the study you mentioned. If you could, I’d appreciate it if you could post the URL in here in the comment section.

      James

    10. Sandy P Says:

      Reading the bus sections over the past 20 years – we can’t adopt American practices, we’re not American.

      They’re starting to adopt American-style accounting practices and finding out how in the red they really are.

      They will cut off their noses to spite their faces, thinking they’re spiting ours.

      It’s mutated monarchy. They’ve been under it too long, unelected 1 or unelected brusselsprouts, doesn’t matter.

      They are bound and determined to prove we’re wrong.

    11. In-Cog-Nito Says:

      “Why is it that all socialist states seem to have falling birthrates? I am not refering to dictatorships like China, but the social democracies like Japan and Europe. Something about that system just seems to swamp the normal drive to reproduce. ”

      Easy, with socialism the emphasis is that the government will take care of you. One driving force to have kids in the old days (and more traditional societies like Asia currently) was to have enough kids to take care of you when you were old. Birth control, higher standards of living, rampant consumerism play a part as well. Dennis Praeger wrote a good article a while back examining why.

    12. peter Says:

      As you said James you are not an economist.

      By the same token how come the health care system in the Land of the Free cost 50% more than let say … in France, let 40M uninsured, and a huge amount of complainted even by those who are covered.
      The cost of medication is only the tip of the iceberg so please don’t use it.

    13. Jonathan Says:

      Don’t forget high tax rates as a disincentive to child bearing. Money that taxpayers pay to the govt is money that they can’t spend on children.

    14. James R. Rummel Says:

      “By the same token how come the health care system in the Land of the Free cost 50% more than let say … in France, let 40M uninsured, and a huge amount of complainted even by those who are covered.”

      You mean that the US pays more for health care and we’re still kicking French butt? America is paying for their defense, we’ve got a greater drain on the economy due to greater health care costs, and we still see our technology, influence, economy and importance growing while they’re fading into the dust bin of history?

      Like I’ve always said, those guys are incompetent in the extreme.

      James

    15. In-Cog-Nito Says:

      “No mention at all that most of these countries cofiscate up to 50% of all economic product for govenrment uses.”

      After all these years, I still can’t believe a third of my economic product goes to some paper pushing good for nothing bureaucrat. The latest 9/11 commission report is perfect example. The gist of it is “to defeat terrorism, we must think outside the box”… If I submitted a report like that at work, I probably wouldn’t be employed very long.

    16. In-Cog-Nito Says:

      “By the same token how come the health care system in the Land of the Free cost 50% more than let say … ”

      You get what you pay for. Better poorer than dead… Some things you don’t want to skimp on, look at Canada.

    17. peter Says:

      Nito
      You know very well thet the american miracle is partly built on sand. How much I don’t know, and I am not hopping for the worst but one day this country will have to pay the bills.
      How long Uncle Sam will print paper like mad without paying the price. Not one european country could do the without being in big trouble.
      the last ten years have seen a grest increase in demand for the dollar thanks to the increase in global exchange. Any slow down or set back will be very damaging. But you know that better than me Chicago Boyz.
      I don’t think this blog is good for your mind, you all think the same way, all clones.

    18. In-Cog-Nito Says:

      “I don’t think this blog is good for your mind, you all think the same way, all clones.”

      Not really. For example, if I recall a conversation I had with Jonathan last week:

      Jonathan: “That was a brilliant idea Nito!”

      Nito: “Thank you Jonathan. Likewise you’re brilliance should not be overshadowed as well by my brilliance.”

      Jonathan: “Why thank you Nito. That other idea you had last week: Genius, pure Genius.”

      Nito: “Thanks again Jonathan. Sometimes, our collective genius is truely awe inspiring.”

      Jonathan: “Cheers mate, let’s go get a beer.”

    19. Jonathan Says:

      “I don’t think this blog is good for your mind, you all think the same way, all clones.”

      At least we’re thinking. I think you’re smoking.

      If you’re worried about dollar production, consider that 1) we’ve been producing dollars at a high rate for quite a few years, through good periods and recessions, and we’ve done OK overall despite some mismanagement, and 2) everyone else in the world wants to hold dollars. I suppose we might have a problem if everyone suddenly decided to exchange their mattress dollars for euros, but how likely do you think that is? The dollar is in demand because we’re monetarily and politically stable (compared to the alternatives) and make dollar-denominated investments attractive. The big European countries are still trying to perfect 1970s fiscal policy, and it doesn’t work. I don’t think Americans are the ones who should worry.

      BTW, In-Cog is mistaken. I did not characterize him as a genius, but as a “supercalifragilistic double-secret genius” — which is really a whole different kind of thing.

    20. James R. Rummel Says:

      Jonathan: “That was a brilliant idea Nito!”
      Nito: “Thank you Jonathan. Likewise you’re brilliance should not be overshadowed as well by my brilliance.”
      Jonathan: “Why thank you Nito. That other idea you had last week: Genius, pure Genius.”

      I’m gonna have to show up for the next Boyz Nite Out just so’s I can look good with all that reflected glory washing over me.

      James

    21. DSpears Says:

      “How long Uncle Sam will print paper like mad without paying the price.”

      Define “like mad”. I would agree that for at least a year the Fed has been adding too much liquidity to the banking system (the Federal Reserve does not print money). This has probably added some inflationary pressures to the economy thatt would not have otherwise been there.

      But the results of such an action do not lead directly to a catastrophe, as long as the policy is reversed at some point. The 1970′s happened not because the Fed added too much liquidity to teh markets starting in 1965, it happened because it continued to do so almost unabated(under the guidance of some misguided economic policies that were very in vogue at the time) until Paul Volker took over in 1979.

      There is a price to be paid, but after that price is paid America will still be by far the most productive, prosperous, and richest country in the world, with the highest standard of living.

      “Not one european country could do the without being in big trouble.”

      That’s for sure. The structure of their economies (I’m generalizing, Ireland and to a lesser extent G. Britain are less so) is highly inflationary, and any monetary loosening would quickly result in run-away inflation. And their central bankers know this. Europe, because of it’s high taxation, regulation and government spending, and much of Europe’s disdain of entrepenuership and salesmanship, creates very restricted economies where supply, demand and capital do not move feely. The structure of their economies puts a hard stop on the amount of monetary supply that they can utilize without generating inflation.

      America’s economy needs to be more structurally flexible to be sure, but we are no where near as bad as Europe or Japan. Maybe that’s why nobody has done anything about in about 20 years.

      “2) everyone else in the world wants to hold dollars. I suppose we might have a problem if everyone suddenly decided to exchange their mattress dollars for euros, but how likely do you think that is? The dollar is in demand because we’re monetarily and politically stable (compared to the alternatives) and make dollar-denominated investments attractive. ”

      Exactly.

      If you try to come up with scenarios that would change this situation and lead to an economic catastrophe, a few scenarios pop up:

      1) The US government does does something ( or lots of things) really stupid that permanently lowers the growth potential of the US. Those could include a large tax increase, serious protectionist measures aimed at redcuing the “trade deficit”, instituting a truely European style socialist welfare state…etc., etc. If that happens, we’re in trouble regardless of our monetary condition.

      2) The EU, Japan, China etc. permanently passes us up in productivity and becomes a better place to invest and do business. Neglecting the possibility of super-human rates of growth by any of those, that’s a long way in the future, giving prlenty of time to adjust (i.e., to accept our fate). Again, if that happens, we’re in trouble regarless of our monetary condition.

      3) Foreigners holding US dollars and/or debt dump large amounts onto the international markets, quickly (I’m not even sure this would have entirely negative effects). I’ve tried to do mental exercizes to create a scenario that would cause such a thing, and absent of #1, it requires others to do things that are not in their own economic best interests. History says this has happened before, but it still seems unlikely, especially considering that more than one government would have to make the same self-defeating decisions simultaneously.

      4) A James Bond villain buys up all of Americas government debt and then uses it to balckmail us into fulfilling his evil goals of world domination.

    22. Jay Manifold Says:

      Well, just as proof that we don’t all quite think alike, allow me to point out a mathematical error in the 10th comment above:

      The European productivity rate used to be 1.9% and is now 0.9%. That means that the Europeans are less than 1/2 as productive as they used to be.
      BUT, if the work week went from 40 hours to 35 hours, that means that they’re actually working about 88% of what they used to.
      If what you’re saying is true, then shouldn’t the productivity rate have fallen to 88% instead of 47%? in fact, it looks to me that the Europeans are both working shorter hours and only doing half the work they used to while on the job.

      I believe that’s a growth rate; quoting from the original post:

      In the 1980′s, Europe’s annual productivity was growing at 1.9%. It’s since dropped to 0.9% in the period from 1996 to 2003.

      – which then points to a source indicating that American productivity is growing at 4.6% annually.

      What this means is that European productivity rose by a total of about 6.5% from ’96-’03, whereas in any 7-year period in the 1980s, it rose by 14%. If the current American rate is sustained, then in 7 years our productivity will have risen by 37%.

    23. Anonymous Says:

      Well, at least the economists on this site aren’t elitists–they let a lit major play on the site and Gerwith manages respectful responses. Clones tend to be too insecure to be polite.

      Anyway, I’ve got a couple of questions. I don’t know the answers, but wondered if someone did since I think they relate to Mr. Rummel’s observations and deal with health care.

      Do the sick in this country languish without health care or do we just have a really, really stupid system of dealing with it? (My limited experience of free clinics, of emergency rooms, and of the free dispensation of immunizations is that the system is difficult, hard to negotiate and inefficient (people using weekend emergecy rooms for minor ailments that began during the week, people not getting their kids immunized because, well, the diseases aren’t around much anymore and the free shot place is only open a few hours a week, etc. etc.)

      Perhaps it is just the chance of the people I’ve known but the grave problems appear to arise from a combination of an entrepreneur – a small businessman who isn’t rich but is doing okay – whose family is struck by a catastrophic disease. Who does our health system affect and how? This is not the picture Europeans have, but sometimes in the rhetoric I am not sure that is the picture we have. Is my limited experience wrong?

      Question 2: My assumption (weighted by reading Sullivan, I suppose) is that America is doing the lion’s share of invention/discovery in the health care field. Is that right? If that is right, are Americans paying through the nose for health care because doctors and pharmaceutical companies are a greedy bunch or because we have shouldered on our willing backs the R&D expenses for health care for the world? If our companies – both in technology and drugs – aren’t making progress, then should we really be giving them the profits they are getting? If they are, shouldn’t the rest of the world be grateful and hardly criticizing us for paying more to encourage that R&D that is helping them? (Certainly, it is a given that the pharmaceutical companies appear to be able to waste money on marketing and themselves and I’ll acknowledge that my experience with those going into and coming out of med school is an unusual–with only a few perhaps an unnatural–enthusiasm for the big buck.) But I will live longer because I am already on medicine for the chronic complaints that led to my parents, etc. deaths. I am thankful for that.

      Okay, those are my questions. Obviously, I’ve got my impressions but they are not educated ones. Educate me.

    24. Ginny Says:

      Sorry, I did the one above.

    25. In-Cog-Nito Says:

      Well, you can be like an illegal alien and just walk into the ER of the nicest hospital in the nicest neighborhood near you, get treated for whatever ails you, and disappear into the night.

      Hospitals are getting killed profit wise by just such.

      As to biotech profits, the more the merrier I say. It’s called recouping your investment. Socialists don’t seem to understand simple economics. They just look at the cost of physically manufacturing the pill as opposed to the years of research costs behind the pill. I wonder what life saving wonder drug has come out of Europe lately.

      Philosophically, Americans tend to also take more risk than Europeans. You can argue that it’s a product of our free capitalist background, Judeo-Christian work ethic, and independent nature. It’s the essence of investing to take risks for a future payoff. Venture capitalists and biotech firms share much in common in that they take huge risks and are willing to wait years for the payoff. They do this because they know that if they hit the wonderdrug circle, the payoff will be enormous. Take away that payoff (in terms of huge profits) and you take away the incentive for these entrepreneuers to take that bold risk.

    26. James R. Rummel Says:

      “My assumption (weighted by reading Sullivan, I suppose) is that America is doing the lion’s share of invention/discovery in the health care field. Is that right? If that is right, are Americans paying through the nose for health care because doctors and pharmaceutical companies are a greedy bunch or because we have shouldered on our willing backs the R&D expenses for health care for the world?”

      Everybody goes on about the drugs, mainly because they’re very expensive to develop. Like In-Cog-Nito said, those that shoulder the incredible burden of R&D costs both expect and deserve to recoup their investment. Not only that, but they both expect and deserve to realize a healthy return on their investment. I once read that the average costs to develop a new drug exceeds 1 BILLION DOLLARS!!!

      Profit. It’s what drives innovation.

      But pharmas are tricky. Everybody complains about the cost of drugs and what’s fair, and it’s not helped by the fact that it’s THE most regulated business in the world. So let’s look at another aspect of health care.

      We now have an array of medical technology available to diagnose and monitor your ailments. CAT scans, ultrasound for pregnant women, even the Internet to allow skilled surgeons give instant instructions and advice to medics who have to perform tricky operations.

      Here’s the question. How much of this incredible technology was developed in Europe?

      Better question: How much of it was developed outside of the US?

      (I think that pretty much says it all.)

      James

    27. DSpears Says:

      “If that is right, are Americans paying through the nose for health care because doctors and pharmaceutical companies are a greedy bunch or because we have shouldered on our willing backs the R&D expenses for health care for the world?”

      First of all, doctors and drug companies are no more or less “greedy” than anybody else. “Greed” is what makes a capitalist system work, so lets get past assigning labels of good and evil to an economic discussion. All it does is distort the discussion away from the real issues of supply and demand.

      Americans pay more for health care largely becasue we get more health care. If I buy more food than you it makes sense that I would pay more for it, right?

      For instance, Canada has access to something like 1/2 the drugs available to Americans. It’s a basic economic concept: When you control the price of something absent a change in demand the supply inevitably will go down. Rent control, the gas lines in the 1970′s, the shortage of everything during WWII, etc, etc.

      “If our companies – both in technology and drugs – aren’t making progress, then should we really be giving them the profits they are getting?”

      Nobody is “given” profits. The market assigns profits based on supply and demand, market conditions and the efficiency with which the company does it’s business. These are not “our” companies, they are companies based in the United States. Unless you and I own stock in them, they are not “ours”.

      “If they are, shouldn’t the rest of the world be grateful and hardly criticizing us for paying more to encourage that R&D that is helping them?”

      Yes, and they’re not grateful, at least not publicly. The rest of the world isn’t criticizing us for paying more for drugs (I think they rightly believe that they are ripping us off, which they are), they know that as long as we aren’t controlling our prices and they are, they get a free ride. I have never seen a foreigner complain that we pay more than them.

      “(Certainly, it is a given that the pharmaceutical companies appear to be able to waste money on marketing and themselves and I’ll acknowledge that my experience with those going into and coming out of med school is an unusual–with only a few perhaps an unnatural–enthusiasm for the big buck.)”

      What do you mean by “waste” money on marketing? Why do you get to tell any company what they should spend on marketing or anything else? Without the severe (and sometimes excessive) regulations on the industry, the slow approval process and the price controls, it would be profitable for the drug companies to spend more on R&D and less on marketing, but that is their decision and they are making those decisions based on what is best for their stockholders.

      And what is an “unusual” enthusiasm for the big buck? What would be a “usual” enthusiasm for the big buck? These kind of ideas just cloud the issues and lead people to inevitably focus on the wrong things (which how we got to where we are now).

      The problem isn’t that doctors and drug companies are making too much money, it’s that they aren’t making enough on providing the neccessary care vs. stuff that doesn’t save lives. The drug companies make the relative mix of products that they do because that is how they believe they maximize their profits. Price controls in the US and especially in other countries limit how much money they can make per unit. So the only way to recoup their costs and provide a return to their shareholders is to increase the volume of drugs sold. How do they do that? Marketing.

      But limiting the drug companies’ profit margins on each of these drugs leads them to sell less of those drugs, in favor of less regulated stuff that people are willing to pay for out of their own pockets (like Viagra for instance). In short, without the price controls the drug companies would have more money to spend on R&D AND there would be more life saving and life improving drugs available.

      Now, anticipating the conclusion that less free-market aligned people inevitably come to:

      Private, for-profit enterprise, copmpeting in a free competitive market, is the best way (and so far the only way) to create any product or service at the lowest cost and with the highest level of performance and quality.

      No government, whether the US or any of the developed countries with government monopolized health systems creates these kinds of products. It’s a fact. In fact, the history of government run enterprise is rife with bad products, bad services and outrageous costs. If government price controls and universal health care produced innovation and cost effective products then Germany and France would be producing the vast majority of the life-saving drugs in the world. They don’t. Germany effectively has killed their pharmaceutical industry because the “profit is bad” mentality it has applied to it’s health care system. How many life saving drugs has the Canadian government produced?

      Ironically, the latest furvor for drug re-importation could be the event that changes all this. My prediction is that drugs bought by the various nations with price controls (Canada first, then others) are going to experience shortages of drugs and will either ease their price controls or make re-exportation of drugs illegal. The former would be clearly better for the world’s supply of life saving drugs in the long run, but the latter simply would restore the status quo, although the black market which is already developing might be more than the governments can contain. I’m betting on the latter.

    28. Ginny Says:

      Dspears
      Sorry about that. Your comment makes me recognize both the problems of flippancy and that envy is probably something that should be guarded against as much (or more) than greed. (The latter at least has the value of making the market more active.) No, I don’t think any of us or the state should control another’s profits. But I meant a bit of irony, as well.

      Your thoughtful and clearly educated discussion seems to be giving us the generals of the market which reinforce my intuition.

      First, though, we can allow inefficiencies and irritants in our system. The working poor do have access to healthcare, but it is through a system sometimes difficult to negotiate. The very poor and the old have access but it can lead to real wastes of money, time, and energy. Okay, let’s acknowledge that. Whether those difficulties are that much greater than in a Europe with a heavily state-controlled medical delivery system, I don’t know. My impression is that only spreads the pain, but I may be wrong. It may work beautifully.

      But, that aside, your argument seems to assume (am I wrong?) that our capitalist/entrepreneurial/cowboy system is the one that produces most of the drugs that have lengthened & improved our lives (and those of people in many other countries) as well as a quantity of innovative technology and procedures. If that is true, then perhaps some of our deficiencies might be seen more proportionally by Europeans who complain about the inadequacies of the American system. If the goal – longer and healthier life for more people – is better achieved through the results of our system than of theirs, this should trump about everything material.

      Am I right in saying that you (and Rummel) are arguing that the appropiate response to an analysis of our health care system by those in other countries who profit from our discoveries is “Thanks”? (That may be putting words in your mouth; that, at least, we are fairly lucky to have our system in place?)

      Of course, we need to improve our system. It is certainly not without flaws. But if the point Sullivan repeatedly makes (13 of the 16 AIDS medicines came from America) describes not a quirk but a representative pattern, then we must be doing something right.

      Europeans complain about the cost of health care here – implying that our lower classes don’t get care at all and that the costs are so great only the wealthy few get good care (they have the same attitude–and there I know it is incorrect– toward college) and that we spend a self-indulgent amount. I am not sure that is all that much true. Even if it were, however, we are judging good care by a higher standard because of those innovations. The campaigns will complain that a man who can’t get heart medicine is deprived – but that medicine would have only been available for the last five years. His deprivation would be in terms of a much higher standard because of that expensive research.

      Not that we should expect that Thanks. First of all, I’m not sure without those studies (or frankly even with them) those outside our borders are going to be convinced. And, secondly, it is not human nature to give thanks for something that has become a part of the daily world through which people move. Given an antibiotic in Switzerland, does anyone ask the country of origin of the discovery? And if they did find out it was America, could people who have lost any sense of the entrepreneurial spirit factor in the billion dollars in R&D cost? (Actually, I had that in the back of my mind, believe in that importance, and still made snarky comments.)

      Anyway, some stats on medicines, patents, etc. would be nice. Of course, I’d be especially happy if they reinforce my position.

    29. Ken Says:

      “Even if it were, however, we are judging good care by a higher standard because of those innovations. The campaigns will complain that a man who can’t get heart medicine is deprived – but that medicine would have only been available for the last five years. His deprivation would be in terms of a much higher standard because of that expensive research.”

      It’s worse than that. There are people in this world – people who are not immediately dismissed as cranks as they ought to be – who tell us that we should not develop a cure for aging because the rich would be able to afford it and the poor would not. In many minds it is better for everyone to succumb to the deterioration of their own bodies than for some people to be spared while the condition of others is unchanged.

      When you grasp this mentality, and everything that it means, you can understand the real meaning and intention of the advocates of nationalized health care. Telling them that they’ll cut off the flow of new medicines doesn’t deter them, because they don’t care – they think it’s better that nothing new ever gets developed, so long as everyone has an equal share of what exists today, and the fact that that state of affairs spells their own doom in a matter of a few decades doesn’t seem to occur to them.

      These are the people that damn President Bush for the new drug benefit – not because giving away drugs is a stupid thing to do with our money, but simply because the pharmaceutical companies will be paid for those drugs!

    30. James R. Rummel Says:

      “But, that aside, your argument seems to assume (am I wrong?) that our capitalist/entrepreneurial/cowboy system is the one that produces most of the drugs that have lengthened & improved our lives (and those of people in many other countries) as well as a quantity of innovative technology and procedures.”

      I’m not really up on all the innovations that occur in the pharma world, but just by looking at the computer/mechanical stuff I can see that Europe has produced none of it in at least the last 30 years. Zero! Some people insist that they haven’t done a damn thing since 1953, when Watson and Crick discovered that DNA was a helix. Everything since then has simply been refinements of work someone else has done.

      So it wouldn’t surprise me in the least if there was a similar situation concerning drugs.

      “Am I right in saying that you (and Rummel) are arguing that the appropiate response to an analysis of our health care system by those in other countries who profit from our discoveries is “Thanks”?

      Not exactly. At least for me, that is.

      The one thing I have a problem with is the inability of people to recognize basic, easily perceived reality. You wrote a post about finding similar attitudes amongst academics. People just don’t want to face up to anything that goes counter to their own comfortable prejudices.

      I read the foreign press online, probably more than is good for my cardiac health. It would appear that the people in the EU have their heads firmly up their hinders. They haven’t seen daylight for decades.

      So I really don’t care if they keep on their long slide into insignificance. It does bother me, however, when they blame the US (or anyone else) for problems that are so clearly of their own making.

      I really don’t care if we get a “Thanks” or not.

      “Of course, we need to improve our system. It is certainly not without flaws.”

      I’m not so sure that revision would bring about desirable results, or even that it’s needed. As I’ve pointed out, we’re charging ahead faster and farther than anyone in the world. That’s not a system that needs to be tweaked, in my opinion.

      James

    31. Jonathan Says:

      Telling them that they’ll cut off the flow of new medicines doesn’t deter them, because they don’t care – they think it’s better that nothing new ever gets developed, so long as everyone has an equal share of what exists today. . .

      Yes. It’s not unlike the mentality of “urban planners” who want to “get people out of their cars” — not by making alternative transit more attractive but by making driving so slow and burdensome that inferior, obsolete transportation methods become artificially competitive again. Some people (and they will always be with us, it’s human nature) would rather trim the entire forest to the height of the lowest tree than let each tree find its own height.

    32. Ginny Says:

      We see some ugly versions each semester in freshman English: “Don’t get above you raisin’” says Pap to Huck; the barn burner Ab Snopes grinds shit into the carpet of the house his son feels embodies beauty and proportionality; Iago, jealous of the love between Othello & Desdemona sets down the pegs, undoing that very harmony; Claggart envies Billy Budd’s innocence, lusting after his soul more than his body.

      We all understand envy, perhaps. But is a desire not to value drugs that might give someone a better life understandable? Well, yes, if we have seen in these characters a hatred of beauty and innocence, strength and virtue.

    33. MatyaNoBaka Says:

      The Economist has some input on drug costs. From the 4 Dec 2003 issue:

      The Tufts survey of drug development costs found $897M average for development of a drug for a chronic disease at a big firm. Smaller firms, or less problematic conditions like infectious diseases take about $100 – 200M. In general, yearly global drug development costs since 1991 have roughly doubled while introduction of “new molecular elements” have halved.

      GlaxoSmithKline (a British firm, 2nd largest drug firm) had 82 new drugs and 20 vaccines in development, with 44 in later stage trials. GSK are doing a lot of innovative things to improve their R&D effectiveness. “Merck’s near-term pipline now looks horribly empty.” So the European periphery is still somewhat productive.

      I can’t find anything more substantial on numbers of drugs, not in The Economist, Luskin or Musil. However, from 11 July 2002 there is a chart of “Drug R&D”, “Present Value of the Drug Pipeline”, end 2001, $Bn:

      3.8, 41.0 GlaxoSmithKline (UK)
      4.2, 37.6 Pfizer (US)
      2.3, 30.4 Merck (Germany)
      1.9, 30.4 Bristol-Meyers Squibb (US)
      2.0, 29.9 Eli Lilly (US)
      2.6, 25.1 AstraZeneca (Germany)
      1.6, 21.8 Wyeth (US)
      1.9, 20.6 Novartis (Germany + France)
      2.5, 17.6 Aventis (France)
      3.2, 11.4 Roche
      1.3, 04.9 Bayer (Germany)

      So it at first appears that a lot of the research costs are spread around. But i’m not sure that that’s the relevant measure here. After all, it’ doesn’t matter if you are a French or US pharma company. You still get a lot of the initial profit from your discovery on the high price you can charge in the less regulated US drug market.

      Matya no baka

    34. DSpears Says:

      “First, though, we can allow inefficiencies and irritants in our system. The working poor do have access to healthcare, but it is through a system sometimes difficult to negotiate. The very poor and the old have access but it can lead to real wastes of money, time, and energy. Okay, let’s acknowledge that.”

      This is a problem and while I generally think that government is the worst possible way to achieve any goal, the government could do a lot to help the people who fall through the cracks without breaking the bank.

      The great obstacle is that politicians tend to want to design a gigantic, one-size-fits-all solution to the problem of the uninsured by having the government take over the whole system (cough,cough Hillary Clinton), instead of providing a minimalist solution for those who cannot find health insurance on the open market any other way. This could have been done a decade or two ago if some people wouldn’t have delusions of taking over 1/6th of the US economy. In the past I would have blamed that mentality exclusively on Democrats, but as the prescription drugs fiasco shows, it is simply an unfortunate reality of being a politician of either party (is the correct term Republocrats or Demoplicans?).

      Having poor people go to the Emergency Room for the flu is not the most efficient way to do things, although my libertarian impulse forces me to remind everybody that if efficient government is your goal, your heroes should be Hitler and Stalin (sorry, I had to say that).

      “Am I right in saying that you (and Rummel) are arguing that the appropiate response to an analysis of our health care system by those in other countries who profit from our discoveries is “Thanks”?”

      I kind of doubt if their reaction is “thanks”, but it should be. But in the end I really don’t care what the Europeans think.

      “So I really don’t care if they keep on their long slide into insignificance. It does bother me, however, when they blame the US (or anyone else) for problems that are so clearly of their own making.”

      I will take slight issue with this statement. While I don’t care (in a compassionate sense)if the Europeans suffer under their self imposed stagnation for centuries, as a wide-eyed free-market capitalist the stagnation of the Europeans, the Japanese or anybody else indirectly reduces our potential wealth as well. Since the world is not a zero-sum game, Europe getting it’s long-term economic act together would make us all richer.

      If making their snivelling, sorry, socialist lives better is the price we have to pay, so be it. Until then we can always laugh at them.

    35. Ken Says:

      “as a wide-eyed free-market capitalist the stagnation of the Europeans, the Japanese or anybody else indirectly reduces our potential wealth as well. Since the world is not a zero-sum game, Europe getting it’s long-term economic act together would make us all richer.

      If making their snivelling, sorry, socialist lives better is the price we have to pay, so be it. Until then we can always laugh at them. ”

      Making their snivelling, sorry, socialist lives better is not going to cause them to produce additional wealth that can make our lives richer through trade. What will do that is to get the Europeans to be productive, not just wealthy – then we and they can trade our production and mutually benefit. If they produce nothing, we cannot benefit by using our production to make them wealthy rather than using it to make ourselves wealthy.

      In short, the only thing we can do to bring about a world where we and they can trade to our mutual benefit is to bring their sniveling, sorry, socialist lives to an end, and somehow cause their capitalist, productive lives to begin anew. I don’t think we can do that, though, except by example – and that means, for a start, that we ought to knock off following their example.

    36. social democrat Says:

      Reading this discussion someone would never know about some of the public inputs into medical research:

      1) Public education, K-Ph.D.

      2) Government grants for basic research across a lot of scientific disciplines. You can’t begin to figure out how to design & build an MRI device–much less ask some investment banker to raise the money to figure it out–unless someone else has done the basic physics research first. The Internet was originally funded by DARPA to help scientists communicate with each other. (insert your own Al Gore joke here, if you wish.)

      3) Directly relevant grants in biology & medicine, such as the NIH. (surely that acronym should be mentioned at least once in this thread.)

      On the other hand, the U.S. government is seriously hindering medical research by restricting access to stem cells. We’ll have to rely on our friends in Europe and Asia to do that work.

      All the scientists I know have more than enough smarts to become investment bankers, if they wanted to maximize their incomes. Maybe there are others, but the only corporate R&D lab I can think of that’s won Nobels is the old Bell Labs, a division of a tightly regulated monopoly. Innovation is too complex a phenomenon to be explained only by the principals we learned in econ. 101.

    37. Mitch Says:

      I don’t know if Peter is still on this thread, but I’ll try to give him a semi-serious answer (it’s the best I can do, I’m afraid).

      Clones — He must have missed the heated discussions over gay marriage, Mac, and a host of other topics. Besides, half of us don’t even know what the others look like. If we did, I think there would have been bloodshed.

      Federal Reserve fitting a turbocharger to the printing press — not happening. That’s what is called inflation. What I think he’s referring to is that the US balance of trade deficit and its flip side, the net influx of investment, gives us an artificial boost. We get that advantage from the USD being seen as a safe repository of value. That, in turn, comes from a long-term record of political stability and economic progress. This isn’t something we impose on others — it’s a choice made freely all over the world.

      There is no inherent reason for the dollar to be the chief trading currency. The Euro was designed, at least in part, to supplant the dollar as the reference currency. They have partially succeeded. Long term, I prefer our prospects.

      Saying that there is universal health care in one country or another does not say what level of coverage they get. With all the coverage of Americans getting cheap prescriptions in Canada, we hear less than we used to about Canadians coming south to pay cash for medical procedures not available in Canada. Canadians can wait years for elective surgery, and are not allowed to pay for service in their country. There are more four times as many MRI machines per person in the United States than in Canada. And as for the uninsured, we spend about $125 billion per year for the health costs of the 44 million uninsured, a combination of emergency aid, free care to the indigent, and debts not paid. At that level of spending, it’s hard to argue that they aren’t getting care.

      It’s a basic fact of economic life — demand is infinite, supply is finite. The only question is how to allocate the resources everyone wants.

    38. Ken Says:

      “Reading this discussion someone would never know about some of the public inputs into medical research:

      1) Public education, K-Ph.D.”

      The people who end up being our researchers generally succeed in spite of the public education system, in which they spend much of their time waiting for the “teacher” to give up the futile effort to pound yet one more fact into the heads of the morons that keep assaulting them with impunity. Finally, after what seems like an eternity, they get to begin learning the stuff that will actually serve them in their endeavors. Doesn’t seem to me like public education is the reason we have good researchers.

      “2) Government grants for basic research across a lot of scientific disciplines. You can’t begin to figure out how to design & build an MRI device–much less ask some investment banker to raise the money to figure it out–unless someone else has done the basic physics research first. The Internet was originally funded by DARPA to help scientists communicate with each other. (insert your own Al Gore joke here, if you wish.)”

      And it was the AT&T monopoly on wired communications and the nationalization of the entire radio spectrum that prevented national computing networks from being started long before DARPA released their network to the world.

      “3) Directly relevant grants in biology & medicine, such as the NIH. (surely that acronym should be mentioned at least once in this thread.)”

      That’s great, but the fact that the government puts some basic research in the public domain does not imply that pharmaceutical companies should not be paid for the intellectual property they develop on top of that basic research, or that restricting the profits or activities of the pharmaceuticals will do anything but slow down the conversion of basic research to usable medicine, to everyone’s detriment.

      “On the other hand, the U.S. government is seriously hindering medical research by restricting access to stem cells. We’ll have to rely on our friends in Europe and Asia to do that work.”

      Well, at least private entities aren’t forbidden to work on it, or to patent their own intellectual property derived from such privately-funded research. Yet.

      “All the scientists I know have more than enough smarts to become investment bankers, if they wanted to maximize their incomes. Maybe there are others, but the only corporate R&D lab I can think of that’s won Nobels is the old Bell Labs, a division of a tightly regulated monopoly. Innovation is too complex a phenomenon to be explained only by the principals we learned in econ. 101.”

      With the government giving out basic research for free, you’re going to get far fewer people trying to produce it for a profit than you otherwise would, so don’t take the fact that the government routinely does most of it as evidence that it would not get done without government action. The conversion of basic research into usable products does happen a lot faster when competing entities are permitted to profit from the intellectual property that they developed, and a policy that allows and encourages this to happen will lead to more and better medicines and other products than a policy that impedes it.

    39. MatyaNoBaka Says:

      Social Democrat:

      Innovation is too complex a phenomenon to be explained only by the principals we learned in econ. 101.

      I could not agree more. Innovation has so many different sources of funding and encouragement it’s amazing. Consider for example Princeton’s Institute for Advanced Studies.

      It starts with an education reformer, Abraham Flexner, and department store owners, Louis Bamberger and his sister. They like Flexner’s ideas, sell their chain to RH Macy, and provide the financial backing. Flexner’s brother, Simon, from the Rockefeller Institute for Medical Research (also originally set up by private funds) provides a lot of the organizational details. Princeton provides the administrative framework.

      But it doesn’t really get off the ground without government help. No, not the US. Because Nazism is more clearly a threat from the British point of view, they have set up a rescue fund for German and central European scientists. This fund provides the escape money for Einstein, Herman Weyl and Edward Teller. My hero (insert hearts and flowers here please), Kurt Godel, was probably the first mathematician / mathematical physicist rescued by the Bamberger’s funds directly. (See John Dawson’s Logical Dilemmas, AK Peters 1997 and Edward Teller, Memoirs, Perseus Publishing 2001. The first is from Wellesley MA, the second from Cambridge MA! And they were not banned!!)

      The interplay between public and private funding of basic research is very little understood. Why would someone worried about medical school practices and a pair of department store owners start one of the most successful theoretical physics labs in the world? Why would the UK fund physicists to go to the USA rather than their own programs?

      We understand why big pharma is putting its money into certain projects, but why did the small companies start to compete with them? Particularly for the high bureaucracy items like clinical trials???

      The human genome project wandered along it’s sleepy path until suddenly an upstart startup company decided to take a different approach and nearly beat the combined effort of the NIH and a dozen major research universities to the prize. Big pharma stayed out of the way and now they are begging for the genome results.

      The US limits using NIH money for stem cell research except on the original 59 strains. But stem cell research continues because there is private money to support it.

      Incidentally, i was part of the switch from NCP to TCP back in i think ’83. I worked in Cambridge MA connecting to a computer at USC, researching concurrency protocols to get around NMP interference at air bases. DARPA funded the network to allow mil contractors to communicate, not scientists in general. But it was public money, and somehow the public benefited.

      Ain’t life strange?

      Matya no baka

    40. James R. Rummel Says:

      “Why would the UK fund physicists to go to the USA rather than their own programs?”

      That’s easy enough to answer.

      The first delivery to the UK under the Lend/Lease Act were a few antiquated naval destroyers. The only way to get Congress to go along with the deal, though, was to stipulate that the UK would return them in the event of German invasion.

      Churchill complained bitterly about it. He had been planning on using the destroyers as a bargaining chip in any peace settlement should England be defeated.

      So people in both England and the US were expecting the Nazis to win and take over Europe. Might as well place these German scientists out of reach.

      “See John Dawson’s Logical Dilemmas, AK Peters 1997 and Edward Teller, Memoirs, Perseus Publishing 2001. The first is from Wellesley MA, the second from Cambridge MA! And they were not banned!!”

      You know, I can’t figure this statement out for the life of me. What the hell does that mean, “..they were not banned”?

      James

    41. MatyaNoBaka Says:

      Interesting point on preparing for the worst. That’s not brought out at all in Teller’s book, but he was not yet plugged in to the political sphere of course. Odd how the historical perspective “we won” clouds the worries of those times.

      My off base comment contrasted the idea of positive biographies of Godel and especially Teller coming from towns with the stereotypical attitude of Wellesley and Cambridge. My apologies.

      Matya no baka

    42. DSpears Says:

      Ken,

      Thanks for answering Social Democrat adequately, I don’t have much to add to what you said, other than the potential of Stem Cell research has been overblown. For instance, despite what medical researcher Ron Reagan says it doesn’t look like stem cells will provide a cure for alzheimers.

      Of course only a “social democrat” would describe the federal government not subsidizing an activity as “hindering” it.

      However…

      “Making their snivelling, sorry, socialist lives better is not going to cause them to produce additional wealth that can make our lives richer through trade. What will do that is to get the Europeans to be productive, not just wealthy – then we and they can trade our production and mutually benefit. If they produce nothing, we cannot benefit by using our production to make them wealthy rather than using it to make ourselves wealthy.”

      That is what I meant. Implementing more free market and free trade policies and un-implementing (is that a word?) their socialist welfare state policies will have the side effects of making making their snivelling, sorry, socialist lives better and increasing world wealth. I wasn’t implying that it could EVER happen the other way around.

      Another side issue is when are the Europeans going to start paying for their own national defense? I think under the surface this is what they are most resentful of with respect to America. As long as somebody else is protecting their sorry butts they will be trapped in a sort of adolescence where they don’t have any real power or responsibility. If their collective attitude on the international stage resembles that of teenagers, that’s because they resent not having military and diplomatic autonomy but don’t really want or are able to handle the responsibility that comes with it. Again, side issue.

      “There is no inherent reason for the dollar to be the chief trading currency. The Euro was designed, at least in part, to supplant the dollar as the reference currency. They have partially succeeded. Long term, I prefer our prospects.”

      Correct. I’m not sure what you mean by partially suceeded, are there non-EU countries that peg their currency to the Euro, other than as a member of some basket of currencies? Certainly the economic performance of their collective economies doesn’t warrant teh kind of demand for their currecy that would lead to such a thing by free market decisions (vs. central banks).

      To play devil’s advocate, do we really want the dollar to be the reference currency? I have never thought a lot about a world where the dollar isn’t the standard currency but how would that affect the US economy? Is it all bad, or would it be trading one set of benefits and problems for another?

    43. MatyaNoBaka Says:

      I would hazard a guess that being the reference currency for oil is on balance a good thing. When we import from a country, the receiver of the dollars has two things they can do with them, spend in America or for oil. I would think this keeps the currency more liquid at least. Second, it seems to reduce the spiky quality of oil prices. If oil were priced in Euros right now, would not the high oil prices seem even higher?

      Off hand from our point of view i don’t see anything really good or bad about a country pegging their currency to the US dollar.

      Matya no baka

    44. James R. Rummel Says:

      “Implementing more free market and free trade policies and un-implementing (is that a word?) their socialist welfare state policies will have the side effects of making making their snivelling, sorry, socialist lives better and increasing world wealth.”

      I think the term that best describes what you mean is “dismantling”. As in “Dismantling their Socialist programs.”

      “Another side issue is when are the Europeans going to start paying for their own national defense? I think under the surface this is what they are most resentful of with respect to America.”

      I know it’s the main reason most Americans are resentful of Europeans. They’re like having your wife’s shiftless brother move into the basement “just until he can find a job.” After a couple of years you want to kick the freeloader out even if he would starve to death.

      “I’m not sure what you mean by partially suceeded, are there non-EU countries that peg their currency to the Euro, other than as a member of some basket of currencies?”

      Not so far. (heh heh. Good point.)

      James

    45. DSpears Says:

      It appears that after reading my posts on Chicago Boyz that Russell Roberts has shamelessly stolen most of my ideas and has added a few of his own:

      http://www.hooverdigest.org/043/roberts.html

    46. Jonathan Says:

      DSpears, thanks. That’s an excellent column.

    47. Ken Says:

      “That is what I meant. Implementing more free market and free trade policies and un-implementing (is that a word?) their socialist welfare state policies will have the side effects of making making their snivelling, sorry, socialist lives better and increasing world wealth. I wasn’t implying that it could EVER happen the other way around.”

      No, but you’d be amazed how many people think that giving people your money makes you wealthier because you can then sell to them.

      “Another side issue is when are the Europeans going to start paying for their own national defense? ”

      Beats me. Then again, maybe it’s just as well… when a militarily strong Europe existed, it tended to be more trouble than it was worth to us. Neutering Europe might have been one of our smartest moves. Now if we can figure out how to get China, Russia, and the entire Middle East to depend on our protection and let their militaries atrophy, we’ll really be in good shape.

    48. social democrat Says:

      Great story about IAS. Speaking of Einstein, the Brits just committed to building three spacecraft that will fly in formation to create gravitational wave sensors. Im trying to imagine a conversation between Albert and an intellectual property lawyer whos trying to help him nail down the rights to his ideas. This is something he probably knew something about from his days at the Swiss patent office.

      I have no idea why Ron Reagan & Alzheimers wandered into this discussion.

      ROI will underwrite a lot of science, especially the research that’s closer to engineering, but it isn’t much use for truly fundamental science, like physics and astronomy. Watson & Crick don’t have any patents for their DNA model, but they do have a Nobel.