Government and Taxes

Saturday, October 20, 2012

Inequality 14: 99 Percent to Support the 1 Percent

Here's another simple, down to earth discourse on inequality, economic growth and government, from a known climatologist, Dr. Roy Spencer of the University in Alabama in Huntsville (UAH). The guy is known more for his analysis of the feedback system given by CO2 forcing to the planet's clouds and climate, in interpreting the monthly global air/tropospheric temperature as measured by satellites, many others. His foray into economics and a few social commentary is most likely a result of his observations of the role and misrule of governments and the UN in climate science and research.

After this paper, reposting also his notes on "post normal science" and the anthropogenic global warming (AGW). These two papers are really worth reading. Enjoy.
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http://www.drroyspencer.com/2012/10/it’s-time-for-the-99-to-start-supporting-the-1/

It’s Time for the 99% to Start Supporting the 1%

October 17th, 2012 by Roy W. Spencer, Ph. D.

A persistent misconception about our economy is that the same amount of stuff is going to be produced, no matter what government policies are implemented. If that was indeed true, then the political debate only becomes one over how all that stuff is divided up. And that is indeed what many people spend their time debating.

But economic productivity can vary tremendously between countries, and even within a country over time. In fact, there are many poor countries with much lower unemployment than the United States…yet they remain poor.

What really matters for a prosperous nation is what is produced for a given amount of labor. We could have near-zero percent unemployment tomorrow if the government mandated that half the people should dig holes in the ground and the other half fill them up again. But we would be a very poor country, with a very low standard of living.

A high standard of living requires efficiency of production of goods and services that the people want, which in turn requires large investments in facilities, machinery, raw materials, etc. In a competitive free market economy, those investments involve risk…risk that your investment will be lost if someone else figures out a more efficient way to build 10 million smartphones than you figured out.

Now, why would anyone choose to invest large sums of money? Only if they have some hope of receiving much more in return if they are successful. If that incentive provided by the hope for profit is lost, then they will not invest in new business enterprises. No business enterprise for them means no jobs for you.

Our number one priority should be to ensure that producers are allowed to produce, and that they are not penalized for their success. Jobs happen from the top-down (not from the middle-out) when businesses with the money to hire people are allowed the opportunity to succeed.

Yes, a few of them will become rich in the process…but their riches pale in comparison to the greater riches enjoyed by society as a whole through the higher standard of living the good ideas of the rich have enabled. And those profits aren’t kept under a mattress…they are reinvested in the economy, either through expanding the business, hiring more people, or even just buying more stuff which supports other businesses.

Demonizing the rich is demonizing the driving force which elevates the standard of living of the whole country. If you want prosperity, allow the producers to produce. Make it easier for them, not harder.

Not only does this raise our standard of living, it also increases tax revenue, because revenue is a percent of the action, and the more economic activity there is, the greater the tax revenue which is collected to support government services.

And this is how the budget “arithmetic” really works. Balancing the federal budget is not a matter of either (1) increasing tax rates or (2) decreasing spending. That erroneous view mistakenly equates tax rates with taxrevenue. Tax revenue (the total number of dollars taken in by the government) is the tax rate multiplied by economic activity. Lowering tax rates, especially on businesses, stimulates economic activity, which then increases tax revenue.

You Don’t Really Want to Play by the Same Rules

For those who like the mantra “everyone should play by the same rules”, let me tell you: you don’t really want to play by the same rules as business. Business owners typically don’t take their share until all of their employees are paid and all of their other business bills are paid.

For every successful rich person, there were many more who tried to become rich but lost everything. Why is it that so many people want a greater share from those who have succeeded, but don’t want to share in the losses of those who failed to become rich?

What if the business you work for fails? How would you like to pay back all of the salary you earned? You got to keep the money, but the business owner or his/her investors lost that money. Do you really want to play by those rules?

And how would you like to work 12+ hours per day trying to abide by all of the regulations increasingly heaped upon businesses by the government?

It’s time for the 99% to start supporting the 1% a little better, because in the end it is the 1% who enables the 99% to maximize their standard of living.

Drug Innovation 5: The US PCAST Report on Propelling Drug Discovery

* This is my article yesterday in the online magazine,
http://thelobbyist.biz/index.php/perspectives/less-government/item/110-medicines-innovation-and-the-fda
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There was a new report, Report to the President on Propelling Innovation in Drug Discovery, Development and Evaluation made by the President’s Council of Advisors on Science and Technology (PCAST), Office of the President of the United States, dated September 2012. The members of this Council seem to be high profile scientists and academics in some known US universities. The 110 pages report can be downloaded at www.whitehouse.gov/ostp/pcast.

Among the findings of the report is this chart below: While the number of new molecular entity (NME) and new biological entity (NBE) approvals was declining from their peak in 1996-97, the cost of research and development (R&D) per NME is rising. This chart is found on page 12, then page 35 of the Report.

As a result of this, the Report noted that

heart disease and stroke remain leading causes of mortality, many common cancers are still incurable unless they are caught in the earliest stages, and the vast majority of rare diseases lack effective therapies altogether. Infectious diseases, including those caused by antibiotic-resistant bacteria and viruses with pandemic potential, pose a constant threat of large-scale mortality. And treatments for psychiatric diseases, which impose a tremendous burden on society, are frustratingly limited in their efficacy, as are treatments for neurodegenerative diseases such as Alzheimer’s.

To address this problem, the Report identified two important measures of actions.

1) Scientists need better methodologies and tools for translating basic biological insights into validated therapeutic targets and leads—a gap in the drug discovery and development pipeline that academic scientists often view as “too applied” and pharmaceutical companies often eschew as “too basic” to justify private investment. And

(2) Pharmaceutical developers and regulators need to incorporate new efficiencies into clinical trials of candidate medicines—complex and costly human studies that today constitute fully 40 percent of the biopharmaceutical industry’s R&D budget.

Medicines innovation and invention is not done in the Philippines and many other poor countries due to the high costs, high risks, and high technical regulatory approvals required. For instance, Figure 1 (b) on page 35 showed that by 2010, one academic paper estimated that the cost to innovator pharma companies for each NME is between $884 million to $1.80 billion. Just for one drug alone, and there is no assurance that it will become a blockbuster, high profit drug.

We only have policy making bodies that involve the Department of Health, its attached agencies like the Food and Drugs Administration (FDA), industry players like the multinationals and local generic pharma companies, drugstores and hospitals, health professional and civil society organizations. Like the DOH Advisory Council for Healthcare, of which this writer is one of the members.

One problem with government regulatory agencies, the FDAs in particular – in the US, Europe, Philippines, etc. – is that there is too much emphasis or focus on making the newly-invented drugs to be “very safe, very effective” so that the regulatory approval processes have become so tedious, so strict, that diseases evolve faster than the government approval process. So by the time the very few new drugs that were invented to address certain new diseases have been approved by FDAs, the diseases have evolved into something more sinister and more lethal. Not for big number of people initially but for a few patients only, but has the potential to explode into a highly contagious and infectious disease someday.

If this hypothesis is plausible, then one remedy is for government FDAs to step back and relax a bit their strict drug approval procedures. Bring down the approval process of various clinical trials from 10 or 12 years on average, to only six or eight years. In the process, bring down the average cost of innovation from $0.9 to $1.8 billion per new medicine to possibly only half of it. Encourage more big generic manufacturers to go into drug innovation business themselves.

In short, turn the focus of accountability away from FDAs and more into the drug innovators and manufacturers . The rule of law and property rights protection says that accountability should stop on whoever initiated something, and the main function of governments is to enforce existing laws, including penalties to violators of regulations governing public health and safety.

So if innovator company A released a drug that turned out to have several adverse reactions, it is incumbent on that company to quickly withraw its drugs worldwide and pay limited penalties only. On the other hand, if innovator company B has released a drug that turned out to be very effective and safe at the same time, then more patients will benefit. A one year delay in marketing a new and effective or revolutionary drug could mean a lot in terms of saving lives.

This should also be a lesson to groups and lobbyists that oppose intellectual property rights (IPR) like patents for new medicines, or at least advocate to keep such IPRs to be as short as possible. It is not easy, it is not a walk in the park, to become a drug innovator. Otherwise, it would be safe to assume or expect that huge global generic manufacturers like Teva in the US, Dr. Reddy in India, and Unilab in the Philippines would be in this business too while retaining their resources in generic drugs production.

The new Philippines FDA Director, Dr. Kenneth Hartigan-Go, is a friend. When he was newly appointed to the post, I suggested to him that the FDA should develop a strong legal and prosecution team, in alliance with the Department of Justice (DOJ) perhaps. It is simply impossible for the FDA to inspect all medicines, all food supplements, all shampoo and skin whiteners, all fat/weight reducers and boobs enhancers, all sauces and juices, all beer and wines, and tell all of us consumers in this country, that they are all safe and have no adverse side effects. Let the manufacturers, wholesalers and distributors stand by their products, to accept full accountability if any adverse results should happen to consumers and/or patients.

And this is where the FDA should come strongly and forcefully. FDA’s message would be: “Do your thing as you swore and submitted to us. If you lied and sell unhealthy products, woe unto you, you will regret that you planned or thought of such thing in the first place.”
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See also:

Drug Innovation 1: On Cancer, Bioequivalence and Clinical Trials, March 28, 2012
Drug Innovation 2: Sustaining Innovation via Competition, April 14, 2012
Drug Innovation 3: Biopharmaceutical R&D and Innovation, June 01, 2012

Drug Innovation 4: New Anti-Cancer Drugs, June 08, 2012
IPR and Medicines 25: Patents, Diagnostics and Technology Transfer, October 08, 2012

Thursday, October 18, 2012

Rule of Law 17: Justice Without Discrimination

I like this posting today in facebook by FNF Pakistan, reposting it.
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These were the last written words we have received from Hasan Jafarey, who died two days ago. He wrote his perception during our IAF Alumni Meeting in September:

Why I am liberal
Principles of liberalism pertinent to Pakistan
By Hassan Jaffarey

1. Rule of law

The most important function of the Rule of Law is to provide for justice to all without discrimination. This is the only glue that can provide for harmony and equality. When a sense of justice and the existence of a just society exists in polity and the polity is assured that it will be meted out justice in its relations and affairs with equality for all whether rich or poor, high or low, and without racial, ethnic or religious prejudice that society is set on a firm and sustainable foundation for progress and emancipation and empowerment.

Pakistan lacks this sense of justice among its polity. There is a perception and actual reality that the rule of law is not applied equally for all. Different sets and parameters govern different individual and groups in different ways. The disharmony and the application of the rule of law has led to a sense of frustration and alienation in the people of Pakistan as a whole.

It is therefore of paramount importance that a strict application of the rule of law is implemented in Pakistan. The people of Pakistan demand this and not implementing it is a sure recipe for disaster. To achieve this judicial reform backed up by the force of law is required from the lowest ties to the highest in the country.

2. Tolerance

Pakistan is in dire need of having a tolerant society. The absence of the rule of law contributes to intolerance in the Pakistani Society as a disgruntled polity, surfaces its latent frustration and anger upon one another.

Tolerance does not mean giving up one’s beliefs but contributes to accommodate in diversity of opinion and trying to understand other people’s point of view. Respecting the non-violent expression of dissent contributes to a multicultural polity. There should be unity in diversity. Division should be able to grow together. Respect for others gains in respect for each other. It reinforces the environment for a peaceful coexistence. Liberty, indeed, must be with responsibility. My freedom ends where other persons’ freedom begins. This is the recipe for peace and Pakistan needs it badly.
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Meanwhile, I gave a lecture yesterday at my wife's two classes in political science at De La Salle University (DLSU), where she is handling four classes this trimester.

The first class was a Freshmen block of International Studies majors, and the second class was a Freshmen block of athletes of the university. Cool guys.

My powerpoint contained 26 slides, showing only half here. The content I lifted from my previous blog posts here under the "Pol. Ideology" discussion series.

Socialized Healthcare 9: Grassroots Consultation, Insurance for Catastrophic Diseases

Healthcare for the poor and how public and private resources, especially by the various healthcare providers, will be allocated to help the really needy and not just those pretending to be poor. And should government embark on more regulations and restrictions just to expand healthcare services for the poor.

These and related issues are tricky questions for public policy in healthcare provision. Posting below three articles related to universal healthcare (UHC) by the Executive Director of PHAP, Mr. Reiner Gloor, that can help shed more light and answers to these tricky questions and issues. The three papers posted in BusinessWorld in his weekly column are:

1. Making health by the people, for the people, 13 September 2012
2. Innovative medicine access collaborations, 20 September 2012
3. Protecting people's health, 27 September 2012

The first paper is about some insights after consultations at the grassroots level, where some poor rural folks expect the government health facilities to have more courteous and compassionate staff, more than having modern health facilities.

The second paper talks about huge price discount by innovator companies to patients of catastrophic diseases like breast cancer, prostate cancer, renal failure and leukemia under the PhilHealth "Case type Z benefit package". Another example of public-private partnership (PPP) with zero government coercion like the drug price control policy via Executive Order (EO).

And the third article is on the university student debates under the DOH Secretary's Cup, where protagonists will debate for or against more government regulations especially in (a) health professionals' fees, (b) advertisement of health products, and (c) distribution of health facilities, technology and services across cities and provinces in the country.

Good readings to start the week. Enjoy.

(1) Making health by the people, for the people

Posted on 05:18 PM, September 13, 2012

Medicine Cabinet -- Reiner W. Gloor

http://www.bworldonline.com/weekender/content.php?id=58404

SAN ENRIQUE in Negros Occidental is a 5^th class municipality with a population of more than 23,000 people. It is about 40 kilometers from Bacolod, or about an hour’s ride by public transportation.

Last week, I had the opportunity to visit this municipality -- consisting of 10 mostly coastal barangays -- as part of a partnership with the National Disaster Risk Reduction Management Council where we endeavor to prepare the people of the Western Visayas for calamities.

Apart from the information drive, the partnership sets in motion activities such as deworming, Oplan Timbang, immunization, medical and dental missions, backyard gardening and preparation of low-cost yet nutritious food and menu planning.

Hundreds of people, including the elderly, handicapped, mothers and children, came to the medical mission. Their overwhelming presence gave assurances that we must be on the right track. At the same time, the eagerness of the people to have themselves checked by health professionals in a covered basketball court is evidence that there remain healthcare gaps to be filled.

Also recently, two townhall meetings were held in Cabanatuan City in Nueva Ecija and Malolos, Bulacan with the objective of gaining insights and perspectives from the grassroots concerning key health issues. These were part of the Secretary’s Cup of which I have written.

Two films on health were shown to jumpstart the discussions. The first was about how a poor family copes with the illness of a family member while the second was an excerpt of Sicko, a documentary that probes healthcare in developed countries such as US, Canada and United Kingdom among others.

The discussions and reactions were insightful. However, three points struck me the most.

First, the participants were asked what they think is the most important attribute of a good health facility. I was expecting that a majority would say modern infrastructure or even free medicine. I was surprised to learn that most of them responded that a good health facility is where there are “kind, respectful and compassionate health staff.”

Welfarism 22: CCT, 4Ps and Central Planning

More government central planning, more wastes and inefficiencies. This is once more exhibited in the Conditional Cash Transfer (CCT) or Pantawid Pamilyang Pilipino Program (4Ps) program of the government.

My economist friend from UP, Jhiedon Florentino, rode a taxi and engaged the taxi driver to a fruitful conversation. Well, it’s more of probing the mind of one of the average persons in this country on what they think of certain government policies like the CCT. Jhie is down to earth enough to listen to the man’s frank ideas and witty remarks. Then he posted their conversation in his facebook wall last October 12-13, 2012. One more reason why fb is both an entertaining and educational platform in the planet today – at zero politics, zero taxes involved.

“Me” here refers to Jhiedon. The taxi driver is from Malinta, Valenzuela City, Metro Manila. Jhie posted this in a 4-parts installment in his fb wall. There are comments after each part. I put all the comments and exchanges after part 4. I also made short English translation to some points, for the non-Filipino readers of this blog. Thanks to Jhie for allowing me to post this in my blog. Six pages pages long, enjoy!

Part 1:

Manong Tx driver: ...d naman namin hinihingi maging 4Ps, pero binigyan kami...

Me: lahat sa sitio ninyo 4Ps manong?
Manong: Di ko nga maintindihan, yung mga taong dapat makaavail, hindi nakakakuha, yung mga nagbabasura...

Me: sa tingin ninyo manong, bakit....
Manong: sa katamaran na pumunta, di nila alam, at iyong iba mga wala namang mga IDs. Tapos aatend ka ng mga meeting, malayo...

Me: nakaatend na kayo manong ng mga meeting
Manong: oo, nung minsan nagkasakit si misis

Me: anong pinagusapan ninyo nung FDS manong
Manong: naku, FAMILY PLANNING ang pinaguusapan nung pumunta ako....

(Translation: Driver said they did not ask for the 4Ps but government gave them the money. He did not understand why the less poor got the money but the very poor like garbage scavengers got nothing, they are lazy to walk long and attend meetings, or they do not have any ID. He attended one meeting, the topic was about family planning)

Pol. Ideology 37: Collectivism, Conservatism and Liberalism

This will be a continuation and expansion of my earlier paper, Pol. Ideology 15: Socialism, Conservatism and Liberalism posted last March 08, 2010. It is about a discussion paper by Stefan Melnik on Political Values -- Review of Basics, written possibly in 2008-09. These are the three major political mainstreams and the value systems that they preach.

Socialism and its cousin ideology, communism, highlights or focuses on equality and forced collectivism. Equality of outcome, social justice, income redistribution, social security, state welfare and forced solidarity. These are the synonyms of their heavy focus on equality and forced collectivism. Too much individual liberty and private property are not good, according to this philosophy, so they have to be limited and heavily regulated by the state, leading to social or communal ownership of the means of production, central planning by the state and its lower organs and government agencies.

Conservatism focuses on order, tradition and conservation of existing social units. Thus it highlights discipline, authority, hierarchy, the conservation of the nation, the family, morality. There are some similarities with socialism like the big role of state authority, distrust of spontaneity and importance of managed order. But there are also differences as there is primacy given to non-government social units like the family, clan and private enterprises.

Liberalism focuses on liberty or freedom, individual liberty specifically and individual responsibility. Liberty and responsibility are closely and strictly intertwined, one is not possible without the other. With more individual liberty, spontaneity, diversity and inequality are inevitable. Tolerance of such diversity and spontaneity among people, their right and choice to be industrious or be lazy, their private property ownership, are part of human rights that are to be respected under strict respect of the rule of law, equal application of the law on unequal people.

Pol. Ideology 36: On Capitalism, Akbayan, Drugs Legalization and Toqueville

Facebook proves to be a good venue for exchanging ideas with friends. Below are exchanges on various topics on various dates this month.

A. October 03, 2012

My friend Floro posted this in his wall, our discussions after

I believe the bright minds of the free world unlike the Capitalists and profiteers and the grafters in government who are acting as police for the filthy rich will find easier and better ways to get around with this concern, so much so that governments will run out of resources running after proponents of free access, free information and free exchange of ideas. There are more dumb people in governments and in the police than there are among the street children who survive even if their governments and police do not take care of them...There will be a lot of catching up to do for them...meanwhile we will continue to have fun. Lets work on their loopholes as they try to profit too much!!!!The world has changed and that is why the Capitalist World is slowly crumbling with their ran away deficits because in the west their governments no longer have money...and yet the Capitalist can easily move from state to state with their money...Let us chase them profiteers while the government chase us!!!!

Nonoy: Floro, capitalism invented facebook, youtube, twitter, linkedin, google, yahoo and other instruments of freedom of expression that we now enjoy. BIG governments like a socialist or communist or welfarist government, invent regulations, prohibitions, coercion.

Floro: Yes Nonoy I agree but there are capitalist who have insatiable greed for money and there are capitalist who profit more from the inventions of others. There are laws that regulate but this are supposed to be for greater access of the greater majority not for the control of a few who make their money make money without sweat. while the rest of the world work like slaves getting almost nothing. The worst side of capitalism and socialism had made life more difficult to the free world!

Nonoy Free world means free individuals. People are free to be hard working or free to be lazy. For people who chose to be hard working and ambitious, regulations that prohibit them from starting any entrepreneurial activity unless they get first the signatures and permits of various government officials, from local to national, should be drastically cut or removed. For people who chose to be lazy or irresponsible, they should not be given too many subsidies. For people who chose to become bureaucrats all their lives and have no other skills but regulate-regulate-regulate, tax-tax-tax, their number should not expand as they produce nothing productive.

Floro Nonoy I agree but I also agree with Paretto Optimality! You can be a greedy capitalist but please pay your workers decent wages and allow them decent lives not slaves...something to that effect I suppose... I also abhor lazy people, mendicants and beggars who do not try to look for options and chances!

Nonoy: The best option for many workers is to quit being workers and become start up entrepreneurs someday, and not demand for endless labor law protections. They should learn where to get the cheapest and stable sources of raw materials, technology, credit, etc; they should learn whom to sell or partner customers, people who will pay them back; they should learn to deal with their own workers being former workers themselves in the past; they should learn to deal with endless business bureaucracies, taxes and fees imposed by the government, local and national, and so on. If people think it is easy to become an entrepreneur and employer, that money is easy to obtain that way, they should try it.

Fat-Free Econ 26: US Public Debt and the November Elections

* This is my article today in TV5's news portal,

http://www.interaksyon.com/business/45173/fat-free-economics-us-public-debt-and-the-november-elections
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Whoever wins in the US Presidential elections next month will govern the biggest economy in the world, which also has the largest public debt worldwide. In fact, the US public debt is larger than its gross domestic product.

At the start of the current fiscal year, October 01, 2012, the US public debt stood at $16.159 trillion, composed of (a) debt held by the public at $11.311 trillion, and (b) intra-governmental holdings at $4.848 trillion. A day after, the total moved up to $16.171 trillion or an increase of $12 billion in just one day. For a good debt clock of the US to watch that is moving every minute and every second, just refresh this link.

And here is the growth of such debt through the years.

While the US government holds the 1^st place worldwide in absolute amount of public debt, the Japanese government holds the 1^st place worldwide in terms of the ratio of public debt to GDP, followed by Greece and Portugal in 2^nd and 3^rd places.

What explains the huge spike in US public debt and spending, especially in recent years? Or where can the next administration possibly make some spending cuts in order to minimize the fiscal bleeding and reduce the need for endless borrowings?

Source: http://s.wsj.net/public/resources/images/RV-AI016A_ENTIT_G_20120831013902.jpg

The welfarist and collectivist philosophy prevents or opposes cutting such spending. The advocates of this philosophy argue that the main function of government is to redistribute income, to confiscate more money from the haves and give it to the “have nots” or “have little” through a thick layer of bureaucracy at the national and local government levels that act as middlemen between these supposedly contradicting camps.

There is a twist somewhere here. As the need for more taxes by the US government rises, the number of people who do not pay federal income tax also rises. And this contributes to a pernicious situation where expenditures keep rising while tax revenues do not follow in step.

Source: The Economist, September 18^th 2012,http://www.economist.com/blogs/graphicdetail/2012/09/daily-chart-9

The appropriate solution to reduce revenues would have been to reduce spending. Ordinary households do that. When the income is low, they cut on spending and minimize borrowings whenever possible. Most governments - the US and the Philippines among them - do the reverse. As the funding gap between expenditures and revenues rises, they keep borrowing to maintain high expenditures as if the public debt burden can be solved by Batman or other fictitious characters.

The biggest challenge for the next President of the US is how to reduce public debt and government spending without compromising the productive capacity of the citizens, the entrepreneurs and ordinary workers, who will ultimately pay off those mountains of debt that have been accumulated through decades of fiscal irresponsibility by various administrations.

And the public – in the US, Europe, the Philippines and elsewhere – have to reconsider the welfarist and forced collectivism philosophy. There is ample room to manage or allow society to run on more personal, parental and civil society responsibility, and less on government responsibility.
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Here is the additional chart and table that were not included due to space constraints:

a. Growth of US public debt through the years:

Source: http://www.zerohedge.com/news/2012-10-02/usa-kicks-fiscal-2013-bang-and-93-billion-jump-debt-1615948701330035

b. Top debtors, OECD member countries.

I marked in red huge jumps in the ratio, moving up by 10 percentage points or more in just one year. Except Ireland and Iceland, those huge spikes in public indebtedness among the industrialized countries occurred in 2009 and 2010, with hang over until 2011.