Archived Posts January 2007 - Page 2 of 9 | Acton PowerBlog

Let’s engage in a little thought experiment. How would you feel about the following scenario?

1) The government bans all activities associated with Industry X because it judges that this industry damages the common good. Industry X is under government prohibition.

2) After enough time has passed and a new generation of bureaucrats has arisen, one of them has the idea of resurrecting Industry X because it has the potential to create new streams of revenue for the government.

3) The government then legalizes Industry X but imposes strict controls, such that the government itself is deemed the only institution responsible enough to administer these activities. We now have a government-run monopoly on Industry X.

4) After initial success, the income from Industry X suffers for a variety of reasons, including competition from private enterprises in competing industries. The government realizes that it cannot run Industry X effectively, and so decides that it must privatize the industry.

5) The government doesn’t want to lose all control of the industry, however. It just wants it to be run more like an effective private-sector business. The government decides to take bids to sell of its interests in Industry X. The winner gets the exclusive right to run Industry X and is protected by a government-enforced monopoly.

At the end of this chain of events, the government has cashed in on years of running its own monopoly on Industry X, and has also gotten a huge windfall in the sale of its monopoly to a private firm.

That industry hasn’t become a real competitive market, however, because the private firm has a government-enforced monopoly on Industry X. It is still illegal for anyone other than that private firm to create a directly competitive business in that industry.

That sounds pretty bad to me. But the reality is that we are between stages 4 and 5 in the lottery industry in America today. States like Illinois and Indiana are considering selling off their interests in running a statewide lottery.

In Illinois, for instance, state officials have seen lottery revenues fall due to competition from other forms of gambling, including casinos and Internet poker.

This has led John Filan, the chief operating officer of the state of Illinois, to come to the following epiphany: “This is fundamentally a retail business, and governments are not equipped to manage retail businesses. Gaming is getting so competitive around the world that we’re worried our revenues could go down unless there is retail expertise.”

Governments are not equipped to manage retail business. What a revelation!

Rather incredibly, however, the criticism of these moves has not come from those worried about the vitality of the market and its advantages. Instead, economists are concerned that states are being short-sighted in selling off long-term income streams for a single short-term payday.

Melissa Kearney, an assistant professor of economics at the University of Maryland says, “It’s unclear exactly what is gained by selling a lottery, except for a huge pot of money that legislators can start spending right away.”

Charles Clotfelter, who teaches economics at Duke University, agrees. And Edward Ugel, author of the forthcoming Money for Nothing: One Man’s Journey Through the Dark Side of America’s Lottery Millions, writes that “Illinois is selling its future in order to fortify its present.”

Nowhere is any concern expressed over the impropriety of a government-enforced monopoly (even less one that is government-run).

If it is true that lotteries are “retail enterprises” that are inherently risky, and that government is ill-prepared to run them and that they should be turned over to those who are “in the risk-taking business,” then the government should legalize lotteries and open up the industry to real competition. A government enforced monopoly of a privately-run lottery system is no solution.

Blog author: dwbosch
Friday, January 26, 2007

Kim Strasell in OpinionJournal today:

CEOs are quick learners, and even those who would get smacked by a carbon cap are now devising ways to make warming work to their political advantage. The "most creative" prize goes to steel giant Nucor. Steven Rowlan, the company’s environmental director, doesn’t want carbon caps in the U.S.–oh, no. The smarter answer, he explains, would be for the U.S. to impose trade restrictions on foreign firms that aren’t environmentally clean. Global warming as foil for trade protectionism: Chuck Schumer’s dream.

What makes this lobby worse than the usual K-Street crowd is that it offers no upside. At least when Big Pharma self-interestedly asks for fewer regulations, the economy benefits. There’s nothing capitalist about lobbying for a program that foists its debilitating costs on taxpayers and consumers while redistributing the wealth to a few corporate players.

This is what comes from Washington steadily backstepping energy policy into the interventionist 1970s, picking winners and losers. In ethanol, in biodiesel, in wind farms, success isn’t a function of supply or demand. The champs are the ones that coax out of Washington the best subsidies and regulations. Global warming is simply the biggest trough yet.

Nothing wrong with entrepreneurial approaches to environmental management, but her point’s well taken.

[Don’s other habitat is]

With respect to the extension of political, economic, and religious freedom, East Asia contains some of the more challenging spots on the globe. I’ve commented in the past on Korea and China. It seems safe now to place in the column “making progress” a nation that had been one of the most totalitarian, Vietnam.

Concerning the sphere of religious freedom, Zenit offers this interview (Daily Dispatch 01-25) with French Archbishop Bernard-Nicolas Aubertin of Tours. Aubertin characterizes the situation of the Catholic Church in Vietnam thus: “Things are really progressing, slowly, perhaps, but advancing.” Here is one question and answer:

Q: The last visit of French bishops to Vietnam goes back to 1996. On your return, did you express admiration for the progress made by and for the Catholic community of Vietnam? Ten years later, do you feel that a step forward has been taken?

Archbishop Aubertin: Personally, I did not take part in that trip then, but I have visited Vietnam since 1990. And this trip, at the beginning of December, was my eighth stay. I have had the opportunity to witness enormous changes.

It is obvious that the Christian, the Catholic community, has greater possibilities of expression. Little by little, seminaries have authorization to reopen. Not all, of course, but there has been a change from contingents of extremely regulated seminarians to a much greater openness. And, little by little, a certain number of confiscated buildings and goods have been restored. Not all: We are still very far from that. But, little by little one can see that they have been restored to the Church.

Moreover, permissions have been given to build churches. The building of seminaries is permitted and authorizations for ordinations have been granted quite abundantly. All this shows that the Church is moving toward a much more favorable situation.

Concerning economic development (at the grassroots level), there’s this story.

But there’s also this, which indicates that progress is slow and uncertain.

Blog author: jballor
Friday, January 26, 2007

“No committee, arguably, has more power or attracts more lobbyists than the Committee on Ways and Means,” writes the NYT’s Robin Toner. “Representative Charles B. Rangel, Democrat of New York, joined the committee in 1975, and now, at the age of 76, has finally arrived at the very top.”

“[Jesus] said the rich are going straight to hell.”

Jared Bernstein, a liberal economist, said: “When the Ways and Means Committee has worked well, they’ve identified social needs and advocated for the funds to meet them. Will this committee do that? I hope so.”

What does this mean for Rangel’s chairmanship? “Chairmen of the 218-year-old committee have traditionally been at the center of the great debates, including how to support a growing elderly population and how to deal with the excesses of capitalism.”

You can expect Rangel to engage economic issues from a similar rhetorical perspective, a liberal one that seeks “to cushion workers in this rough, new, competitive environment.” But as Toner also observes that “the ideological gulf between the two parties is vast, not just on tax cuts, but on the role of government versus the private market in areas like health care.”

In recognition of Rep. Rangel’s new position, we offer this moment from the Acton Institute’s history. Rev. Robert A. Sirico, president of the Acton Institute, and Rep. Rangel share the following exchange during Rev. Sirico’s testimony before the Ways and Means Committee in 1995 on welfare reform:

For more on Rangel’s views of religion, wealth, poverty, and charity, check out the dialog from an appearance on Hardball with Chris Matthews, where Rangel asserts that Jesus said that “the rich are going straight to hell.”

Blog author: jballor
Thursday, January 25, 2007

They say that technology drives culture (HT: Zondervan>To The Point).

But what drives technology? Many believe that pornography is the driving force behind adoption of particular technologies. Thus, says Slate television critic Troy Patterson, “Watching YouTube is far closer to consuming Internet pornography than staring at the television. … But then, all media culture has an increasingly pornographic feel, doesn’t it?”

Let’s look at some actual cases where this claim has been made (HT: Slashdot). In a recent TG Daily article reflecting on CES 2007, Aaron McKenna writes,

Quite famously in the war between Betamax and VHS the latter won especially because the adult industry preferred it. If you’ve been around long enough, you probably remember that the very early home video rental stores were primarily responsible for driving Betamax out of the market. And those stores carried almost exclusively pornographic content.

Thus, the fact that pornographers preferred VHS rather than Betamax assured VHS of being the dominant home video technology.

Many are applying this argument to the current battle between Blu-ray and HD-DVD formats. These competitors want to bring high-definition content to the home theater on DVDs. The drives are expensive and the technology is new, so are we in a comparable position to the relationship between VHS and Betamax decades ago?

McKenna did a straw poll at AEE and “got the strange feeling that HD DVD has won the format war already, at least in the porn industry.” Meanwhile, Sony has announced that it will not allow XXX rated content in Blu-ray format. So in this case, it might not be so much pornographers choosing HD-DVD but rather Blu-ray excluding pornographers.

But a recent piece in Electronic Gaming Monthly (“Blue Steal: Is Blu-ray winning the high-def disc jam?” by Marc Camron, February 2007, 34-35) describes another aspect of the DVD format war: gaming. Michael Pachter, a Wedbush Morgan Securities Analyst, points out that the new PlayStation 3 comes with a Blu-ray drive included. Its main competitor, the Xbox 360, is compatible with an add-on HD-DVD drive that runs about $200.

“Blu-ray is in a better position because more people are interest in purchasing a PS3 than in purchasing a stand-alone HD-DVD player,” says Pachter. “That interest will continue for several years. That means that the studios will see a Blu-ray installed base much larger than the HD-DVD installed base, and they will ultimately be compelled to make the best economic decision, which is to support Blu-ray.”

At the time Camron wrote his piece, the news hadn’t dropped yet about Sony’s ban of adult-rated content. But even so the Blu-ray has something going for it that Betamax didn’t: the PS3, which can now be marketed as the family-friendly gaming system because it’s Blu-ray drive won’t have hi-def DVD adult content.

We now know what format pornographers prefer. But the question remains, which one will parents prefer?

How does one account for the widespread distaste among Jews for a free market political agenda? Why is it that Jews, who earn per capita almost twice as much as non-Jews in America, “fervently support relatively collectivist social policies”? Corinne and Robert Sauer, co-founders of the Jerusalem Institute for Market Studies, contend that “it is not at all true that Judaism is a set of principles that endorses income redistribution and other progressive social programs.” Instead, they say, Judaism is a system of thought that more naturally aligns itself with the basic principles of economic liberalism.

Read the commentary here. This article was adapted from Corinne Sauer and Robert M. Sauer’s Judaism, Markets and Capitalism, a new monograph available from the Acton Institute.

Blog author: jballor
Wednesday, January 24, 2007

Last night the President spoke of “the challenge of entitlements” and said that “Social Security and Medicare and Medicaid are commitments of conscience — and so it is our duty to keep them permanently sound.”

“With enough good sense and good will, you and I can fix Medicare and Medicaid — and save Social Security,” he averred. The ability of the federal government to negotiate drug prices has been an aspect of the recent debate over Medicare that was brought to the fore in the recent “100 hours” legislative agenda.

A number of conservative commentators have come out against this idea, including Acton’s own Rev. Jerry Zandstra and Benjamin Zycher of the Manhattan Institute (HT: The Reform Club). These are just two voices in a chorus of criticism rising against federal negotiation (I use them just because they are the ones with which I’m most familiar. I don’t mean to pick on anyone in particular).

Both of their arguments seem to me to boil down to this: the government is an effective negotiator and the result of negotiation will be that drug companies will have less money coming in and therefore spending on research and development will suffer.

Zandstra says of successful negotiation, “if, in doing so, you dry up research and development dollars so you aren’t developing drugs to treat cancer and Alzheimer’s and other diseases — if you take the profit motivation away — have you done good? No, you really haven’t.”

Zycher writes, “Federal price negotiations will cause sharp price reductions, but this will yield less research and development investment in new and improved medicines over time.”

These claims fail at a number of points in my opinion. Zycher and Zandstra are probably right on the mere claim that federal negotiation of drug prices will produce a drop in pharma income. But that isn’t the datum that is most relevant to the policy discussion.

Once government has decided to tax us and spend our money on a particular program, I think it is government’s responsibility to spend that money as well as it can, to be good stewards of efficient and productive use of those funds. This is true regardless of whether or not the program itself is one that government should be undertaking. The question of whether the government should be doing or pursuing a particular program or agenda is a different one than whether the government should pursue these programs efficiently and well.

So, given that Medicare is an entitlement to which our government has committed itself, it seems to me that the government is responsble for administering it as cost-effectively as possible. The government needs to make our tax dollars stretch as far as they can. This should include negotiating lower prices paid for prescription drugs, regardless of the effect it might have on drug company profits or research budgets.

It is a separate question whether drug companies need federal support to achieve the current or higher levels of funding for research and development. But let’s assume for the sake of argument that pharma companies do need federal support to find new drugs for “Alzheimer’s and other diseases.” If that’s the case, then the argument for subsidizing pharmaceutical research should be parsed out from the question of drug price negotiation.

Refusing to allow the feds to negotiate prescription drug prices effectively creates a subsidy for drug companies…something I would think that Zandstra and Zycher would be against, at least in principle. But maybe not.

Drug companies are in fact struggling, it seems. Pfizer, for instance, is shutting down operations at three Michigan sites and laying of 2400 workers, as part of a broader layoff of 10% of its workforce. And perhaps the estimated “loss of about five million life-years each year” is sufficient reason to support government subsidy of drug research.

But if conservatives are in favor of government subsidies for drug companies, they need to make that argument stand on its own and separate it from the question of price negotiation. Government subsidy of drug R&D should be a separate question, complete with its own line-item and its own policy analysis.