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Archive for June 25th, 2010

John Derbyshire of National Review has an interesting article on bureaucratic harassment of private business. He begins with a personal story of something that happened when he first came to the United States and was working at a food-preparation company:
The first federal regulator I ever knew was a fellow named Ernie. …Ernie was a power freak. If you showed him the respect he thought he was entitled to, he was generally harmless. If you crossed him, however, his wrath was terrible. The boss of the firm was a no-nonsense former Marine. …He put up with Ernie as best he could, but sometimes the forbearance required was too great. …On one occasion the boss lost it and yelled at Ernie. Ernie then had his minions go round the firm “tagging” all the preparation tables with what looked like old-fashioned white luggage tags. Peered at up close, the tags revealed printed messages saying that no food product could go anywhere near the tagged table until the tag was removed, with ferocious federal penalties threatened against transgressors. The tags could, of course, only be removed by Ernie. The tables were out of commission. We had to scrub those suckers three or four times over with green scouring pads and Comet before Ernie would deign to remove his tags and let the firm get on with their business. Another time, after some other go-round with the boss, Ernie determined that the firm’s ZIP code was printed on the dinner boxes in too small a font. The boss had to get rolls of stick-over labels printed up, and we menials spent a couple of days working our way through the freezer rooms relabeling the dinners so the ZIP code was in the FDA-approved font size. I guess this was real important to the nation’s health.
The substance of his article is another example of bureaucratic excess, though this time with much greater potential for economic damage. The federal bureaucracy and Washington political elite (with the support of big companies that don’t like competition) are hampering the development of an industry that is offering 100-percent safe genetic testing for consumers. The excerpt is long, but shows how government intervention is both unwarranted and driven by bad motives.
A firm named Pathway Genomics, based in San Diego, is one of many that have come up in the past few years offering to scan a person’s DNA and report on any significant disease-risk or drug-response markers. You swab your cheek with a sterile Q-Tip they provide, or spit into a sterile plastic tube, and you send the saliva sample off to them. They scan it and send you back the information. The cost of a test can be from $20 to $500, depending on how many markers are scanned for. Earlier this year Pathway entered into a deal with Walgrens, a nationwide drugstore chain with 7,500 outlets. The deal would have allowed Pathway to operate counters at 6,000 of those outlets, selling their service. Instead of signing up with Pathway via their website and sending in your saliva sample through the mail, you could do the thing right there in your local drugstore. Health reporter Rob Stein at the Washington Post did a story on the Pathway-Walgreens deal. The story appeared in the May 11 edition of the newspaper. By way of researching it, Stein called the FDA to ask them for a quote. …The call, however, woke the FDA from their dogmatic slumbers. …The regulocrats lumbered into action. A letter went out to Pathway warning them that their test was a “medical device” likely subject to FDA oversight and pre-marketing approval. Hearing of this, Walgreens canceled the deal with Pathway. Close behind the FDA, like jackals following tigers, came Congress. Henry Waxman, head of the House Energy and Commerce Committee, demanded a comprehensive document dump from three of the firms — every letter, every lab report, every e-mail. Last week the FDA escalated the war, sending letters out to five more of the firms (23andMe, Navigenics, DeCode, Illumina, and Knome) couched in similar terms to the original Pathway letter. …The logic of classifying these DNA scans as “medical devices” bears a closer look. What actually is a “medical device”? Answer: A medical device is anything the FDA declares to be a medical device. …You might still think it’s a bit of a stretch to call these tests “medical devices.” They are, after all, merely informational. Consumers are not being dosed with anything, or having anything attached to or implanted in their bodies, nor even inserted into their mouths for purposes of tongue depression. “Medical device”? Huh? …Lest you should think this is a straightforward tale of power-crazed regulators and tax-hungry politicians killing off an infant industry, please let it be noted that Big Government is by no means the only predator that struggling start-ups must face. There is also Big Business. In seeking to widen its regulatory scope, the FDA has some support from big, established biotech companies. Back in 2008, biotech giant Genentech petitioned the FDA to expand its authority into products involving “laboratory-developed tests” (LDTs). An LDT is one with an expert in the loop. An example of a non-LDT would be a home pregnancy test — no expert between test and interpretation. LDTs are more lightly regulated than non-LDTs, for understandable reasons. …It was natural for Genentech and other established companies to look with disfavor on impertinent startups taking advantage of regulatory loopholes. Big Business is just as capable of hating entrepreneurial startups as is Big Government. A business can only lobby, though. Government can act. ….The U.S.A. is a real nice place to have a job in government, and still a pretty nice place to work for a big corporation — especially one designated “too big to fail.” For the start-up entrepreneur in an ideologically fraught field, however, the environment is increasingly hostile. Why do they even bother?

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Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American “stimulus” and European “austerity” at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, “austerity” presumably means cutting back on wasteful government spending. Obama’s definition of “stimulus,” by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.
 
But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron’s proposal to boost the U.K.’s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”
 
Raising taxes to finance a bloated government, to be sure, is not the same as Obama’s strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.
 
What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.
 
Unfortunately, I suspect that the “austerity” plans of Merkel, Cameron, Sarkozy, et al, will leave the overall burden of government relatively unchanged. That may be good news if the alternative is for government budgets to consume even-larger shares of economic output, but it is far from what is needed.
 
Unfortunately, the United States no longer offers a competing vision to the European welfare state. Under the big-government policies of Bush and Obama, the share of GDP consumed by government spending has jumped by nearly 8-percentage points in the past 10 years. And with Obama proposing and/or implementing higher income taxes, higher death taxes, higher capital gains taxes, higher payroll taxes, higher dividend taxes, and higher business taxes, it appears that American-style big-government “stimulus” will soon be matched by European-style big-government “austerity.”
 
Here’s a blurb from the Christian Science Monitor about the Potemkin Village fiscal fight in Canada:

This weekend’s G-20 summit is shaping up as an economic clash of civilizations – or at least a clash of EU and US economic views. EU officials led by German chancellor Angela Merkel are on a national “austerity” budget cutting offensive as the wisest policy for economic health, ahead of the Toronto summit of 20 large-economy nations. Ms. Merkel Thursday said Germany will continue with $100 billion in cuts that will join similar giant ax strokes in the UK, Italy, France, Spain, and Greece. EU officials say budget austerity promotes the stability and market confidence that are prerequisites for their role in overall recovery. Yet EU pro-austerity statements in the past 48 hours are also defensive – a reaction to public statements from US President Barack Obama and G-20 chairman Lee Myung-bak, South Korea’s president, that the overall effect of national austerity in the EU will harm recovery. They are joined by US Treasury Secretary Tim Geithner, investor George Soros, and Nobel laureate and columnist Paul Krugman, among others, arguing that austerity works against growth, and may lead to a recessionary spiral.

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I did a post yesterday about the IRS screwing up and sending housing tax credits to prison inmates. Apparently, the 100,000 bureaucrats at the IRS were unable to put 2 and 2 together and realize that jailbirds – by definition – are not buying new homes. I also appeared on MSNBC to talk about the issue, and took the opportunity to explain that much of the blame belongs with politicians who created a tax code that nobody understands.

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