The FDA

I read a story today, it was interesting.  From an economic stand point there are some interesting concepts.  The story was about the FDA allowing some maintenance type drugs to be bought over the counter.  Drugs to control blood pressure and cholesterol were specifically mentioned.  And of course in the body of the story there were statements from doctors groups that were appalled at this idea.  The pharmacists were much more amenable to the idea.  The story went on to say that the FDA was looking to do this to reduce the costs to Medicare, which since the drugs were over the counter, they would no longer be covered, reducing health care costs to the government.

By reading the above, there are three issues discussed.  Let's explore them.  First, the FDA wants drugs for maintenance of some pretty serious conditions to be available for those would would self diagnose themselves.  Blood pressure is easy to monitor, the devices are readily available at many different retail stores.  The cause is a different story.  Most humans control their blood pressure through normal bodily functions.  I am not a doctor, so I wouldn't presume to know what these functions are, suffice it to say that for centuries we have survived as a race without these medications.  The medications may allow those of us with problems in the internal workings of our bodies to live longer and be more productive and happy.  But there are a multitude of formulations out there and, as a layman, I would not have a clue as to which I should buy.  That's what my doctor is for.  Perhaps a pharmacist could help as well.  By self medicating, it also removes another important part of the treatment, getting to the root cause.  Mostly it is diet, and there are some doctors that may try to convince a patient to change diet first, if that doesn't work then go to the medications.  Seems to me that there may be a argument to keep doctors in the loop.  I suspect though that in some cases doctors might be opposed to this because it will cost them money, no office visit...  Is that too cynical?

Second, there is the economic impact of making the medications more available.  Drug manufacturers would have to compete for your business.  When a drug is moved off prescription there generally is a decrease in price, since it is your dollars, and not the insurance company's dollars, you are spending.  We tend to be more frugal with our dollars.  Therefore for the drug companies to continue selling an over the counter drug, they must reduce the cost.  Then there is the effects of generics and its lower cost compared to the major drug, these price constraints on the drug companies will force them to deal with generics head and further push costs down.  As a general rule, moving a drug to OTC status should make it more affordable to the patient.

The third issue is much more insidious.  Lowering cost to the government insurance company, Medicare.  There may be economic benefit to do so, however, it has been my observation that instead of passing this saving on to the patient so that they can buy the less expensive drugs, the money will disappear down the Washington black hole and be absorbed into an inefficient system.  Leaving the patients to choose between eating and medication.  Not exactly a 'death panel' but the result may be similar.  The FDA does not set premiums for Medicare, so there would be no pressure to lower premiums.  And like so many other schemes from Washington, the money will be theirs to spoil who ever they desire, both sides of the aisle.  Seems like this leaves us as citizens holding the bag, once again.

Market forces are an overall good thing for the people, companies know that if they are over priced, they will not have the sales that generate profit.  And there is research and development to consider.  It takes years and millions of dollars to bring a new drug to the market.  Is the FDA going to reduce that cost?  If they do, will the bad apples bring drugs that may harm us?  Some regulation is OK, it is over regulation that we need to fear.

Too Big to Fail?

We have heard some in our government say that this company or that one is "too big to fail".  Is that true?  No one likes to fail big or small, however, if we prop up a firm that is not doing well economically, is it good for our economy? 

Let's go back in time, way back to a time when things were much simpler.  A time in the mid 1800's, before there were automobiles.  There was a thriving industry making saddles, wagons, and buggy whips for the transportation system of the day.  Even street cars were pulled with horses.  There were areas in some houses where the horse could be cared for.  Even a place to place the pollution of the day (before you put a foot print in it).  There were people who put shoes on the horses, delivered hay, and repaired buggies.  But none of those exist today, especially in the numbers of then.  Why?  The automobile was a more efficient means of transportation.  Even the early versions with the crank start on the front were overall faster and cheaper than maintaining a horse and buggy.  And easier too.  No barn needed, no need to find a hitching post so that your ride would be there when you returned.  And cars smelled better.  So what happened to the over flow of horse shoers and buggy repair guys?  Some went out of business, some converted to the new system, and some stayed around to care for the dwindling horse and buggy industry.  There are still a few today.  The black smith was replaced with the tire store.  Buggy repair became body repair, and buggy whips pretty much disappeared. 

So what happened to those employees?  Did they starve to death, or lose their houses?  Some, I'm sure, did.  But overall humans are adaptable.  Most learned a new trade, perhaps working with cars.  What would have happened if some big wig government type decided that the buggy whip industry was too important to fail?  Would we still be making thousands of whips a day?  Would there be a warehouse somewhere loaded with unused whips?  Or buggy parts, or even horse shoes?

So what makes GM or Bank of America special?  They pay a lot of taxes, right?  Nope the larger a business, the more likely it is that they have a bunch of accountants minimizing taxes.  There are multinational corporations like GE that can move money around the world to avoid taxes.  So they employ a lot of people, right?  Of course they do, but the income level is lower for these people because of the scale of the firm.  It's not risky working there, so the pay is lower.  What about the unions?  Of course the unions do what they can, but if (see if you remember this) the rate of pay gets too high, factories start opening outside of the US (like north Mexico), then the unions are out, and so are their members.  Auto parts are sourced all over the world.  Once I had a Mustang, a nice car with a manual transmission.  The clutch went out.  I was not a rich man, and auto repair was always scary then.  I called a shop and asked how much they thought it would cost to repair.  They asked, "Do you have the West German clutch, or the American clutch?"  So those who make clutches, are competing internationally, and the company will buy from the least expensive source, to maximize profit.

But if a company like GM were allowed to fail, what would happen?  Their workers would be absorbed into the economy eventually.  Perhaps a new company would fill the void, maybe even with an eco friendly idea for the future of cars... hmm.  They would have seen what happened to GM and tried to avoid those problems.  And maybe one day would be a player in the auto industry.

Consider now the banks.  This blog comes from St. Louis, MO.  A few years back, the pride of the south side, Anheuser-Busch was taken over by a Belgium company, InBev.  They were the largest brewery in the world at one time, at the merger they were not too much smaller than InBev.  If we went back about 25-30 years, and the same thing happened, the then current owner, August Busch, Jr, would have called his friend at Boatman's Back, or another at Mercantile bank, and turned the tables by buying InBev.  The merged company would have been here in the states, paying taxes and hiring people.  Instead, profits go to Belgium, I'm sure AB-InBev pays taxes to Belgium.  Many executive positions moved to Belgium as well.  So why didn't August Busch IV call his banker friends?  For one, Mercantile is now owned by US Bank; and Boatman's was bought by Bank of America, they didn't care about St. Louis, or AB, they figured to do business who ever owned them.  Local banks would have been more receptive, on a matter of pride, but there were no local banks, a great American Company is now from Belgium.  If Bank of America had been allowed to fail, there would have been a vacuum filled by smaller banks, or new start ups.  Perhaps that would be better for our American businesses, what do you think?

Now I just want to talk about large companies in general, through a personal story.  My wife and I own a small business.  We compete with a large company everyday.  Our prices are better, our service is better, and if a customer has a problem, they don't need call an 800 number and push buttons until their fingers are numb, only to find out that the warranty is expired, or doesn't cover this or that.  We are in a position to really understand the problem, if indeed it is something that isn't right, and the vendor refuses to cover it, I can.  There is more versatility.  The big company says, your parts have been shipped, just climb under and install, we say the parts are here, can you install, or do you need help?

I think Washington has it backwards.  It should not be "too big to fail", but rather "too small to fail."  It is smaller companies that will react to their community.  It is smaller companies that have something to gain by sourcing product closer to home, rather than going to places like China, to save a few cents per item.  It is local companies that compete most effectively.  You see, if they wanted to, they could drive us out of business in just a few months, and their bottom line would not show much effect.  But because of their size relative to ours, they control most of the sales in town, they seem unworried about us.  But look at the package, more of their product says made outside the US, ours is sourced as close to St. Louis as possible.  Which company should our neighbors be supporting?   When smaller businesses exist, our economy is much more nimble, and competitive.  After all, in small towns where the competition is gone, Walmart is aggressively pricing their goods, right?

Think about it...

Fairness

Define fairness.  Dictionary.com says fairness is: 

the state, condition, or quality of being fair, or free from bias or injustice; even handedness: I have to admit, in all fairness, that she would only be paid for part of the work.

 

What does that mean?  My granddaughter loves a candy called crabby patties, a sickly sweet candy.  She could eat them all day.  But that's not what's going to happen.  Is that fair?  She loves the candy.  Why can't she have it instead of her veggies?  She says "it's not fair".  But as every parent and grandparent knows, candy is a nice treat, but if you eat too much of it it can hurt.  Too much and there is an upset stomach.  Too much and the child gets fat.  Too much and other things like diabetes can be on the horizon.  So what is fair?  To her, all the candy she wants is fair.  Sometimes fairness is over rated.

 

Consider that in our tax code, tax money is the candy.  Too much and the Federal Government gets fat.  Then they develop problems that are life threatening to the republic.  Some tax money is good.  We can use it to defend our shores, push ourselves into the future.  Develop new technologies.  And even provide a safety net to help those less fortunate to get back on the economic train.

 

When are the taxes collected too much?  Different people would have different answers.  How about, when economic pressures cause a downturn in our economy, and yet seats of government thrive.  Is that too much?  As an example, the housing market in Washington, DC has not been nearly as troubled as the real estate markets across the nation.  Why is that?

 

Government has a mentality that it just cannot do with less.  With the real estate downturn in our area, school districts were hit hard, they derive a substantial portion of revenue from property taxes.  Now, it is important to note that the people living in those houses have seen their investment dwindle, by double digits as the morass continues.  Personally our family has lost maybe 10 to 15% of our net worth to this downturn.  Yet last year our property taxes went up.  Values were down and taxes up, and no voter approved property tax hike.  You see in this area, the school district, by law, can raise the taxes at a time like this to match what they would receive if it hadn't happened.  Hmmm, wonder if my boss would agree to that.  What is the risk then to government?  Why should they be 'good shepherds' of the country's assets?  They won't suffer, they'll just raise taxes.  Putting an additional burden on those already hurt in the economic reality we face today. 

 

Congress needs to consider the every man when they talk budget and taxes.  Ours is supposedly government by the people, from the people and for the people.  Perhaps our 'leaders' need to take a pay cut to balance the budget.  Perhaps we should scrutinize each appropriations bill to maximize it's economic effect, rather than how many votes it will bring, or how much campaign funds will result. 

 

There are times when debt is appropriate, and times for paying down debt.  The American people know this and embrace it in their personal lives.  Government should be no different.  Do we want a fat government, or a lean one?  Do we want a sickly government, or a healthy one?

 

What do you think?

Tax the 1%!

There are about 8 million people in the United States that make more than a million dollars per year.  Their average pay is around $5 million.  What does one need with that much money?  Our deficit is $1 Trillion per year.  We need to tax the rich to pay down that deficit.  How else can we survive as a nation?  We cannot let people starve, our old people need security, our kids need a balanced diet and an education.  We need to protect ourselves with a military second to none.  So why not take all that excess income from the filthy wealthy?  It's only fair.

Or is it?  If you do the math on the above numbers, it works out to 40 trillion dollars.  Our government spend over $6 trillion per year.  Our debt is is almost $16 trillion.  Those 2 numbers are about $22 trillion.  Now, how much is a fair amount of pay?  $80,000?  Take that times the 8 million is just shy of a trillion dollars.  So is it fair that we take $39 trillion in taxes?  Now let's subtract the $22 million and we have $17 trillion left over, a good start for next year!

But wait, let's think for a minute.  Think of your own situation.  Let's say you make $50,000 a year after taxes.  Do you earn enough?  Most people would say no.  Now, lets assume your rich.  The government comes to you and says give us 99% of your income.  What would your reaction be?  Sure why not, or like hell I will?  If they did, would it not be better that you just stop working?  Why work, when you would not be able to afford a house, or food? 

So now, if you were making the $5 million, wouldn't your reaction be similar?  What's the chance that you would try to make more, when all you will get is $80,000?  So within a couple years there will be no one making $5 million a year.  Then what do we do?  How will we fund our government?  Will the world come crashing down?

So half of our current budget would be available in year 2 and by year 3 the IRS would be collecting very little.  Deficits will soar, budget cuts would be inevitable.  Deep cuts to Social Security, Education, Military spending, and any other program.  Our country will collapse.

A few years ago, our Congress decided to tax yachts, only the rich have yachts right?  How does that hurt you and me?  Frankly it hurt us worse.  You see someone has to build the yachts (people like us) some one has to sell the yacht.  Some one has to transport the yacht.  And all these people saw layoffs as the 'rich' didn't buy over priced yachts.  So they had their money, we didn't.  High tax rates hurts employment, it weakens demand in the overall economy.  Well except maybe around Washington, DC where the economy has never been better.  The housing market there is appreciating.  Investments are traded on inside information, and everyone is smiling.

The United States is still mainly Christian.  Almost 80% of us are Christian.  Perhaps we need a Christian tax rate.  Most Churches expect 10% of income in donations.  If God can live on 10%, why can our politicians?

Why Socialism Works, Well Sometimes.

What an interesting thing to consider.  Marxism is an economic system.  Its basic tenants are from each according to their means, to each according to their needs.  Sounds good on paper, but as with many theories, it doesn't always play out the way it looks. 

I would like to look at two different socialist systems, one works and one doesn't.  I hope that exploring why they work or don't, we can see why, in America today, socialism is not the answer.

The first system is a part of the Roman Catholic Church.  They call themselves the Society of Jesus, Jesuits for short.  The Jesuits are an extraordinary group of men who take a vow of poverty.  They rely on their individual labors to fund their communities, which meets our definition of socialism.  When one joins the Jesuits, it isn't a surprise that they expect you to take the vow.  And it takes a very committed personality to accept this vow.  The Jesuits are mainly educators.  The Jesuits opened the very first secondary school west of the Mississippi river in 1818.  Prior to that, if one wanted an education, you had to go back east.  They take education seriously, and believe that God ordains for people to educate themselves.  They are also evangelical.  The reason they worked the missions in the early 1800s or even today is to spread God's word.  An educated individual can read the Bible.  An educated man can think; a thinking man can see God in their world.  To be upfront, I am Jesuit educated.  I truly believe the Jesuits made a difference in my life, and I thank God for them.  At a recent reunion, I was talking to classmates, we decided that education is more about learning how to think, than indoctrination.  Not once were we 'preached' to by a Jesuit.  Rather, we were taught how to find answers.  In fact, several times over the centuries, the Jesuits have been in trouble with Roman Catholic leadership, but they tend to stay steadfast in their beliefs and goals.  One of my classmates joined the Jesuits, his name is Jeff.  Jeff has been obedient to the Jesuits, has worked in missions in South America, and is currently teaching in St. Louis.  Jeff has never, since joining, received a paycheck.  Jeff owns no car, nor does he own a house.  Yet, Jeff can get to where he needs to be, and has a roof over his head, due to his contribution to the community.  The last time I saw him, and we are in our mid 50's, he looked pretty good.  A smile on his face, not starving and still willing to do what it takes to be obedient to the community.  The school we left so many years ago is one of the most financial stable schools in the nation.  They have tuition, and on its surface that tuition seems very high, but they educate students from all strata of society.  In our class there were sons of Cab Drivers, as well as the son of the Mayor of St. Louis.  There were families that would be household names in St. Louis and beyond, and families who lived in very modest blue collar areas.  It is an urban school, in a relatively financially poor neighborhood that attracts students from across the Metro Area, and from two states.  They graduate a number of National Merit Scholars, and I remember one year when they were so proud that their championship football team had more National merit Scholars, than any other team in the state.  By any measurement the Jesuit system, at least in this school works.  So we have a Socialist system that works, and has for centuries.

The second socialist system that we need to study was the very first socialist system in the Americas, they were socialist long before Marx was born.  The original Pilgrims that came to America formed the Mayflower Compact.  Part of this compact set up a 'company' store.  If you were a farmer you would take your crops to the store, and come away with other products you needed like fabric or metal works.  From each according to their means, to each according to their needs.  Problem was that the Pilgrims, while religious, were not as committed to not earning what they are worth.  You could argue the value of goods and in our system today that value is determined by money, then it was just by needs.  The Pilgrims nearly starved to death.  It was easier to not try to grow as much produce and spend more time playing with the children or other diversions, than to drive a plow in the fields.  And after all, the plow was in the store, regardless the amount of the crop.  It wasn't until, at some point, they changed the system, monetizing it that real productivity went up.  They were then more successful as a colony, and they decided to celebrate that success, we call it Thanksgiving, yes the Thanksgiving Holiday we celebrate even today. 

What is the difference between these two systems?  It is how committed the individual is to making it work.  If you can get the individual to be committed, then a socialist system will work.  If not, it won't.  And most people are worried about themselves, they do care for others, but they have an instinct to survive and thrive.  When we take away that need, unless each part of that society is totally committed, the system will fail.  Like The Soviet Union and eastern Europe, survival was the key component to their collapse, as was the Pilgrims so many years ago.  In a small micro society, you can search for the committed to join, in the macro society those not committed will bring down the system.

So while Socialism may be a noble ideal, the make up of man prohibits its success on a macro level.  Yet we should always strive to grow our humanity, we should always encourage as much productivity from each as they are worth, a good definition of Capitalism...