American Elephants

Getting Past the Words “Ponzi Scheme”… by The Elephant's Child
September 22, 2011, 7:17 pm
Filed under: Capitalism, Conservatism, Economy, Law, Liberalism

The arguments about calling Social Security a “Ponzi Scheme” are way overblown. Whether Social Security is indeed a Ponzi Scheme depends on how you define the term. A Ponzi Scheme is defined as an investment that pays greater returns to investors than others offer, by using the initial payment by new investors to pay off the earlier ones, instead of real returns from the investment.  The perpetuation of the returns  promised requires an ever-increasing flow of money from more new investors.  That’s how Social Security was set up — the growing numbers of new people reaching the age of 65 would pay for the senior citizens. [Is this clear or am I just confusing things more?]

Others define a Ponzi Scheme as a criminal enterprise, and say, oh how dare you call Social Security any such thing? (Yes, there was a criminal scheme by a Charles Ponzi in 1910 — whence the name) That’s not the point.  The point is, however well intentioned the structure of Social Security, it was destined, one day, to conflict with increasing life expectancy and demographics. FDR never anticipated the baby boom.

Nobody is suggesting any changes for those currently receiving benefits. None. Nor are they suggesting changes for those within ten years of retirement.  Rest easy.

But the program for young people coming along needs to be fixed. Unfortunately Social Security has always been called “the third rail” of politics.  Touch it and you die.

Here’s what has happened. 1. People are living longer, a lot longer. Modern medicine cures a lot of things that people used to die from. 2. We have an enormous baby boom generation that started retiring this year, and will increase in numbers every year until 2025.  3. There are 1.75 people paying in to Social Security for every retiree, and there will be increasingly fewer each year until 2025.

So it isn’t simply a matter of politics, or shouldn’t be. Demographics and life expectancy are presenting problems that will potentially destroy the system. We need to quit kicking the problem down the road for the sake of politics and figure out how to make sure the elderly are secure.


If You Keep Your Ideas to Yourself, You Don’t Get to Hear Strong Ideas Articulated by People Who Disagree With You. by The Elephant's Child

This interview with the brilliant Richard Epstein was made in October, last year, and remains stunningly pertinent.


Few legal scholars have blown as many minds and had the tangible impact that Richard Epstein has managed. His 1985 volume, Takings: Private Property and the Power of Eminent Domain is a case in point. Epstein made the hugely controversial argument that regulations and other government actions such as environmental regulations that substantially limit the use of or decrease the value of property should be thought of as a form of eminent domain and thus strictly limited by the Constitution. The immediate result was a firestorm of outrage followed by an acknowledgment that the guy was onto something.

As Epstein told Reason in a 1995 interview, “I took some pride in the fact that [Sen.] Joe Biden (D-Del.) held a copy of Takings up to a hapless Clarence Thomas back in 1991 and said that anyone who believes what’s in this book is certifiably unqualified to sit in on the Supreme Court. That’s a compliment of sorts…. But I took even more pride in the fact that, during the Breyer hearings [in 199X], there were no such theatrics, even as the nominee was constantly questioned on whether he agreed with the Epstein position on deregulation as if that position could not be held by responsible people.”

Born in New York in 1943, Epstein splits faculty appointments at the University of Chicago and New York University; he’s also a senior fellow at Stanford’s Hoover Institution, an adjunct scholar at the Cato Institute, and a contributor to Reason. In books such as Forbidden Grounds: The Case Against Employment Discrimination Laws (1992) to Simple Rules for a Complex World (1995), and Skepticism and Freedom: A Modern Case for Classical Liberalism (2003), Epstein pushes his ideas and preconceptions to their limits and takes his readers along for the ride. A die-hard libertarian who believes the state should be limited and individual freedom expanded, he is nonetheless the consummate intellectual who first and foremost demands he offer up ironclad proofs for his characteristically counterintuitive insights into law and social theory.

Indeed, Epstein’s enduring value may not be any particular legal or policy prescription he’s offered over the years but rather his methodology. He believes in robust and unfettered argument and debate as a way of gaining knowledge. If you don’t put your ideas out in the arena, you can’t be doing your best work, he argues. “The problem when you keep to yourself is you don’t get to hear strong ideas articulated by people who disagree with you,” he says.

Here They Go Again! When Will They Ever Learn? by The Elephant's Child

Dr Scott Gottlieb has a post at National Review this morning, saying:

Fresh off its successes in the green-energy patch, the Obama team is turning its investment skills to the life sciences. Last Friday, President Obama announced his intention to increase the federal government’s involvement in the business of biotechnology.

His plan is for a new federal center inside the National Institutes of Health (NIH) that would be focused on the development and commercialization of new drugs. The National Center for Advancing Translational Sciences (NCATS) would engage in early drug-development work, eventually handing off programs to private companies for completion. In return the government would take a guaranteed royalty stream on drugs that eventually made it to market. The center would get its seed money by tapping other NIH programs.  Longer term, the administration’s plan is to provide billions in dedicated federal funding to the new drug center.

Um, Oh oh!

The NCATS idea reflects the belief of the president and NIH director Francis Collins that the for-profit drug industry has ignored promising areas of science because these opportunities appeared financially dubious. Collins has said that government can plow scientific fields that profit-driven companies ignore. He suggested during an interview on CNBC earlier this year that NIH drug developers would also get a break from regulators at the Food and Drug Administration. His reasoning seems to be that government regulators could place more trust in government drug developers.

Do read the whole article. This proposal is one of those things that can sound appealing at first glance, yet requires some careful examination. It is coming right at the time when federal regulatory agencies have been squeezing the life-sciences sector.  Regulators have been forcing longer development programs, and this, in turn, has made the cost of creating new drugs dramatically higher.  Fewer new drugs are reaching the market, and fewer programs are being funded. Not interesting unless it happens to be the drug that might have saved your life.

The NIH has great achievements, Gottlieb says, but they are to do with basic science.  The NIH is not very good at drugs. The government spends more than a combined $50 billion a year, but has helped to discover only 84 drugs in the past 60 years.  The agency has also been reluctant to submit to FDA oversight of the same kind required of private drug companies.

This proposal demonstrates nothing so much as Obama’s misplaced faith in Big Government as the proper agent to determine what, in their wisdom, they think the people should or should not have. There are other names for this kind of government, and they are not included in a Constitution that begins “We the People…”

Back a while, Ted Kennedy and Rahm Emanuel introduced a bill removing the “reimportation ban” to make companies subject to FTC action if they refuse to sell to foreign companies that undersell them.  The “Patent Reform Act” would degrade the patent system and patent rights.  It endorses a congressional finding that says “Congress believes access to drugs is more important than protecting corporate rights to produce those drugs.”

The idea was that the poor are going to Canada for drugs and rich pharmaceutical companies care only about profits. This is typical liberal thinking.  The actual consequences would deprive pharmaceutical companies of the financial incentive to develop and market new drugs.  Liberals described it as a way to promote innovation and efficiency in patents. Uh huh. In actuality it would do just the opposite.

In 2007, Senator Bernie Sanders (S – VT) came up with the Medical Innovation Prize Act, which would deprive inventors of medicines and drug treatments of all patent rights, and instead create a bureaucracy  to dole out compensation from a “prize fund.” The theory was that prizes would act as incentive to create new drugs for HIV/AIDS or 3rd world malaria. It just strips all patent rights from all medicine.

I assume that neither of these acts ever saw the light of day, but it demonstrates liberal thinking.  They don’t understand the free market. They hate corporations and don’t understand the profit motive, and essentially think corporations should do nice things for free. Haven’t noticed Sen. Sanders offering to serve in the Senate for free, nor the other two either. Their thinking always has to do with the presumed wisdom of the elites who serve in the federal government.

The world is in turmoil with financial crises created by government. Our current recession was caused by government action, and is being prolonged by government action. It was not caused by greedy corporations or bankers or even Wall Street.  It was caused by government. The Crisis in Europe was caused by government action.  The Conservative Euro-skeptics were right, and have been proven right.  Free markets work.

The independent actions of millions of people acting in their own self-interest have a collective wisdom that governments cannot even begin to imitate. When will they ever learn?

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