The Independent Institute


The Last of Those Entertaining Presidential Debates

48513132_MLWatching the presidential debates is like watching the aftermath of an automobile accident. You’ve all seen it: people holding up traffic as they gawk at the wreckage, trying to get a glimpse of someone else’s misfortune. The presidential debates hold the same fascinating horror, except that the gawkers share in the misfortune.

There’s something wrong with a political system that offers voters the choice of two candidates, both of whom are viewed as more unfavorable than favorable by voters. And yet, I find myself in odd agreement with the main messages both candidates are trying to convey to viewers.

The main message Trump has tried to convey in the first two debates is that Clinton is unfit for the presidency, and the main message Clinton has tried to convey is that Trump is unfit for the presidency.

I often disagree with politicians, but in this case their messages are very convincing.

New Book Reveals the Timely Wisdom of America’s First Constitution

PrintIs the U.S. Constitution the best possible charter a nation could ever conceive? Many people seem to think so, but some of the greatest patriots of the Founding Era would have disagreed—vehemently. Indeed, men like Patrick Henry, George Mason, and Richard Henry Lee (among others) thought the Constitution’s flaws would become the republic’s undoing. In fact, many of their predictions have come true: Americans labor under a bloated and abusive federal bureaucracy, the national debt has grown to ominous levels, and many people believe the system is “rigged.”

The forgotten insights and proposals of the Constitution’s early critics—and their current relevance—come alive in the new Independent Institute book, Crossroads for Liberty: Recovering the Anti-Federalist Values of America’s First Constitution, by William J. Watkins, Jr.

The “crossroads” in the book’s title are the Philadelphia Convention of 1787 and the state ratifying conventions. In the 1770s and 1780s, the Anti-Federalists (so called because they opposed the Federalist Party and its vision of a “strong” national government) feared the Constitution would weaken political representation and liberties for ordinary citizens. Some urged the adoption of the Bill of Rights—although other Anti-Federalists worried that the inclusion of those ten amendments opened the door to a power-hungry and pernicious central government. Their original hope was to amend the nation’s first constitution, the Articles of Confederation, not end it.

Crossroads for Liberty offers a fresh perspective on a misunderstood turning point in American history. More than this, it celebrates the achievements of the Articles of Confederation (including its role in winning the American Revolution) and reveals the worldly wisdom of the Anti-Federalists. Those patriots, Watkins explains, gave the nation scores of concrete proposals that, more than two centuries later, offer the best hope for curing our political malaise and reviving the seeds planted by the Declaration of Independence.

“Their principles can guide us back to stability and limited government,” Watkins writes. “Let us open our ears and hear what they have to say.”

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This piece first appeared in the 10/18/16 issue of The Lighthouse. To subscribe to this free weekly newsletter or other notices from Independent Institute, enter your email address here.

Good and Bad News on Generic Drug Approvals

44323995 - medicines arranged in shelves at pharmacyA solution to expensive patented medicines is generic competitors. The United States has struck a pretty good balance between innovation and low prices through the Hatch-Waxman (1984) Act, which specified patent terms for newly invented medicines, and a pathway for generic competitors to enter the market after a period.

One obstacle to generic entry in recent years was a very slow approval process at the Food and Drug Administration. This led to a backlog, which was unexpected because one important benefit of Hatch-Waxman was that generic competitors did not have to replicate the expensive clinical trials that innovative drug-makers had to carry out to receive the FDA’s approval.

The FDA’s Office of Generic Drugs (OGD) considers approving generic copies of drugs upon receipt of an Abbreviated New Drug Application (ANDA) from the manufacturer. The approval system changed under a law passed in 2012, the Generic Drug User Fee Act (GDUFA). Recent data show improvement:

OGD’s final numbers for approvals and receipts and a few other metrics for the full FY 2016 were released today. OGD approved 51 ANDAs in September for a total of 651 for FY 2016, an average of 54.25 ANDA a month. This represents the largest number of approvals in a fiscal year in (at least) the last 8 years (and likely longer) and is the most approved under GDUFA I (previous GDUFA high was 492 which was achieved in FY 2015 and 517 in FY 2012 prior to GDUFA). That’s the good news! The bad news is that OGD received a total of 853 ANDA (71/ANDAs/mo) in FY 2016 which is 202 more ANDA than it approved. It is true there were also 184 tentative approvals in FY 2016 but that still leaves OGD a little short on the balance sheet.

Doctors Leaving Private Practice for Hospitals

37885304 - doctor talking to his female patient at officeA new survey by the Physicians Advocacy Institute and Avalere Health, a consulting firm, shows a significant increase in the number of physicians leaving independent practice and joining hospital-based health systems:

  • From July 2012 to July 2015, the percentage of hospital-employed physicians increased by almost 50 percent, with increases in each six-month period measured over these three years.
  • In 2012, one in four physicians was employed by a hospital.
  • By 2015, 38 percent of physicians were employed by hospitals.

Good or bad? Well, color me skeptical. This acquisition spree is driven by new payment models which seek to reward providers for “accountable” care (which I suppose is better than unaccountable care). So far, the results of payment reform in Medicare have been trivial.

And the change does not appear to be solving an eminently solvable problem, the growing problem of “surprise” medical bills. These occur when a patient undergoes surgery in a hospital in his insurer’s network, but is then surprised by an expensive bill from an out-of-network anesthesiologist, pathologist, or other specialist who attended him in the hospital.

These misfortunes would not persist in any property functioning market. However, new research from the Brookings Institution suggests the problem is getting worse. Obviously, it should be diminishing if hospital ownership of physicians is growing and making care more “accountable.”

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book, Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Obstructions of Trade and Migration: Who Is Hurt?

528661 - crgo ship under bay bridge with san francisco on backgroundThe natural answer, the one most people would give, is that trade restrictions hurt foreigners who want to sell their goods and services to Americans. After all, politicians, including the two major-party candidates now seeking election to the presidency, tell us every day that they will demand various sorts of concessions from or impose various sorts of penalties on—that is, hurt—the foreigners, especially the Chinese exporters, who wish to bring their goods into the USA for sale. And surely it is the case that such hurt would be one result of the higher tariffs, import restrictions, currency revaluations, and other politically popular actions now being bandied about by candidates and the public.

But this hurt would be far from the only kind. Also harmed would be Americans of many sorts. Most important are American consumers, who will gladly purchase products made abroad if those products can make it across the hurdles thrown up by the U.S. government. It should go without saying that depriving American consumers of opportunities to purchase goods that, all things considered, suit them better than domestic alternatives causes them harm. For more than two centuries economists have been laboriously demonstrating how trade restrictions harm consumers in general and benefit protected domestic special interests in particular. And for just as long, of course, many if not most Americans have failed to understand the lesson or have chosen to disregard it, being bamboozled by the privileged special interests, their lobbyists, and their kept politicians.

When Government Fails, Papa John’s Delivers

35936226_ML (1)Parts of the southern United States were hit particular hard by hurricane Matthew last week. Between the wind and the rain, flooding and power outages took place from Florida up through the Carolinas.

For many of us, things like losing power are minor inconveniences. For others, however, this is not the case. Losing power can not only leave someone in the dark, but can utterly disconnect them from loved ones and the rest of the outside world.

Such was the case for one Florida grandmother, 87-year-old Claire Olsen. During the storm, Olsen lost power.

Her family didn’t hear from her for two days.

Her grandson, Eric Olsen, who lives in Omaha, Nebraska, became progressively worried about his grandmother. He stated in an interview that he kept calling the police and fire departments in his grandmother’s town, trying to get someone to check on her. These attempts were unsuccessful.

Why Pro-Soda-Tax Ad in Bay Area Is Misleading, Part II

The November ballot in Oakland and San Francisco will feature proposals for a soda tax in each city, known as Measure HH and Proposition V, respectively, which would charge soda distributors an additional one cent per ounce of soda they sell in each city (or $2.88 per case). The tax would also apply to the distribution of other sugar-sweetened drinks.

In September, I showed that soda-tax advocates, including Michael Bloomberg, are lying to the public when they say in their television ads and political flyers that “it’s not a grocery tax, it’s a soda tax.” In fact, Oakland and San Francisco grocery buyers will face higher grocery bills as a result of the soda tax. But the lies of tax proponents don’t stop here.

The pro-tax ad below says that voters should take the court’s word, “which just ruled that the soda tax is in fact only a tax on soda.” But this isn’t what the court said.

The court case referenced in the ad is Coffey v. Simmons, and here’s what the presiding official, the Honorable Thomas A. Rasch, commissioner of the Superior Court of Alameda County, actually said:

To state the issue [that the proposed tax would be imposed on local grocers because the distributors would pass the tax through to the local grocers who would then pass the tax on to the consumers] is to recognize the obvious that local grocers and other retailers will likely pass the tax through the chain of distribution to the ultimate consumer.

Commissioner Rasch says it’s obvious that grocery consumers will pay for the tax. As I explain in my earlier commentary, the tax is imposed on soda distributors (the tax’s imposition), but the burden of the tax (the tax’s incidence) will fall on grocery buyers because distributors will pass the soda tax on to grocers who, in turn, will pass the tax on to their retail customers by increasing the retail price of any product or products they choose in their store. Commissioner Rasch, to his considerable credit, understands this.

The soda tax is also a regressive tax, meaning it would harm lower-income families more than higher-income families because poorer households already spend a greater portion of their budgets on groceries. Bernie Sanders understands this and thus opposes soda taxes (see “A Soda Tax Would Hurt Philly’s Low-Income Families,” Philadelphia Magazine, April 24, 2016).

Despite lies by soda-tax advocates, the truth is that the soda tax is a discriminatory tax that unjustly harms lower-income and minority families most by increasing grocery bills. The soda tax is socially unjust and discriminatory.

Bill Clinton Is Right: Obamacare Is Crazy. Here’s a Sane Reform

34778261 - lisbon - january 14, 2014: photo of homepage on a monitor screen through a magnifying glass.

Bill Clinton’s criticism of Obamacare reflected a good understanding of labor economics. Last Monday, he explained:

So you’ve got this crazy system where all of a sudden 25 million more people have health care and then the people who are out there busting it, sometimes 60 hours a week, wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world.

Clinton is referring to high marginal income tax rates that Obamacare imposes on people through the design of its tax credits, which get clawed back in a very unfair way.

For example, if a four-person household’s 2015 income were $23,850, the family’s maximum annual premium would be $479, so it would benefit from a tax credit paid to its health insurer of $9,146. If the family’s income rose to $31,720, its maximum annual premium would be $638, so its tax credit would go down to $8,987. The household income has increased by $7,870, and its tax credit has dropped by $159. Effectively, the household has experienced an income tax rate of 2.01 percent ($159 divided by $7,870).

What Trump’s Taxes Really Tell Us about Politicians

55272640_MLA few days ago, it was revealed that in 1995 Donald Trump declared a $916 million loss on his tax returns. According to The New York Times, Trump’s losses under the U.S. tax code would have allowed him to write off or avoid paying any federal income tax for a period of 18 years.

In light of these revelations, Hillary Clinton took the opportunity to sharply rebuke him, saying that, while he pretends to help working Americans, Trump benefits from “the same rigged system he claims he will change.” She continued, “He abuses his power, games the system, puts his own interests ahead of the country’s.... It’s always Trump first, and everyone else last.”

I think Mrs. Clinton is likely correct in her statements. Trump probably almost always puts himself first. But at the same time I’m reminded of a Biblical suggestion. That is, don’t make a fuss over the speck of dirt in your brother’s eye when there is a plank in your own. Indeed, given the number of scandals in which she is involved, it seems like this is a case of the pot calling the kettle black.

Trump looks out for Trump, but Clinton looks out for Clinton.

A Sandy Beach and Constitutional Political Economy

34759653 - person walking the dog on the beach at sunsetI normally walk my dogs twice each day along the beach, which gives me an opportunity to ponder, among other things, issues in constitutional political economy. My late friend James Buchanan, one of the deepest thinkers in political economy during the past century, led the development of this field of study in his time. Jim maintained that both for understanding how the political world works and for constructing better institutions to foster freedom and prosperity, one ought to distinguish between the establishment and maintenance of the constitution, on the one hand, and normal politics, on the other. The idea is that the constitution has more durability and sets more binding constraints, whereas normal political action takes place within these bounds, dealing with less fundamental matters and doing so in a more volatile way.

I never found this way of thinking about politics very compelling. My study of political economy, political history, in general, and constitutional history, in particular, convinced me that the separation Buchanan urged has little to recommend it analytically. From the very outset, those who framed constitutions have sought to twist and game them along lines that seem closely connected to so-called normal, day-to-day politics. It is true, of course, that certain procedural stipulations in the U.S. Constitution, such as the conduct of a presidential election every four years or the age requirements for various public offices, have been seemingly set in stone. Yet these kinds of constraints have little or nothing to do with the substance of the constitution as an architecture of power and restraint of power.