….there has been a very large amount of money from elite interests designed to get people to support retirement privatization. This has included:
Movement from pensions to the 401k
Republican initiatives to privatize social security
The raiding of pensions, and thus underfunding of pensions by executives, which servers a dual purpose of enriching executives, but also in promoting the concept that pensions are no longer reliable, and that everyone should move towards the 401k. (as we have discussed also, the 401k is the atom bomb dropped on the concept of retirement.)
Republications use the term “ownership” society a lot to push social security privatization. However, considering that all the people who use this term are wealthy (such as John Snow, who before heading the Treasury received a $33 million payout from CSX and added years of service which he did not spend at CSX), and overpaid for their skill set, and combined with the fact that most of them, like Dick Cheney, have a deep infatuation with torturing people even in cases where there is no intelligence to be gathered, one wonders if perpetual bondage of the “lower classes” is what Bush and his cronies were talking about.
Executives In Favor of Pension Privatization Make Their Case By Raiding Pensions
Many companies have raided their pensions. There is little problem here, because it’s almost impossible for an executive to go to jail, and the potential benefits are enormous. The conservative logic on this is perverse, but consistent with their logic that no wealthy person should ever be held accountable for anything, and that only minority groups should spend time in jail. Conservatives are opposed to regulations on raiding pensions, but after they are raided, point people to 401ks, as pensions are not “the future.” They leave out the performance of 401ks or the employer contribution to 401ks. So in addition to wanting to privatize retirement generally, executives like to raid pensions when they have the opportunity.
The way pension raiding works is that the executives wait for an up-tic in the market, or release false earnings that they pay Deloitte, PWC, KPMG, Ernst and Young or other accounting firm to sign off. The accounting firm checks nothing, but merely agrees that the math as a presented is correct. This is what is called “an audit” by these corrupt firms. (I have worked for several of them, and they will all sign fraudulent accounting statements, as long as you buy their real business, which is consulting services. I was told by several Deloitte Sr. Managers that Enron was really just a media creation and was “no big deal”). Then with the stock price higher, the pension (which is invested in the stock, which should be illegal, but is not), then looks “overfunded.” The executives take care of that problem, but siphoning off cash, and placing into executive compensation, which is then approved by their board of directors, which mainly consists of their golf buddies. The board of directors know that if they approve this theft, than they too will get approval for what they want to do when they ask the executive, who sits on their board of directors at another company, to approve their ridiculous bonus. However, soon the stock price decreases, and now the company is left with an “underfunded pension.” This is an old scam, but it works almost every time, because there is no law and no enforcement of pension raiding in the US. Conservatives and to some degree corrupt Democrats are against laws against stealing from pensions because evidently it would “reduce the dynamic nature of our economy,” undermine the entire free enterprise system and might be a slippery slope towards socialism, which then would lead to gay rights, and finally communism. We are not sure, but that seems to be the general logic to any standard placed on the wealthy.
Pension regulation brings up the topic of the PBGC.
What Is The PGBC?
The PGBC is the Pension Benefit Guarantee Corporation. Their stated role is to track and keep people apprised as to when pensions were underfunded. However, due to corporate lobbying, this every important list that served the public was eliminated because it held companies too accountable. The quote below is from a Time Magazine article on the theft of pension by the elite.
During those same years, the PBGC, which insures private pension plans, published an annual list of the 50 most underfunded of those plans. In shining a spotlight on those that had fallen behind in their contributions, the agency hoped to prod companies to keep current. Corporations hated the list. They maintained that the PBGC’s methodology did not reflect the true financial condition of their pension plans. After all, as long as the stock market went up–and never down or sideways–the pension plans would be adequately funded. Congress liked that reasoning and, in 1994, reacting to corporate claims that the underfunded list caused needless anxiety among employees, voted to keep the data secret. When the PBGC killed its Top 50 list, David M. Strauss, then the agency’s executive director, explained, “With full implementation of [the 1994 pension law], we now have better tools in place.” PBGC officials were so bullish about those “better tools,” including provisions to levy higher fees on companies ignoring obligations to their employees, they predicted that underfunded pension plans would be a thing of the past. As a story in the Los Angeles Times put it, “PBGC officials said the act nearly guarantees that large underfunded plans will strengthen and the chronic deficits suffered by the pension guaranty organization will be eliminated within 10 years.” Not even close; instead they accelerated at warp speed. In 1994 the deficit in PBGC plans was $31 billion. Today it’s $450 billion, or $600 billion if one includes multi-employer plans of unionized employees who work for more than one business in such industries as construction. - Time Magazine
This is the type of propaganda we are subjected to when government agencies are pressured or captured by corrupt corporate interests.
Neutering Then Infiltrating the PGBC
Thus corporate power has effectively neutered the PGBC which is now to afraid to even publish a list of companies that have raided their pensions. The PGBC is the final line of defense for pensions. If a pension is raided, the obligations fall the PGBC, although they do not pay out 100% of the pension obligation, but just a fraction. However, the PGBC is underfunded, and right before the crash began making speculative investments, which fared very poorly. Clearly, one of the problems is that Bush appointed sleazebags from Wall Street to run the agency. Upon losing the shirt of the PGBC, the previous Bush appointed advisor had this to say.
However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that “the new investment policy is not riskier than the old one.”
He said the previous strategy of relying mostly on bonds would never garner enough money to eliminate the agency’s deficit. “The prior policy virtually guaranteed that some day a multibillion-dollar bailout would be required from Congress,” Millard said.
He said he believed the new policy – which includes such potentially higher-growth investments as foreign stocks and private real estate – would lessen, but not eliminate, the possibility that a bailout is needed.
Asked whether the strategy was a mistake, given the subsequent declines in stocks and real estate, Millard said, “Ask me in 20 years. The question is whether policymakers will have the fortitude to stick with it.”
Now, they warn about a “perfect storm” scenario in which the agency’s fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming month – Huffington Post
Who could not trust this statement, as it comes from a former Lehman Brothers executive…..which due to toxic and irresponsible investments no longer exists. Furthermore, its very likely that Charles E.F. Millard was receiving some type of kick-back from these investments. So now, a Bush appointee has further degraded the finances of the government insurance for pensions, which only needs to be there because companies raid their pensions, certainly, when it runs out of money the conservatives can say “look government programs just don’t work.”
Poverty, brought to you by Exxon and other conglomerates.
Who is Responsible for Poverty?
Just the preview of The End of Poverty looks so tantalizing because it seems willing to address what is typically unaddressable; that we allow poverty, desperation and suffering to continue because out institutions setup the preconditions for it. The idea that we are winning a war on poverty globally, or that that is the intent of our major institutions is simply false. Major international institutions such as the World Bank and IMF combine with conglomerates such as Shell and Nike to extract materials at the lowest possible rate (inducing extreme poverty in such counties as Nigeria with Shell) and to pay the lowest possible amount for labor (as with Nike all over Asia). The design is for the major companies from the big countries to take as much as they possibly can from smaller countries, leaving extreme poverty, environmental damage and political instability. Part of the standard of living of rich countries is based upon this extraction and control, called “globalization” which is actually a form or neo-collonialization. Just as using Mexican labor is a form of slavery, but without the unappealing verbiage.
See this link how we have made much more progress against the word “slavery” than against the practice of slavery.
The wealthy companies don’t ever want poverty to decline because it would mean that they can take less from the country. Secondly, that is the design of conglomerates, to extract as much as possible and leave as little behind for the environment and pay wages that are as low as possible. In Ecuador this means leaving roughly 5% for the government from the oil revenues the oil companies extract. (we quantify how much companies and brokers extract from oil resources in this post)
Until we begin to see the real face of corporations and face the reality that they only exist to enrich themselves, we will continue to get scammed. Literally, it is the role of the government, of at least somewhat democratic institutions to reign in conglomerates which are completely undemocratic.
How did one of the world’s most unethical businessmen who was known to lie cheat and steal to build his fortune all of a sudden become philanthropic? Now universities like Oxford are bending over backwards to give him honorary degrees for this millions in contributions. There is a simple word for this: corruption. Universities, even those with massive endowments always seem to need money. And there are always unethical businessmen to give money to them…in return for their integrity and research direction.
Bill does not care about global poverty, but is using this organization as a front, just as Michael Milken uses the Milken Institute as a front. Evidence is provided by the fact the Bill Gates’ investment group invests in some of the worst and least ethical businesses in order to meet profit objectives.
Institutions like the World Bank, the IMF and the Bill and Melinda Gates Foundation worsen global poverty because they are part of the same structure of global poverty. They are false fronts designed to position conglomerates for resource extraction. This is why poverty never improves. Yes, the material status of some countries have improved, but income inequality and poverty has risen drastically in the US over the past several decades as part of a specific policy intended to bring this outcome. The planet overall is more unequal than ever, and this is interrelated to the inability to manage population growth with contraception due to this poverty. The very fact that Bill Gates has accumulated so much money, means there is less for others. Bill Gates, and other ultra wealthy are what lead to intense poverty on the other side of the spectrum. That that media does not see this, demonstrates what a good job elite institutions have done in obscuring real world economics from popular view.
Clearly, the conventional view is quite different from what we have written above. The majority of the population believes that international organizations are actively fighting poverty, and that the developed countries want poverty to end. This is entirely myth, as much myth as the idea that conglomerates care about poverty in their own country.
IOUSA is a movie produced by concentrated power to pave the way for policy changes that benefit the ultra wealthy. Its crooked agenda went unnoticed by the Sundance Film festival where it won an award. It is award worthy, it is the best financial propaganda film of 2009.
IOUSA
This is a well produced video that describes the problems that the nation faces in regards to its long term finances. The highlight of the video is a number of graphics that are useful for any number of purposes and some of which we have made screen shots of here.
The Problem with IOUSA
The problem with IOUSA is what it does not say. The obvious conclusion is that government spending needs to be cut. However, it does not say where. One look at the groups that are behind the movie and part of a traveling group of economists, along with the head of the Office of Management and Budget, who is taking a disturbing political tact, for a office that is supposed to be not politicized. This group includes the Brookings Institute and the Heritage Foundation. The movie attempts to present these people as a broad spectrum of the country, when in fact they represent the financial elite of the country. This movie has the distinct feeling of being a platform for cutting social services to the normal person. Big money hates these programs and hates the fact that money they pay in taxes goes to the non-elites, even though most of their income is not earned in the traditional economic sense, but is either a government granted monopoly (in the case of Exxon or Citibank) or simply a return on previously earned capital. Furthermore big money spends a great deal of time lobbying to cut these programs. One of the great scams is the singling out of Medicare as a wasteful program that will drastically increase the budget to unsustainable proportions. However, what is unsaid is that they oppose any legislation to reduce the costs of health care because “that would be socialist.” The ultra wealthy are in favor of any health care change that reduces benefits to normal patients, but not for any legislation that reduces the payout to pharmaceutical companies, medical equipment manufacturers or other elite interests even though there are massive opportunities for cost reductions.
Conclusion
IOUSA can be used for its great graphics, but beyond that, it is primarily propaganda from the ultra rich. They are intent on cutting social spending, but don’t have much of an interest in making the system more efficient or cutting wasteful spending like defense spending. All their cuts are aimed at cutting the benefits to other people, even benefits for which they have already paid. The attempt to privatize social security is a despicable act that most of the conservative think tanks are on board with even though it will mean major fees for Wall Street and an era of new poverty for the old.
Our Take on IOUSA
The movie does not make any prescriptions, however we will. We will take the exact same data which has been presented by IOUSA and demonstrate changes that can and should be made that would both correct the financial shortfalls and improve the economy. We are more qualified to do this than people from The Brookings Institute or The Heritage Foundation because they are completely corrupt and only represent elite interests. We don’t, and unlike these institutions we don’t sell research for money. Want evidence, both these institutions were in favor of the financial “innovation” and lack of regulation that lead to the melt down of the system. That is what power means, never having to apologize for being wrong.
Debt that is Allocated to Which Causes
Where The Money for the Government Comes From
Notice how little comes from corporate income taxes. Why is that? How come individuals pay 4x as many taxes as corporations? This shocking, Microsoft, GE all the biggest and smallest companies pay ¼ as much as the employees of these companies. (the payroll taxes cannot be included because they are simply reductions from wages to pay for things like Social Security. How did this escape the attention of the makers of the movie? Clearly Corporate income taxes should be increased. They appear to be getting a free ride off the system. Also, businesses receive all types of corporate welfare, so they get a lot of that money back. It would be interesting to see what their real tax burden would be after this money is decreased from their taxes.
Annual Federal Budget Deficits and Social Security Surpluses
This is an excellent graph; it shows that while the Federal government has run a perpetual deficit since 1973 (except for 3 years under Clinton) Social Security has been running surpluses (most likely because the baby boomers are working and not yet retired.) However, the next graph shows an even bigger problem.
Combined Deficit
In order to understand this following graph it’s important to understand how Social Security works. It is federal law that when a surplus of Social Security is attained in any year, that the surplus be used to purchase Treasury Bills. These are stores of value for when the money will be used (when the boomers retire). However, it is strange because it is a loan the government is giving itself. This to us does not seem like the right way to do this, it would be preferred if that money were placed in a bank. However, this is also confusing because a bank is really just a government setup fractional reserve banking system. The short synopsis of this is that the US has not been able to maintain surpluses because it spends above and beyond of the social security surplus. This means this will become more expensive for the country when more people retire due to the population cohort. However, what is left out of this is many companies have also underfunded their pension obligations, so this is a problem for both government and private industry. Also undiscussed is how the 401k program was used to drop the traditional pension, which was a far better deal for workers. IOUSA chooses to focus on the government’s lack of discipline rather than the lack of discipline in private companies because The Heritage Foundation and Brookings Institute are paid for by private companies. No big surprise there. Can we ask where the chart that shows the average underfunding of the US pension, or how far depreciated American’s 401ks are after the financial melt down, or how people have lost their retirement becasue they bet on a speculative housing bubble arranged by the Fed and corrupt banking interests. Oh, that chart is not available for some reason.
Social Security Deficit
This chart shows the social security deficit out to 2048. Clearly its large, however it should in the early part of this graph because the boomers retire. However, it’s hard to see why it persists all the way out to 2031. A typical boomer is 58 right now. 2031 is 22 hears out, so that is 80 years old, which is when many will pass on, and stop collecting Social Security benefits. This would not ordinarily be a problem, but the government will have to pay that out of present revenues, which will be a stress on the economy.
The movie has a second graph which shows the massive costs of Medicare, however this is a Chimera, it is based upon a continuation of our present health care system that enriches specific interests and provides the 37th best health care in the world at twice the average cost of comparable countries (Sweden, Denmark, etc..) Continuing to talk about the burden of health care costs when they could so easily be reduced is deceptive. This post explains how to decrease health care cost by $280 billion in direct costs per year immediately, and roughly $480 in combined direct and indirect costs) and increase the quality of the health care system. Of course it won’t be done because there is no free ride for concentrated power, thus it is called “socialist.” This is the official description for any program that is logical, fair and benefits the actual population of the country in question.
Remember when the dollar went up when everyone thought it should be headed down? This interview between congressman Alan Grayson and Ben Bernanke could explain a strong reason why. In it Bernanke reluctantly admits that the Fed used 1/2 a trillion in foreign currency operations. Since this is a central bank move to fight the tide, it must have cost us a considerable portion of that money (did we lose $100 billion of it, $200 billion of it? Will we ever know?) to prop up the dollar. I highly doubt the Fed has the authority to do this. The Fed claims the authority but Alan Grayson is questioning this. In fact does the Fed have unlimited authority? Could they spend $2 trillion to prop up the dollar? Where exactly does the Fed’s authority end. Also, did any investment bank get inside information on this allowing them to go long on the dollar? For some reason I think if you check Goldman’s currency positions at the time right before the massive intervention, they did go long on the dollar.
The Video of the Exchange
Excerpt from the Exchange Between Grayson and Bernanke.
Grayson’s questioning focused on the Fed’s handouts to FOREIGN central banks in Europe and other countries. These “Central Bank Liquidity Swaps” rose from a total of $24 billion at the end of 2007, to over $553 billion by the end of 2008.
Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other counries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Gryson: “Half a trillion dollars and you don’t know who got the money?”
Grayson: “Well, look at the next page [in Bernanke's written report], the very next page has the U.S. dollar nominal exchange rate, which shows a 20 percent increase in the U.S. dollar nominal exchange rate at exactly the same time that you were handing out half a trillion dollars. You think that’s a coincidence?”
Bernanke: “Yes.”
Grayson: “hah-hah-hah-hah!”
The Fed is Private
Some comments have been made about Grayson laughing at Bernanke. However, Bernanke is lying and it is costing taxpayers billions, possibly trillions. Why is Bernanke lying about such an obvious fact that his intervention caused the dollar to increase in value? Why is he so uncomfortable answering this line of questioning? Bernanke seems to be using an opaque instrument (currency swap) to cover up the Fed’s move to increase the value of the dollar.
What is a Currency Swap?
Is a foreign exchange agreement between two parties to exchange principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal value. – Wikipedia
It sounds innocuous enough, but why $1/2 a trillion?
Many people who work in finance speak with extreme confidence, but don’t help much in pointing out the incontrovertible corruption in the system. In the beginning we heard that mortgage backed securities were great because they provided liquidity, but then we learned they have a tendency to melt down the financial system. Now, no one seems to condescend to us about mortgage backed securities anymore, but if we allow it, the industry will keep coming up with new “instruments.”
One advantage to creating new instruments all the time is the ability to declare that its critics are ignorant (as other people would be to the amount of change in my pocket – that is right, only I know.) However, fraud is always opaque. The blog Taxes and Trade supported the swap as an extremely good idea. Here is an excerpt.
The Fed came up with something even better. They created dollars and then used the dollars to obtain foreign currencies by trading the dollars with foreign central banks for their currencies.
Here’s how a currency swap works. The Federal Reserve and the foreign central bank each create their own government’s bonds. Then they trade bonds of equal value with each other. Whenever the foreign central bank wants to trade back, they can. This strategy has three extremely beneficial effects:
1. It stabilizes currency markets. Foreign central banks get dollar reserves that will get sold right away, boosting their collapsing currencies versus the dollar.
2.It increases the money supply. In order to engage in these swaps both the Federal Reserve and the foreign central banks create new money, thus alleviating the world’s deflation. (Right now, the main problem in the world is deflation, as indicated by falling prices of stocks, oil, and precious metals.)
3. It weakens the dollar The immediate effect of the currency swaps is to weaken the dollar versus these other currencies, which helps the competitiveness of American products in world markets. – Trade and Taxes
However, the swaps did not weaken the dollar, they strengthened it. Something unasked in this analysis is why the Fed needs to create liquidity and why currency swaps are the way to do it. The Fed can create more liquidity anytime it wants, it does not need currency swaps to do so. That is the benefit of having control over a nation’s money supply. The problem generally is that while finance types tend to state that actions lead to specific outcomes, oftentimes the outcomes do not happen and a different outcome happens. So the credibility of finance has greatly declined.
Why is the Fed Anwering Questions at All?
Its important to know, the Fed is completely private. It only reports to its member banks and to investment banks. Bernanke can take his clothes off and show his bare ass to Grayson, and there is nothing Grayson or anyone else in Congress can do about it. The Fed is completely independent from the government and does not need to answer FOIA requests or any other types of requests.
Bloomberg submitted a FOIA to the Fed and they fought it. The court ruled that:
“improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.
However, what is going on here? While we appreciate the ruling and we think its right, it does not make legal sense. The Fed does answer requests in order to maintain the illusion that it is part of the Federal government, which it is not. Why is the judiciary providing these judgements and continuing the illusion that the Fed is public? The better approach is to admit the Fed is not subject to public inquiry, understand why, and then have the government take over the Fed. As long as the Fed is private, attempts to control it for the benefit of the population vs. banks will never take place.
Bernanke lies quite a bit. His constituents are concentrated financial power, not voters. He also does not work for the government, but somehow controls the currency of the government. He is enriching his constituents at great cost to voters.
Bernanke is lying in his exchange with Grayson, because he is trying to downplay the interventions on the part of the Fed, how they benefit the Fed’s elite constituents. Bernanke also has essentially gone rogue and is taking the Fed into a place it has not historically been by interpreting the Federal Reserve Act as broadly as possible. The total estimate of the corrupt bailout is $12.4 trillion at this point, and the Fed and Treasury continue to shovel US taxpayer dollars into the coffers of the ultra-wealthy.
There is one Congressman on the Financial Services Committee who has actually stood up to concentrated financial power, Alan Grayson.
Who is Alan Grayson?
Alan Grayson is a new Congressman who is a former practicing attorney who has clerked for the Supreme Court in his younger days. He sits on the Financial Service Committee. What is interesting is he is one of the few Congressmen asking these types of questions. Furthermore, it should be noticed that in several of these videos there is no one else sitting on the committee side. The question would be why on such important questions no one else except Barney Frank (who is the chair, and is obligated to be there) is interested in participating in these meetings. There are over 70 Congressmen who sit on this committee, yet almost no one participates when Grayson is asking questions. Our interpretation is that is that this is a sign of respect to the banking industry. That is if the committee members know what is “best for them” they will not even be associated with these questions. Grayson is one of the few (only) Congressmen who is standing up for the people that voted for him.
How is the Bailout Being Managed
A good portion of the population thinks that the bailout was necessary (without observing the deep fraud and corruption that caused the bailout), however just these videos demonstrate that the bailout is being and has been executed with extreme opacity which is covering up fraud on a huge scale. Grayson, as well as the entire Financial Services Committee (most of who are not there) is clearly being lied to or the interviewees are clearly attempting to dodge the question. Here is a listing of the Congressmen on this committee. It might help if they were asked why they have not interest in getting to the bottom of this corrupt bailout. http://financialservices.house.gov/who.html
Simply Illegal
As we have been saying for for some time, so much of what went on before and after the financial crisis is simply illegal. Unless the people responsible are punished, we will accelerate towards a system where justice is entirely based upon wealth. The first person to begin prosecuting is Henry Paulson, who violated the restrictions of his powers as head of the Treasury and conspired to show preferential treatment to his old firm (Goldman Sacks) in a way that broke the law.
GG: The argument that he made–he did give you a reason why he felt as though you shouldn’t get that information, or at least why it ought not be publicly disclosed–was that if these institutions know that their receipt of these funds will be made public, that they will refuse to participate in the bailout program, that they won’t take the money. Do you find that to be persuasive, and why do you or don’t you?
AG: I don’t. And I don’t find it too persuasive for a couple of different reasons. The first reason is that by law the Federal Reserve is the lender of last resort. So the people who borrowed this $1.2 trillion from the Federal Reserve literally have nowhere else to go. That’s the principle, the underlying principle that governs the Federal Reserve’s operation. It’s why we have the Federal Reserve. We have a Federal Reserve to serve as the lender of last resort. So they would take the money because they’d literally have no choice.
The second reason is that the whole reason why we have securities law in the first place, why we have a Securities Exchange Act, is to allow investors to make informed decisions. So if in fact it’s true that Citicorp took $50 billion from the Federal Reserve, certainly the people who are investing in Citicorp need to know that. Frankly all the rest of us do, too.
If these institutions are going to fail at some point in the future, then people need to be able to protect themselves against that. It doesn’t seem to me to be a good idea in general to try to deliberately keep people in the dark, under the assumption that if they knew the truth; they might actually act on it.
Think that through a little bit. What he’s saying is, we wouldn’t want people to know that $50 billion went to institution X, because if they knew–well, what? What would they do? The fact is the matter is that they would understand the truth of the matter, which is that institution X is pretty shaky, and maybe institution X doesn’t deserve their money. So, what we have is the collaboration between the Federal Reserve and failing institutions to keep the public in the dark.
AG: No, I think if you look at this particular situation, the Federal Reserve is assuming that it has certain authorities in a very aggressive way, based upon laws that were written under entirely different circumstances 70 years ago. You know, if somebody said 70 years ago to Mr. Mellon, the Secretary of the Treasury, the Federal Reserve would like to issue $1.2 trillion to favored institutions, he would have said, what are you talking about; there isn’t $1.2 trillion in the entire world. And now they’re taking that as some sort of license, 70 years later, to do what they want to do, and keep it secret.
It’s utterly senseless. Not only does it completely mock the idea of checks and balances in government, and mock the idea of democracy, but it opens us up to a tremendous possibility of corruption.
Let’s suppose for the sake of the argument, that Mr. Bernanke decides to give a billion dollars to a fledging institution called the Dick Cheney Savings and Loan, and its only asset was a numbered Swiss bank account. How would we know? How would we know that that happened? The answer is, if you take the Federal Reserve’s view of things, we wouldn’t. And that’s disastrous.
In early 2009, Grayson responded to controversial comments by talk radio personality Rush Limbaugh, in which Limbaugh stated that he wanted President Barack Obama “to fail”, by saying, “Rush Limbaugh is a has-been hypocrite loser, who craves attention. His right-wing lunacy sounds like Mikhail Gorbachev, extolling the virtues of communism. Limbaugh actually was more lucid when he was a drug addict. If America ever did 1% of what he wanted us to do, then we’d all need pain killers.”[10] On March 3 of that year, satirizing incidents in which prominent Republican officials (including Republican National Committee Chairman Michael S. Steele) were forced to apologize to Limbaugh for criticizing him, Grayson released a second statement, in which he said, “I’m sorry Limbaugh called for harsh sentences for drug addicts while he was a drug addict. I’m also sorry that he’s bent on seeing America fail. And I’m sorry that Limbaugh is one sorry excuse for a human being.”[11][12] Grayson Suing Corrupt Defense Contractors
“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]
In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.
Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.
Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world.
“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]
In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.
Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.
Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world. – Wikipedia
Why Read Marx? After being criticized as a socialist by several critics, or worse a communist because I disagree with the bailout and the increased financial corruption of the US, I thought I would take a shot at reading Karl Marx. I downloaded the following PDF documents off of the internet:
Capital: Book 1
Capital: Book 2
The Communist Manifesto
After reading parts of them I was actually quite surprised in that these books did not match my preconceived notions of them. Not that I necessarily thought they were not good work, only that my interpretation is that they would be more readable. The two books on capital read more like an economics paper with lengthy explanations on commodities and labor’s contribution to the resulting value of commodities. The Capitalist Manifesto is closer to what I expected but here again, the language used is quite surprising. On a number of occasions the paper refers to the lower classes as “scum,” which must be how the author thinks the bourgeoisie see the lower classes (which is probably true). While the book has a number of legitimate points, it undermines itself with a lot of extreme language and a lack of coherence. This actually gets to one of our main conclusions about Karl Marx and Engels (who wrote a good part of some of these books), whatever the merits of their ideas, neither of them are very good or very clear writers. (The books are translated from the original German to English; however, German is quite close to English, so this is not much of an excuse.). This fact is borne out by the fact that I needed to repeatedly go back and re-read sections, and even after doing so, was not clear as to what the author was saying. All three documents lack a coherent flow and seem to be more compilations of essays rather than books, and all of them could really benefit from a professional editor. One gets the feeling that both were rather undisciplined. The general flow seems to be that they got an idea, and wrote a chapter or section, then got another idea and wrote another chapter or section. After enough time passed, they had enough material for a book. If blogging had been around back in Marx and Engels’ time (of course they had newspapers and periodicals) this probably would have been a better outlet for their writing. What we learned from exposure to these books that that very few people are capable of reading any of them. It takes an extreme interest and extreme patience to get through them, and this is probably mostly limited to academics that are required to read them in order to complete their understanding of economic thought. One of the best explainers or interpreters of Marx we have read is Michael Hudson, a quite sophisticated economist who specializes in the history of economic thought. When Michael Hudson refers to and explains the ideas of Marx and Engels they seem to make sense, but when Marx or Engels explain them themselves without an interpreter like Dr. Hudson, they don’t seem to have the same resonance.
The Importance of Writing Clearly and Completely
Alan Macfarlane, a professor at Cambridge University, states that Marx’s work is particularly easy to understand. However, he recommends David MacClellan who extremely effectively interprets Marx.
MacClellan’s books on Marx is recommended, which may provide the editor that Marx should have had. The listing on Marx in Wikipedia indicates that Marxism has always been greatly fractured with many different interpretations and fighting factions. In this way it is similar to the Bible, another work that is poorly written and quite unclear. While the bible is completely schizophrenic (due to multiple authors, the fact most the stories are second hand over 60 years after the initial events were to have said to have happened, and the recipient of multiply translations), Marx work is less so, however, it also comes across as incomplete. One gets the strong feeling that Marx was a streak writer and probably wrote more from the perspective of inspiration than discipline, and in many areas his reach was greater than his grasp. (in fact, Marx was at least 10 months late in producing the manuscript of Capital to his publisher and they threatened to find a different author.) By leaving out so much, this allows opportunists to come in and fill in the holes and in general interpret Marx work as they see fit. This highlights the importance of comprehensive writing. Neither the Bible nor Marx’s works are internally consistent or coherent, and it has lead to a great deal of arguing because of this. This is not to say there are not good ideas in the Bible and in Marx work (as well as some bad ideas), and in fact many things Marx predicted have come true, however having a good ideas is not really good enough. Especially when people will try to implement your philosophy, it’s important to be clear and to admit the areas that you have not addressed rather than ignoring them. Here are a few interesting points of Marx’s work:
Marx predicted that capitalism would lead to increasing investments in capital expenditures and a decreasing investment in labor. How Marx determined this is hard to see, however, he turned out to be correct. Since 1973, there have been great increases in the cost of capital equipment necessary to obtain new levels of productivity, but average wages in the US have actually gone down. See this article for details
Marx saw economic activity as a constant class struggle between those that own the means of production “bourgeoisie” and those that sell their labor “proletariat.” This is true, and is this class struggle, is essentially ignored in current economics in preference for tedious dissertations on interest rates and their effect on the economy. The lack of understanding of the class war nature of economics blinds Americans to the corruption of the financial system that is nothing more than government granted concessions that favor politically connected groups. In this way, current conventional economics is essentially bankrupt, only asking those questions that concentrated power allow to be asked. However, one thing that Marx did not see, according to Michael Hudson, was that the financial industry would actually subordinate the rest of industry to its will. So while labor is subordinated to capital and industries, industry itself is now subordinated to financial interests.
Something that Marx predicted was that eventually hierarchy would fall away and people would be free. This has never happened, and does not sound even remotely likely to ever happen.
Conclusion
Our conclusion is very few people have read Marx and that what is known about him is almost entirely second hand. It is a mark of ignorance to have a pre-judgment about an author simply on the basis of association or hearsay without ever having firsthand experience reading the author’s work. In this way we think that the lauding of Adam Smith’s A Wealth of Nations (which is also mostly unread due to its extremely convoluted writing style that may be related to the fact it was written in the 1700s) is similarly based upon association, and not firsthand exposure or understanding. A while ago we wrote how people do not read Adam Smith’s A Wealth of Nation. As Noam Chomsky once pointed out, “its a book you are supposed to worship, but never read.” See this post, which proposes that Adam Smith is in fact extremely rarely read.
The American Marx scholar Hal Draper once remarked, “there are few thinkers in modern history whose thought has been so badly misrepresented, by Marxists and anti-Marxists alike.” The legacy of Marx’s thought has become bitterly contested between numerous tendencies which each see themselves as Marx’s most accurate interpreters, including (but not exclusively) Leninism, Trotskyism, Maoism,Luxemburgism, and libertarian Marxism. – Wikipedia
What is interesting is how little investigation there is into where the money that goes to oil goes. We decided to do this by starting from the retail price of oil, and then using high level percentages. The percentage that goes to countries that we have either invaded or (Iraq) or utterly control (Ecuador) is taken from books that cover both these countries. The percentage of oil revenues that is taken by oil companies is well known, as it was part of the legislation that was passed by the Iraq puppet government (75% of the value of a barrel of oil goes to the US oil company). In Ecuador, something like 4/5s of the revenues that get to the country go to either debt service or to the kleptocracy and often end up in capital flight to Switzerland. The government or “people” get around 1/5 of the money that gets to the country.
Speculative Take
Once the money is brought into the US there is a tremendous take by speculators, which include the major investment banks. We provide reference material that demonstrates that the oil markets have been significantly corrupted and that major concentrated power sources such as Goldman Sachs and the Harvard Endowment are using insider information to maximize their trading profits by creating speculative bubbles. This was encouraged by the Bush Administration’s reduction of marketplace regulation.
Retail Take
At the retail level, most gas stations do not get a piece of oil; instead they sell at very close to their cost, but are expected to make money off of their mini mart by selling alcohol, and food items. So the retail location is not part of the cost of oil to any important degree.
The Game, and How it is Played
The profiteering is so extreme, that we have decided to develop a game. This game attempts to see how low the intermediaries can get the money to be that actually goes to the people of the country that the oil is extracted from. It also gives a good impression why attacking oil rich country is so beneficial. Especially when one considers that the companies that benefit do not have their taxes increased to cover the war costs. The war and reconstruction costs are passed to the US taxpayer, while the benefits accrue to the oil company (and the construction companies and security companies, etc..). So war is extremely profitable and is an attempt by companies to gain a permanent or at least long term concession greatly increasing their monopoly power. One strong reason for attacking Iraq was the sanctions were coming to an end. Once these came to an end, European oil companies would have been allowed into Iraq and American oil companies would have had to compete for business. This way, they simply get the oil with no competition and are able to enforce conqueror terms upon the country. See our estimates below and see who gets what.
The Assumptions
These numbers are estimates. They are not perfect, but then again, these types of numbers are not published for the obvious reason that they look very bad. Oil companies are destabilizing countries around the globe. In the case of Nigeria, Shell is supporting the military junta which massacres its people in order to control them and keep them from receiving anything but a pittance for the oil revenue. Shell lies when they say “they don’t get involved in local politics,” they are deeply involved with turning Nigeria into an apocalyptic state. They have also loaned their tractors to the Nigerian military, which returned them to Shell with blood on them, and this was from using the equipment for the digging of mass graves for citizens which it had killed en mass.
The Nigeria Army periodically burns towns to the ground that they suspect of fighting, being “terrorists” or generally disagreeing with Shell Oil policies of extraction. By being ignorant and supporting Shell Oil we in the west are complicit. It brings up the topic, would we ever have fought the Nazis if they had given us very low prices on oil?
References
It appears that a combination of stripping away oil trading regulation by the Bush Administration as well as the vertical integration into trading by major investment banks have deeply corrupted the oil trading markets. The level of greed here is amazing. In cases like Iraq, Nigeria and Ecuador the standard practice is for the oil company to pull out 75% of the value of the oil (that is the value as pulled out of the ground). The country gets the other 25%, of which 4/5s is used to pay off World Bank and IMF loans and or be taken by the corrupt elites and moved over to off shore Swiss bank accounts. 5% is left over for the people of that country, but who also inherit many negative environmental and health effects. Then on the other side the investment banks take a huge cut through corrupt lending. It would be interesting to see, of a barrel of oil, how much goes to which groups across the supply chain. The estimate by F. William Engdahl is that roughly 60% of oil prices are pure speculation. This must be added onto the cost of the oil pulled out of the ground, (which must then be transported to its final destination (we will not include the price of refinement as that is the oil company’s job, and therefore their cost)). This is one reason the entire logic for Iraq using its oil resources for reconstruction was so false. The oil companies are taking 75% of the value of the oil and much of the rest is lost to the corrupt elites that the US has installed in Iraq. Therefore the US taxpayer has and will pay for the construction of Iraq, while the major oil companies and Wall Street reap the benefits. This is why it was never the plan to have any Democracy in Iraq.
Coverage on CBS on oil speculation profits.
CBS) Dan Gilligan of the Petroleum Marketers Association agreed. “Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?” Kroft asked. “Yes,” Gilligan said. “I tease people sometimes that, you know, people say, ‘Well, who’s the largest oil company in America?’ and they’ll always say, ‘Well, Exxon Mobil or Chevron, or BP.’ But I’ll say, ‘No. Morgan Stanley.’” Morgan Stanley isn’t an oil company in the traditional sense of the word – it doesn’t own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation. It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market. The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals. And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman’s top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel. Both companies declined 60 Minutes’ requests for an interview, but maintain that their oil businesses are completely separate from their trading activities, and that neither influence the independent opinions of their analysts. There is no evidence that either company has done anything illegal. Asked if there is price manipulation going on, Dan Gilligan told Kroft, “I can’t say. And the reason I can’t say it, is because nobody knows. Our federal regulators don’t have access to the data. They don’t know who holds what positions.” “Why don’t they know?” Kroft asked. “Because federal law doesn’t give them the jurisdiction to find out,” Gilligan said. It’s impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges. (CBS) “Who was responsible for deregulating the oil future market?” Kroft asked Michael Greenberger. “You’d have to say Enron,” he replied. “This was something they desperately wanted, and they got.” Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. “This was when Enron was riding high. And what Enron wanted, Enron got.” Asked why they wanted a deregulated market in oil futures, Greenberger said, “Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it.” “When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast,” he added. “Is the same thing going on right now in the oil business?” Kroft asked. “Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street,” Greenberger said. But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits. “From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds,” Masters explained. “In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent.” Asked how he explains that, Masters said, “By looking at investors, that’s the only way you can explain it.” Masters believes the investor demand for commodities, and oil futures in particular, was created on Wall Street by hedge funds and the big Wall Street investment banks like Morgan Stanley, Goldman Sachs, Barclays, and J.P. Morgan, who made billions investing hundreds of billions of dollars of their clients’ money. “The investment banks facilitated it,” Masters said. “You know, they found folks to write papers espousing the benefits of investing in commodities. And then they promoted commodities as a, quote/unquote, ‘asset class.’ Like, you could invest in commodities just like you could in stocks or bonds or anything else, like they were suitable for long-term investment.” http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770_page4.shtml Persons within the United States seeking to trade key US energy commodities – US crude oil, gasoline, and heating oil futures – are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York. Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts. A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia. http://www.globalresearch.ca/index.php?context=va&aid=8878 Remember last year. Oil went from $60 to $150 in the space of a few months. Why? Because it was no longer profitable to buy CDOs and RMBS, as they were imploding. The money has to go somewhere, and so traders bet in front of what they believed Bernanke would do – crank down interest rates at an insanely-accelerated rate, which would spike prices in commodities, as the economic slowdown had not yet occurred – and wouldn’t for several months.[1]
How efficient is the current pharmaceutical industry? The industry has 6 different drugs which are copies of each other for “erectile dysfunction” (a medical term for being either too overweight, out of shape or old) Some say it does not need to be analyzed and that the US pharmaceutical industry is so shockingly innovative that they deserve all the money they pull from the system. We disagree.
How Pharmaceutical Research is Managed in the US
In order to understand who so much goes into pharmaceutical research, but so little comes out in terms of beneficial drugs, it’s important to understand how drugs research is funded and who performs the research. Did that last sentence surprise you? It’s true the US pharmaceutical comes up with very few new drugs per year. Almost all the drugs you see, such as Crestor or Flowmax are really just old drugs that have seen just minor enough alterations to get a new patent. However, they are the same chemical compound. They do this partially because the period of pharmaceutical discovery has mostly passed and no program such as the Human Genome project (which was mostly a boondoggle and giveaway to elite interests) is going to change that. So instead pharmaceutical companies are passing off the illusion of innovation for real innovation. They have so taken over the FDA that they willingly rubber stamp almost any new drug no matter how illusory the benefit. In fact the leadership of the FDA is primarily pharmaceutical executives, who have every incentive to get drugs approved for the companies that they go back to after their FDA stint and for which they hold stock options in.
NIH vs. Pharmaceutical Companies
There are two research paths in the pharmaceutical industry. One is the NIH, which spends roughly $30 billion per year on basic research. The other is pharmaceutical companies which most perform and run clinical trials, but also perform research in assaying chemicals found by NIH supported university research. This comes to roughly $25 billion per year. Pharmaceutical revenues are roughly $325 billion per year (according to Reuters). Most the costs that the pharmaceutical companies incur are “marketing” related costs (over-paying doctors for clinical trials in order to get them to prescribe drugs, buying off top university research professors, patenting and re-patenting drugs, pharmaceutical reps for distributing company propaganda, lobbying in congress, television advertizing etc..). As can be seen, some of these marketing costs are actually pay offs. Under a system where the NIH took over final drug development and clinical trials (which a monkey can do) patents could be removed from the drug business altogether. The production of drug companies is terrible. For the $325 billion in yearly expenditures (to which we must add the $30 billion of the NIH budget bringing it to $355 billion) , US drug companies produce roughly 7 innovative drugs, and most of these are very narrow drugs which do not cure ailments but extend the life of late stage terminal diseases. 78% of drugs are simply extending the life of old drugs which could come off of patent, or copying another drug that already exists. This is according to (Marcia Angell as well as Dr. Jerry Avorn – two of the top experts in the field) Secondly the cost of clinical trials is greatly increased by the fact that a good portion of the payment to doctors is in fact a payoff to prescribe drugs (for those that are already approved), and in 78% of the cases, the drugs they are performing a trial on are not new chemical compounds. For this reason we estimate that pharmaceutical companies only do actually $2.5 billion in research on new drugs. (and a number of these drug tests are falsified) However, they claim $325 billion in drug revenues. Even if all of their research was beneficial and non-corrupt (which we estimate less than $2.5 billion of it is) it still would not entitle the industry to $325 billion off of it. That is a 1300% return on their research budget. Typically a 10% return on investment is quite good. Also, if the government does not more research (which is more difficult and of infinitely higher quality) than industry, why does the government, or taxpayer, give this away to pharmaceutical companies. This seems grossly unfair.
Handing it All Over to the NIH
If the NIH took over clinical trials, it could do so at a cost of only $32.75 billion dollars (their current budget + the actual contribution of pharmaceutical company research. These unpatented discoveries could then be released to the generic manufacturers. There would be no advertizing, no pharmaceutical reps (doctors can read journals for their medical information, or if they don’t have time (and most of them don’t) they can go to Consumer Reports Health.com which provides a quick rundown of the benefits of drugs in an easy to read and digest format). This would allow the doctor to begin working for the patient rather than the pharmaceutical industry when prescribing drugs. It would also allow the doctor to being looking for other factors related to health problems rather than taking a narrow minded drug approach because that is where their bread is buttered. Generic drug companies have low profit margins and low costs of doing business. It cost less than ½ again as much to provide generic companies with a good profit for manufacturing and distributing the drugs because it is a very simple operation with high economies of scale. This would mean the total drug cost to Americans would not be more than $32.75 billion x 1.4 = $45 billion. This would reduce US health care costs by roughly $280 billion per year. In fact, there would be so much only left over that we could even increase the NIH budget by another $10 to $20 billion creating somewhat of a renaissance in medical research and providing more employment in the industry. This would require that most the old drugs, which should come off patent because they have been artificially extended through the abuse of patent law, need to fall into the public domain. It also means that the major pharmaceutical companies essentially go away and become small generic manufacturers with no ability to influence health care policy. For all the calculations see the image below.
The Excel spreadsheet of this analysis can be downloaded from the orange widget in the lower right hand side of this blog.
How Easy Would It Be?
What is amazing is how easy this policy change would be (practically, not politically). The NIH can easily run clinical trials and do it far better than pharmaceutical companies. Pharmaceutical companies should not running clinical trials, or even paying for clinical trials at all. Universities used to perform more clinical trials, but big pharma has increasingly begun to use private practice doctors or trial mills that they completely control. They then receive the studies, and compile them and then send only the ones the like to the FDA, where they have already positioned executives from their company into the top roles through political appointment.
Better Quality Drugs
Another issue that could be changed with an NIH takeover is better drugs could be developed. We could even decide as a society to give another 5 to 10 billion to the NIH, there would be so much excess created by removing the pharmaceutical companies, which could lead to even more useful drugs and more money for the actual workers, medical researchers. Because of greed and narrow self interest, big pharma is pushing mostly the wrong drugs to clinical trials. Right now drugs that are not very socially beneficial are developed because they are the most profitable. The major category being lifestyle drugs. Pharmaceutical companies don’t develop drugs that support that overall objectives of the health care system, but rather develop drugs that are very profitable. By having the NIH take over drug development, social goals in public health can begin to come to the forefront.
Indirect Cost Benefits
The indirect cost reductions would be enormous. Pharmaceuticals are a force that corrupts everything it touches. In addition to developing the wrong drugs, and re-patenting old drugs that are not improvements, they have a big place at the health care policy table that they do not deserve. They sit there for one reason, the corrupting influence of their money.
Because this plan would essentially break the pharmaceutical monopoly, relegating them to nothing more than generic drug manufacturers, it would actually change how health care is practiced in the US. The indirect cost savings fall into the following categories:
The major pharmaceutical companies would wither away as lobbyists in Washington and would lose their ability to corrupt medical schools and motivate the profession to look for pharmaceutical solutions to every problem.
Over prescriptions, which is currently a huge problem would be greatly reduced because pharmaceuticals would tend to be prescribed only if they actually benefited the patient.
The medical industry could begin to refocus on health and prevention.
Many people currently employed in non value added activities (pharmaceutical marketing and influence peddling activities) could be redirected to beneficial pursuits.
Many clinical trials that are currently run need not be run. This would greatly reduce the load of pharmaceuticals on trial subjects, which they are, in the majority of cases, being mislead into thinking that they are doing something beneficial for themselves and for society. (the very fact that clinical trial recipients are taking placebos when the exact drug was tested years ago is a loss for the system in terms of health efficiency.)
The indirect benefits are difficult if not impossible to quantify. However, indirect benefits being ½ of the direct benefits could be easily justified. This would bring the benefits to $280 billion x 1.5 or $480 billion, or ½ trillion. Health care costs are growing in an unsustainable fashion, this could be critical change which in addition to reducing costs would more likely than not lead to better health for the country’s population.
Other Sources: CEPR and Dr. Marcia Angell
In case anyone thinks these are just the musings of one source, it should be considered that we got this idea from Marcia Angell, the former editor of the New England Journal of Medicine and Harvard Professor of Medicine, and the CEPR, which is probably the best progressive think tank in the country. An interview with Marcia Angell is included below:
Both of these sources have proposed what we have proposed above. Our main contribution is the spreadsheet above. What is interesting is that without using the high level math estimation of CEPR, we came to about the same conclusion as their estimates. That is drugs should cost no more than $50 billion in the US under and NIH plan. Furthermore the quality of drugs developed would greatly increase. However, it’s important to note that drug research is generating a declining number of new drugs, so the research area may be in a way subject to diminishing gains.
The Excel Spreadsheet
To interact with the spreadsheet yourself, download it from the file box towards the lower right of this screen where all the documents are kept.
References
The estimate of the percentage of drugs spent on “me-too” drugs or re-patenting old drugs is from Marcia Angel. The Plan
Drug companies should no longer be permitted to control the clinical testing of their own drugs. There is too much evidence that this practice biases the research in favor of the sponsor’s drug. It also distorts the type of research done, since companies are more interested in increasing sales than in obtaining medical knowledge. We really don’t need one more study of whether a new drug is better than a placebo for some slightly different use, but drug companies sponsor them because they help to expand the market. O ensure that clinical trials serve a genuine medical need and to see that they are properly designed, conducted, and reported, I propose that an Institute for Prescription Trials Drug Trials be established within the National Institutes of Health (NIH) to administer clinical trials of prescription drugs. Drug companies would be required to contribute a percentage of revenues to this institute, but their contributions would not be e related to particular drugs (as is the case with the FDA user fees). The institute would then contract with independent researchers in academic medical centers to conduct drug trials. The researchers would design the trials, analyze the data, write the papers, and decide bout publication. The data would become the joint property of the NIH and the researchers, not be controlled by the sponsoring company. – Dr. Marcia Angell
CEPR
The distortions resulting from these huge gaps between price and marginal cost should cause an honest neo-classical economist great pain. At the onset, the lost consumer surplus from patent and copyright protected pricing is enormous. The basic rule on this issue is that the size of the deadweight loss is proportional to the square of the gap between price and marginal cost. The United States alone is projected to spend $210 billion this year on prescription drugs. In the absence of patent protection, the same drugs would probably cost no more than $50 billion.” “Drug patents also distort the direction of research by pushing it in the direction of patentable results. Research directed at finding cures or treatments based on diet, exercise, or environmental factors will not be pursued in a health care system that relies exclusively on patent monopolies to finance research. This neglect can be offset by government funding targeted specifically towards these areas, but the patent system will direct resources elsewhere.” “However, there are alternatives and they already exist. The most obvious alternative is direct government funding of drug research. This already occurs on a massive scale. In fact, the $30 billion that the United States federal government pays each year to support bio-medical research at its National Institutes of Health (NIH) is approximately 20 percent larger than the $25 billion that its pharmaceutical industry claims to spend on research. While this research is primarily directed towards more basic science (in order not to interfere with the efforts of the drug industry), there are many instances of new drugs being developed almost entirely through NIH support. It also requires some extraordinary claims about epistemology to argue that public funding of NIH is an efficient mechanism for supporting basic research (a contention strongly supported by the pharmaceutical industry), but somehow would prove to be a boondoggle if the agency took on the responsibility of developing new drugs and bringing them through the FDA approval process.” “Since half of this money may go to research copycat drugs of little social value, the savings from eliminating drug patents in the United States may be more than 10 times as large as the spending necessary to replace the useful research performed by the pharmaceutical industry” – CEPR
New Drugs Brought to Market
“Even worse is the fact that there are very few drugs in the pipeline ready to take the place of blockbusters going off patent. A fact that is the biggest problem facing the industry today. And its darkest secret. All the public relations about innovation meant to obscure precisely this fact, the stream of new drugs has slowed to a trickle, and few of them are innovative in any sense of that word. Instead, the great majority are variations of oldies but goodies—”me-too” drugs. Companies are merging to combine their pipelines or co-marketing the same drug while scrambling to find drugs to license from the government, universities, and biotechnology companies. But these sources are themselves experiencing difficulties in coming up with new drugs. Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients and only seven if these were classified by the FDA as improvements over older drugs. The other seventy-one drugs approved that year were variations of old drugs or deemed no better than drugs already )n the market. In other words, they were me-too drugs. Seven of seventy-eight is not much of a yield. Furthermore, of those seven, not one came from a major U.S. drug company. – Dr. Marcia Angell
Conventional and wealthy media outlets are a good place to find out what Goldman Sachs and Morgan Stanley would like you to beleive. In these magazines you can learn how the bailout is necessary to save “Main Street” and how exeuctives and Wall Street stars deserve their exhorbinant compensation. However, not all sources are corrupt stenographers for concentrated power. Some small media outlets are and have been fighting against this.
Good vs. Bad Sources
We have lauded three sources a number of times on this blog. We have gone through their past statements and predictions (some going back to 1995) and found them to be remarkably accurate. However, it took us some time to find these sources. When we were coming of age we were presented with information sources such as Business Week, Fortune and the Wall Street Journal. We originally figured out The Wall Street Journal was false when we began working in companies and the articles written by the Journal that covered the companies we were currently consulting in were completely inaccurate. It took us longer to figure out that Fortune and Business Week are also nothing but stenographers for the ultra wealthy. Fortune named Enron the most innovative company in the country….6 times in a row. They recently had a cover that discussed how the Social Security System (which is in perfectly fine financial shape as the CEPR has written about and demonstrated, as well as the Office of Management and Budget multiple times) will need to be bailed out. How curious as Social Security is backed by the US government and has a .07% administration cost. It is the more efficient financial program in the country bar none. However, its administrators also don’t own Ferraris or date supermodels. Wall Street does both, and wants all that Social Security money to pump up the stock market, so they can skim it, so Fortune goes ahead and publishes a fake article on the topic. Forbes, Fortune, etc…will publish any article for concentrated power because concentrated power will reduce their advertising and their access if they don’t.
The Good Guys
It’s easy to see which media outlets are friends of concentrated power, because they have all the money. They are also wrong a lot of the time. The best quality economic and financial reporting comes from non-corrupt sources. These sources are as follows:
Center for Economic Policy Research: $1.2 Million
Michael Hudson N/A (i.e one person)
Dollars and Sense $200,000
The combined revenues of these outlets, along with Michael Hudson who is part of the The Institute for the Study of Long-Term Economic Trends, but also works independently is less that $2,000,000. (with Dollars and Sense producing an incredible output for their yearly revenues)
Total = $2,000,000
The combined revenues of the bad economic and financial reporting is tremendous.
Forbes: $700 Million
Business Week: $500 Million
Wall Street Journal: $1 Billion
Total $2,000,000,000
That is 1000 times more revenue for corrupt reporting, that pumps up asset bubbles as well as stock options on command, over those principled outfits performing real reporting and investigation.
The situation is even more extreme when one considers that there are few quality sources of information, but many more corrupted sources. (Economist, Money, etc..)
Our conclusion as to the reason for this is simple. If you want to find truth, look for the smaller “poorer” sources, they are probably right. However, CEPR, Michael Hudson and Dollars and Sense all need more support than they get. They are actually doing journalism that helps the normal person and peirces through the falsehoods perpetuated by the corrupt publications and their legion of compliant economists.
This excerpt goes on to explain how the economics profession benefits people who take the opinion of elite power. It is taken from The Nation online.
Perelman, who is there for the EPI reception, works at the margins of the discipline; he is one of a few hundred self-described “heterodox” economists at the conference. His last book, Railroading Economics, was about the creation of the “free market mythology,” and his next book is titled The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression. I ask him about how he relates to the so-called mainstream of his profession. “It’s a mafia,” he says quietly, his eyes roving over to the suits spilling out of the Freedom to Choose room.
Mafia is probably a tad hyperbolic, but there is undoubtedly something of a code of omertà within the discipline. Just ask Alan Blinder and David Card. Blinder, a renowned Princeton economist and former Clinton economic adviser, has long been a zealous advocate of trade liberalization. But this past March, the Wall Street Journal ran a front-page article on Blinder’s concerns about the massive dislocations that the current trade regime and outsourcing trends might bring for American workers. He suddenly found himself under fire from fellow economists for stepping out of line. Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn’t. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn’t raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: “I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.”
Its becoming increasingly difficult to tell the difference between wealthy Americans and movie gangsters. What separates Goldman Sachs from Tony Soprano? Both are performing illegal activities with no consideration for the rest of society, and both have legitimate “covers” for their business interests. How Wealth is Rationalized There is a long history of this, but people show a very fast ability to rationalize an entitlement around wealth. There have been studies that doubled custodian’s salaries every few weeks, and when interviewed, within a few days the recipient had justified the increase in salary to their fine work. The rich are no different. However once one analyzes where the income of the rich comes from, it becomes apparent that very little of it is actually earned. Michael Hudson brings up a great point regarding how the study of economics has changed in terms of how income is viewed.
Unfortunately for us – and for reformers trying to rescue our post-bubble economy – the history of economic thought has been rewritten in infantile caricature, to give an impression that today’s stripped-down, largely trivialized junk economics is the apex of Western social history. One would not realize from the present discussion that for the past few centuries a different canon of logic existed. Classical economists distinguished between earned income (wages and profits) and unearned income (land rent, monopoly rent and interest). The effect was to distinguish between wealth earned through capital and enterprise that reflects labor effort, and unearned wealth stemming from appropriation of land and other natural resources, monopoly privileges (including banking and money management) and inflationary asset-price “capital” gains. But even the Progressive Era did not go much beyond seeking to purify industrial capitalism from the carry-overs of feudalism: land rent and monopoly rent stemming from military conquest, and financial exploitation by banks and (in America) Wall Street as the “mother of trusts.” – Michael Hudson
So when one analyzes how the wealthy make their money, it is clear so much of it is stolen. Examples include:
Underpaying workers (domestically, but also international companies paying slave wages to women in sweat shops who receive around .3% of the retail price of the garments they sow.)
Cheating on taxes with offshore banking
Receiving money from monopolies (such as Bill Gates and Larry Ellison’s money, as well as all the income from the investment banking industry which is little more than a government granted concession)
Landlords (collecting rent from an apartment complex gifted by your parents is not very hard or innovative work)
Extending patents on drugs through litigation or re-patenting old drugs (i.e. Prilosec vs. Nexium)
Resource extraction on public lands, which companies have bribed the Department of Interior not to provide agreed upon compensation.
There are so many of examples of non-value added income that is raked off by the ultra-wealthy it’s hard to make a complete list. The old statement is that the rich make the economy dynamic and therefore they must be compensated. However, an analysis of where the rich get their money shows that in fact the rich in most cases do very little for their money, and also reduce the efficiency and size of the economy through erecting barriers to change, and cutting off areas of the commons to privatize it for themselves.
The Unethical Tax
There is much truth to the statement behind every great fortune is a great crime. Rich people are rich because of a combination of luck and because they value material wealth over all other things, and in addition to that, they cheat. The rich would have everyone believe that it is because of their immense talent that they accumulate so much money. However, Einstein was not rich and neither was Newton. I will let reader decide whether Einstein’s contribution was more important than Bill Gates, Larry Ellison or Donald Trump. So the proposition by the rich simply does not square with the facts. Even if Bill Gates and Larry Ellison are immensely talented (which is a tough call as we have never heard either of them say anything remotely interesting, or even true. Larry Ellison habitually makes false statements about his software), they are far and away over compensated for their limited talent. For this reason, we propose that the rich should have their taxes doubled and that they should pay at least twice the proportional rate on their income that they do. This we call this the sleaze tax. If anyone is opposed to the term “sleazy,” or unethical spend some time hanging around the rich, pretty much all they care about and all they talk about is money (although they throw in a few references to art and wine in order to appeared cultured.). This is a bit like Genghis Khan taking about the latest ballet at the Met.
Welcome to one of the few blogs to focus on undermining and questioning the official story in economics and finance reporting.
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Its becoming increasingly difficult to tell the difference between wealthy Americans and movie gangsters. What separates Goldman Sachs from Tony Soprano? Both are performing illegal activities with no consideration for the rest of society, and both have legitimate “covers” for their business interests.
