Greenspan/Bush: Repudiate the National Debt!

Here’s a headline you didn’t read over the weekend: Chairman of Federal Reserve Board Calls for Repudiating the National Debt.

You didn’t read it, but it happened nonetheless. Alan Greenspan on Friday repeated his mantra that Social Security simply isn’t sustainable through the Baby Boom’s retirement. Speaking at the Fed’s annual soirée in Jackson Hole, Wyoming, Greenspan called for cutting benefits and raising the retirement age.

Most Boomers still don’t know that their retirement has been postponed from 65 to 67. The Maestro – Bob Woodward gave Greenspan that honorific in his fawning biography – now wants to move it to 70.

If the public (or the media) understood government accounting, it would accuse the 78-year-old Greenspan of bait-and-switch. In 1983 the Ayn Rand enthusiast ran a commission that endorsed a hike in Social Security payroll taxes precisely to avoid the bankruptcy he now predicts is inevitable. At the time, the Social Security system had no reserves and its payouts were rising dangerously close to its receipts from the payroll tax.

Sublimating his libertarian instincts to his pragmatic quest for his current position (which he got in 1986), he called for a sharp payroll tax increase, which falls most heavily on wage earners. It worked. Over the next two decades, Social Security racked up nearly $3 trillion in surpluses.

Where did the money go? It helped cover the massive deficits that the Reagan, Bush I and Bush II administrations compiled while financing huge military build-ups and tax breaks, mostly to those already well off. Money owed the Social Security trust fund now accounts for more than 40 percent of the national debt.

This year, like junkies desperate for a fix, the Republican administration and Congress are once again using everyone’s retirement cash to help balance its books. In case you haven’t been paying attention, the government is projected to run a $445 billion budget deficit this year. It’s tough to balance the budget when the administration in power’s concept of sacrifice during wartime is to have the IRS write checks to the richest Americans.

But average Americans’ retirement accounts continue to do their part (there’s a poster – Uncle Sam Wants Your Nest Egg!). The Social Security trust fund’s contribution to the war effort last year came to $162 billion. That’s right, the most recent audit of the supposedly collapsing Social Security system reported that it ran $162 billion in the black last year. In fact, the system isn’t due to run in the red until 2018 and the trust fund isn’t scheduled to exhaust itself (and thus require a tax increase to finance Social Security benefits) until 2042.

None of this matters to Greenspan, of course, whose stalking horse comments helped set the stage for this week’s Republican convention. Part of the president’s moderate makeover will include his touting private accounts for Social Security. Put a 401(k) in every pot. Call it the ownership society.

This is precisely what one would propose if the goal were to bankrupt Social Security, since it would take over one trillion dollars to finance the transition. As Business Week pointed out in its editorial attacking the plan, even at today’s relatively sluggish economic growth rates, there are sufficient reserves in Social Security to pay for the retirement of the boomers and their kids.

So why are Republicans so desperate to restructure the system in such a way as to ensure its demise? In part it’s philosophical. If your goal is to make government so small that you can, in Bush stalwart Grover Norquist’s words, drown it in a bathtub, then the last thing you want around is a successful taxpayer-financed program that has done more to reduce poverty than any other social program in American history.

But the tax issue is also at work. In 2018, the Social Security system will begin running deficits. Each year, it will start paying out more than it collects in taxes. When that happens, the government (its general fund; not its Social Security fund) will have to begin paying off what will by then be in excess of $4 trillion in IOUs. The only way to do that is to raise taxes. And income taxes, even with the regressive tax breaks introduced by this administration, are a heck of a lot fairer than payroll taxes.

Bottom line? It’s simply not possible for the government to pay off its debts without raising taxes on the well off. Not unless, of course, you’re willing to repudiate the national debt to Social Security. And cut benefits. And raise the regressive payroll tax again. Call it the Greenspan plan.

The Wrong Rx for the Overweight and Out-of-Shape

Sedentary work, sedentary leisure and a caloric intake of unhealthy foods wildly beyond most peoples’ falling energy needs. It isn't hard to identify the causes of the nation's obesity epidemic.

This devolving lifestyle costs the U.S. healthcare system billions annually to care for the overweight and out-of-shape. There’s an explosion in “late onset” diabetes with many teenagers now falling into this category. There’s a rising tide of high blood pressure and heart disease, which is already America’s number one killer.

The drug industry claims to have one answer for this epidemic. Take statins. These supposed wonder drugs – like Pfizer’s best-selling Lipitor – lower cholesterol. For people already suffering from or at high risk of heart disease (smoking, obesity and diabetes are major risk factors), clinical trials have shown that lowering cholesterol can reduce the incidence and deaths caused by heart attacks, strokes and other forms of heart disease.

But by how much? Last week’s Lancet, a leading health journal out of Great Britain, reported on the latest study on statins, this time in diabetics who had relatively normal cholesterol levels. By pushing those levels down below normal, statins reduced strokes by 48 percent, heart attacks by 36 percent and deaths by 27 percent, according to the study, which was funded largely by the British government with the pills provided by Pfizer. These relative reductions in risk were touted in the media coverage (Washington Post headline: “Statins Cut Diabetics’ Risk of Heart Attacks, Study Finds.”)

It certainly sounded impressive. But it was a misleading way of presenting the data and distracted the public from alternative ways of treating the problem. Here is the reality behind those reductions.

There were 2,800 patients in the four-year trial, half on Lipitor and half given a placebo. Total mortality from all causes in the placebo arm was 82 deaths or 5.8 percent. Total mortality in the drug arm was 61 deaths or 4.3 percent. In other words, treating 1,400 people with Lipitor for four years saved about five lives a year or less than one in 250 treated (that’s an absolute risk reduction – as opposed to the relative risk reduction reported in the paper and in the press—of 0.4 percent for each year on the drug).

The data is similarly unimpressive if one looks at individual events, whether fatal or non-fatal. There were 26 fewer heart attacks over the four years, or to put it in absolute terms, one fewer heart attack per 200 treated. Strokes were even less – one fewer stroke for each 327 treated per year.

Is there another way to get these relatively minor health benefits (although very real to the people who might not die or be saved the heartache of heart attacks and strokes)? Before I answer that question, let’s take a little detour to calculate the cost of achieving these benefits through drugs.

Lipitor in the dosages used in the trial cost about $1,000 a year in the U.S. (about $700 if you buy online from Canada). So our cost is easy to calculate. It takes somewhere between $200,000 and $250,000 per year in Lipitor sales to save a one diabetic’s life and to stop another diabetic from having either a heart attack or stroke.

Let’s extrapolate this to the larger population. If diabetics' physicians, who will undoubtedly be bombarded with ads, free samples and reprints of this study, put another one million of the U.S.’s 17 million diabetics on statins, it will cost the health care system about $1 billion per year. Hold that thought.

Are there alternatives? Harvard professor John Abramson, in his new book "Overdosed America," points out that observational studies of diabetics, half of whom lead sedentary lifestyles, have shown that improving diet and regular exercise reduces overall mortality by about four per 250 treated. That’s four times better than statins.

Moreover, I’m betting the people who dieted and exercised not only did four times better on immediate outcomes like heart attack, stroke and death, but they looked better, felt better and gained incalculable psychological benefits that can never be produced by popping a pill. Indeed, the constant need for medication is one of the major psychological drawbacks to good diabetes control and has been blamed for diabetics' above average suicide rates.

I can already hear the critics complaining. How are you going to convince people to diet and exercise? We're a pill-popping culture.

Let’s go back to the $1 billion cost per one million people treated with Lipitor. What else might a billion dollars buy?

It could fund a program that sent public health workers, physical trainers and counselors into American communities with the greatest obesity problems (yes, there is a class, geographic and ethnicity dimension to our obesity epidemic). A billion dollars would support about 20,000 such workers (that’s at $50,000 per year per worker, which would include administration and overhead).

Or, it could support 15,000 such workers and a massive fitness public relations campaign. Or, it could fund 10,000 workers, a public relations campaign, and subsidized gym memberships. Or . . . but you get the picture.

Besides being a great jobs program in communities most in need of an employment boost, the P.R. campaign would give myopic medical reporters some interesting relative risk numbers to report. I can see the headlines now: "Diet, Exercise 400 Percent Superior to Statins for Diabetics."

The Missing Debate

Boston Globe columnist Robert Kuttner hit the nail on the head yesterday when he wrote that there was something lunatic about the media parroting industry propagandists and turning this year's debate over prescription drug prices into a debate over the safety of imported drugs. As he put it, it's not as if Canadians are making drugs up there. The drugs Americans import are the same ones produced in Puerto Rico (mostly) that you get at the corner pharmacy. What Americans actually import is Canada's rational drug pricing policy, which doesn't buy the Rx industry's hooey that high prices are needed to foster innovation.

Of course, the alternative to importing a better policy is having a decent one at home. That will require an administration and a Food and Drug Administration not beholden to the drug industry. To read Kuttner's column, click here.

A "Wealth Good" For All?

The following is my second posting from a health care debate on KQED's "California Connected" website. Jack Calfee of the American Enterprise Institute had just claimed health care was a "free market" good.

The question posed for today's discussion appears to agree with Jack Calfee's twin claims that all new drugs provide incremental health benefits and there is a free market in health care. Neither assumption is true.

Let me begin by saying that there's a half-truth in each of Jack Calfee's assumptions. Some new medicines do provide extraordinary gains, both in extending life and providing economic returns to society. But the reality is that the health care gains from drug therapy (and from the U.S.'s outsized devotion of GDP to health care, five or more percentage points greater than other advanced industrial nations) are exaggerated by industry spokespersons and economists.

I don't 'demand' certain care. I seek care when it is needed. I don't respond to price signals when I need that care. I pay whatever it costs to get it. By every standard measure of health outcomes -- life expectancy, infant mortality, access to health care -- the U.S. lags behind its economic equals. Yes, life expectancy is creeping up, but in the past decade it increased at half the rate of the previous 30 years. And according to demographers who have looked at the numbers, public health measures are more responsible for recent gains than medical technology. From the outcomes vantage point, the war on smoking has provided far more health benefits than the drug-oriented war on cancer.

I agree that some people treat health care and drugs like a free market "wealth good." How else can we explain Botox and Viagra? But the reality is that the market-oriented health care economy in the U.S. is missing a vital component of any market if it is going to operate efficiently: Price signals.

As a 54-year-old male, I don't "buy" my health care. My employer (or, in my case, my wife's employer) buys most of my health care. I don't "demand" certain care. I seek care when it is needed. I don't respond to price signals when I need that care. I pay whatever it costs to get it; and if I were uninsured, I'd throw myself on the mercy of the local emergency room, which is where about 43 million uninsured Americans get their care.

This paradigm works in the drug marketplace, too. I don't "demand" drugs and respond to their price signals. My doctor prescribes drugs when I need them. And unless one is conversant with the latest guidelines issued by the National Institutes of Health, reads the New England Journal of Medicine or surfs good medical reference sources on the Internet (has WebMD reached a 1 percent penetration rate yet?), we pay for and take what we're prescribed.

As Sen. Estes Kefauver complained over 40 years ago when he conducted antitrust investigations into the "antibiotic cartel," the problem is that "he who prescribes does not buy, and he who buys does not prescribe." As he recognized then and is still true now, this is a prescription for price gouging.

Why? At least half of all new medications coming on the market add nothing to physicians' armamentarium for fighting disease. They were conceived, developed and marketed as minor variations of drugs that are coming off patent. Or, they were developed to give a drug company an entry in a market for which there are already numerous alternatives with the same mechanism of action.

So why do they get prescribed in such huge numbers? Perhaps it has something to do with the 30 percent or more of all drug industry expenditures that are devoted to marketing. Legitimate medical innovation doesn't require marketing. Doctors will beat a path to your door if you truly have a miracle cure for their desperately ill patients. But me-too drugs need marketing -- lots of it -- because the last thing companies want consumers and physicians to know is that a cheap generic might work just as well.

Drug industry spokespersons justify this wasteful expenditure of health care dollars by claiming these me-too drugs offer alternatives to people who may not respond to the other medications in that class. Yet, as Marcia Angell, the former editor of The New England Journal of Medicine points out in her forthcoming book, "The Truth About the Drug Companies," (Random House, August 2004), this claim is always based on anecdotes offered by the drug companies or physicians who are on their payrolls. It has never been scientifically tested in clinical trials. If they want to keep making this claim, they ought to at least test the proposition.

Let me conclude by saying that regulation will not choke off innovation in this dysfunctional marketplace. Jack's references to Eastern Europe and the U.S.S.R. are a red herring. If the government negotiates on behalf of seniors (not the price caps suggested in Jose's query), it will simply be joining the rest of the advanced industrial world as well as the Veterans Administration and most of the insurance companies who provide a drug benefit.

The facts are that the two great regulatory reforms that affected the drug industry in the 20th century forced -- yes, forced -- the industry to adopt scientific practices. In 1937, in response to a tragedy that killed two dozen children in Tennessee, the industry for the first time was required to test its drugs for safety. In 1962, again forced by a near-tragedy, this time involving thalidomide, the government imposed an efficacy requirement on industry, which led to the modern system of systematic clinical trials for scientifically testing the worth of new medicine.

Today, the out-of-control marketing practices of the modern drug industry require a new set of rules to once again save the industry from its current self-destructive path. By setting up a government-funded agency to contract with independent researchers to conduct comparative clinical trials, physicians could get objective information about the best and most cost-effective medications. This single reform would send vital information to the marketplace (three economists recently won the Nobel Prize for showing how imperfect information distorts markets) and would create incentives for the industry to channel its extraordinary skills into the search for significant new breakthroughs.

Don't forget the inverse of what I said at the top -- if half of industry efforts are wasted, then the other half are not just legitimate, but vital to the drug development process. By strategically shrinking this industry through prudent regulation that would wean out wasteful marketing and drug development expenses, we would not only get a more affordable health care system, but a more innovative one.