"A democracy can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on, the majority always votes for the candidates promising the most money from the public treasury."
-- Alexander Tyler

"The American Republic will endure, until politicians realize they can bribe the people with their own money."
-- Alexis De Tocqueville

'nuff said.

I think this post is right on, although I would like to add some frustration over the stupidity of the "privatization" debate embedded in the Medicare debate. The Medicare market represents about the least favorable circumstances imaginable for the proper functioning of a competitive market: immense information asymmetries, oligopolistic markets, the moral/political impossibility of leaving out expensive customers (which has given us the great feature that the poorest people have to rely on the most expensive form of medical service: ERs), etcetera. The privatization measures in the bill were included purely to score political points for legislators who could not come back to their constituencies with a new entitlement program. Real cost-cutting measures, such as allowing the government to use its oligopolistic purchasing power to buy drugs, were scrupulously avoided. The argument that this would curb innovation only goes so far: what good is innovation if large numbers of the population cannot benefit from past innovations? Moreover, it will direct research into medication that is wanted by large numbers of people rather than those pockets of people with large pockets. The gigantic market failures in the prescription drug market simply mean that the argument that the government ought not to get involved with price-setting do not apply in this particular case (and this comes from an almost-libertarian).

“The Results of Legal Plunder

It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

What are the consequences of such a perversion? It would require volumes to describe them all. Thus we must content ourselves with pointing out the most striking.

In the first place, it erases from everyone's conscience the distinction between justice and injustice.”

---Frederick Bastiat

http://www.lexrex.com/informed/otherdocuments/thelaw/law04.htm

And with all those costs, the US health care system still stands at about 37th in the world.

When will either Republicans or Democrats quit being scared of proposing a national health care service? Just because national health insurance works smoothly and effectively for European countries is really no good reason to reject it for the US...

I'm not a libertarian, so maybe that's why I don't see this as a problem; even if it is a problem, it seems obvious that this is a structural flaw built into our political system, and nothing is likely to change it. Parties get elected into power on the basis of receiving votes from people, many of whom are affiliated with certain groups (or work for certain companies) that have an economic interest in seeing certain changes in law go their way. The party that is in a position to do so always tries to pay off its supporters, and expand their base of support, especially when there's minimal risk involved.

And what's the risk here, really, for the Republicans? There are essentially only two bad things that even possibly could happen:

1. Democrats will try and accuse them of selling out to interest groups-- at which point Republicans need only assert that their "sell-out" created the much sought-after prescription-drug benefit (or, at worst, they can say that the Democrats would only do something similar if they were in power...which is true, as Pejman's post demonstrates).

2. Libertarians like Dan, Andrew, Pejman and Tyler Cowen will all decide not to vote for Republican candidates... except this will never happen. At worst, they'll stay home (but given their dedication to politics, that outcome is unlikely); if a particular Republican candidate is running close to a Democrat, they will probably go out and vote for said candidate, even if they have to find other reasons to do so.

So, you know, good show Republican Party!

Well, there was an executive branch in power--just three short years ago--that tried very hard both to stand on principle and also to reform its inherited principles in order to make them good for the country and the world.

We could have used a little more help at the time...

Two possible responses for Brad DeLong:

1. Though I agree with you on the substantive political matter (Clinton trying to reform his principles and stand on them, where possible), if you come from any political orientation other than the one we (presumably) share, you probably just saw Clinton trying to pay off his people much as Bush is now trying to pay off his.

2. Standing on principle and not doing what it takes to pass legislation (such as logrolling to get enough votes for passage) is the reason it will be Bush's prescription drug benefit, and not Clinton's.

The Republicans are, of course, the "party of limited government". They will shamelessly go out next fall and campaign on that basis.

The Democrats are so stupid all they will do is criticize the Republicans for not spending enough to "fully fund Head Start, blah, blah . . .".

What a pathetic spectacle. We will eventually go the way of Argentina. Financial crisis here we come!

Good lord the Medicare coolaid is flowing. Another bad idea who's time has come. Heres a whacky idea MEANS TESTING. I still havent heard a single substantial _logical_ argument as to why we shouldnt be means testing medicare. Dems wont due it because it goes away from socializing healthcare which is their long term goal. But they cant say this so they simply defend universal medicare with ZERO arguments. There argument is simply that we dont want change, period. How bold. Why am I going to pay for Ross Perot's viagra (his Zanex I'd pony up for)? Look, i'm all for insuring everyone in America. Every who needs it. I can barely pay for my own insurance, why am I footing the bill for rich old people living on Miami Beach? Can someone please explain this to me?

I'm wincing. This is why deadlocked legislatures are so good. Apparently we have to coddle everybody today. Coal producers, farmers, elderly voters...there is nothing in these truly awful bills for me...a middle class tax payer. Wait a minute...

I'm so glad that my tax dollars are going to at least something I support...Hooters!

Whew. Democracy will survive.

Mark, there's means testing in the bill. According to the article Dan linked:

Also for the first time, the bill would require wealthier Medicare patients to pay more for doctors visits and other outpatient care, which Republican supporters describe as fair and cost-efficient but which some Democrats regard as a dangerous departure from Medicare's original vision of coverage for all on an equal basis.

See Sunday's WAPO article for the details. Rich folk will now have to pay 80%, not 25%, of their outpatient services fee.

I'm shocked, shocked, that this post hasn't drawn comments at the rate of over 300 per day. For some reason, people seem to find this topic less interesting that a Lileks/Pax smackdown.

I guess I don't find the Medicare bill all that problematic. Sure, in the absract, I don't like it. But I think that in the real world, the choices are only (A) bad or (B) worse. So I'll live with bad. Complaining that there isn't some pie-in-the-sky choice (C) just seems whiney to me.

The Medicare MEGO (my-eyes-glaze-over) phenomenon is not limited to bloggers, alas. I regret to advise that the most I was able to take away from this well-constructed and thoughtful item was, "Hooters has a magazine?"

I want to thank Nicholas, for making me feel less cynical as he appears to have the market cornered. What Dan and other commentators here have described is the current run on the bank syndrome afflicting both major parties at the exact same time here in Washington. Hasn't it ever thus been so, world-weary Nicholas asks? Indeed not.

Let's call a spade a spade here--the Republicans have made an offer (a pretty generous one at that) for oldsters' votes and the Dems are fuming because they've got no power to outbid the bastards (this analogy makes AARP some kind of geriatric pimp, which is not inaccurate I think). Meanwhile, grandpa in those insane ads running this week continues to demand "when ya gonna get it done" with a dyspeptic look that reminds me all too much of my candystriper days. What Madison Ave. genius thought that guy up?

But I hate to whine and not offer something by way of brilliant suggestion, so here it is: a write-in candidacy for McCain, with my personal hero Eliot Spitzer as VP. Just to threaten such a move might knock a tad of fiscal sense into the Republican fatcats currently running the show.

McCain in 2004. Pass it on.

Please check my comments over at Pejman's site (the link is in this post). It appears that the WaPo reporting was WRONG in substance, because no net Republican votes moved from the 216-218 tally early in the process to the final 220-215 vote. The Republican tally in both cases was 204 votes--the 4 vote net pickup was entirely Democratic, as the number of Democrats voting aye increased from 12 to 16. Feel free to draw your own conclusions as to the narrative that should accompany this news, but I think it's safe to say that the widely-published spin is not supportable by the evidence.

Actually this should show the real reason people don't talk about medicare, they know that the result of our politicians actually considering it will be worse than the status quo in terms of digging into their pockets.

What they need to do is gradually scrap it. Fund the ones currently using medicare by selling off government assets, while replacing the rest of the system with tax-free medical savings accounts, with subsidies ONLY for the POOREST of people, left to the states to administer their own way. Wasn't that who all these damn programs were supposed to benefit? The POOR? While the government fritters away our money on buerecratic redundency & caters to interest groups who will stop at nothing to get their piece no matter how well-off they are or should be by now if they had any brains, actual POOR people are still going without, giving the hard-lefties something to gripe about even as the rest of us get raped on our taxes.

The whole system can be summed up by reaching in your neighbors' cookie jar with one hand while fisting yourself with the other, only less productive.

Jim, thanks for the heads up. After reading the details im marginally less disgusted with the bill.

b-phsycho, nice visual. Now theres a campaign poster that will turn some heads.

Hasn't it ever thus been so, world-weary Nicholas asks? Indeed not.

Indeed not indeed. Only since 1896 or so have the two major parties lined up based on which groups they intend to give their policy payouts to. It's not intended to be a cynical statement (though you may feel cynical about it)--I happen to think this system works quite well for most issues.

And it does apply to everybody. Even if (God willing) McCain runs and (hope of hopes) wins, he' still going to spend his legislative energies paying back the people who brung him into office, and trying to reach out to new people; the only difference is that the people he's paying off will be groups whose agendas you don't find to be generally prima facie objectionable.

"What a pathetic spectacle. We will eventually go the way of Argentina. Financial crisis here we come!"

Thankfully, that will not likely occur. Our economic system is sufficiently transparent that a sharp drop in the stock market is a reminder for our political leaders to cease with their nonsense. Wall Street functions as an effective check and balance system.

Nicholas, I think you are underestimating the anger these bills are causing to people who hold libertarian beliefs. I will be voting democratic in the next congressional elections, regardless of who the Democrat is. (It will be just a protest vote because my congressional district is strongly Republican and Texas is not going to be electing a Democratic senator in the near future).

As for the discussion about Clinton, I agree with you that he did a much better job of standing on principles domestically, and I think his domestic record is far, far superior to Bush's. I don't know your position on foreign policy, but I feel Bush has been equally superior in this aspect, which is why I will be compelled to vote for him in the Presidential election. But nothing would make me happier than for the Democrats to take back Congress, because at least then there would be a chance of gridlock. And this is from someone who detests almost all of the current Democratic agenda.

Jesurgislac writes:

When will either Republicans or Democrats quit being scared of proposing a national health care service? Just because national health insurance works smoothly and effectively for European countries is really no good reason to reject it for the US...

I don't think it's as simple as that. The U.S. subsidizes a large portion of the costs of those "smoothly and effectively" functioning European healthcare systems -- both directly, by singlehandedly funding nearly all drug research, and indirectly, by basically taking care of Europe and Canada's defense needs, leaving them with more money to spend on their health care systems (instead of their generally-laughable militaries).

An interesting way to recover some of that might be to set minimum price floors for drug exports, with exact levels set based on per-capita income or some such. Any drug sold at a price below the floor would be subject to tariff, possibly equal to 100% of the drug's price. This would squeeze the drug companies in the short-term, but in the long-term, it would destroy the model where U.S. consumers subsidize the drug purchases of those in France, Canada, etc. Any cash collected from the tariffs could be properly used to subsidize drugs for U.S. citizens. (This is off the top of my head, mind you, but I think the main idea is clear. Essentially, the U.S. government would counterweigh foreign governments in the drug markets.)

“...by basically taking care of Europe and Canada's defense needs, leaving them with more money to spend on their health care systems (instead of their generally-laughable militaries).”

Absolutely correct! These countries mooch off the United States. We pay for most of their defense needs. Parasites always have contempt for the suckers who let them get away with their shenanigans. It is not impolite to remind the Canadians and Old Europeans concerning what we do for them. Does anybody think, for instance, that the former Soviet Union hesitated to invade Canada because of the latter’s military might?

I don't mean to suggest (via David E) that libertarian anger is misplaced, or incorrect. It's perfectly valid to have a political ideology that is fundamentally opposed to the way politics is typically done. However, I think the differentiation between a protest vote and a change in party ID is important to see the long-term consequences for the Republicans.

To use David E as an example, he'll vote for the Democrat in his district, but his vote is undifferentiatable from that of a Democrat. Further, if I were the party in power, I'd expect someone to be unhappy with everything I did, and I'd just try and minimize the number of people who will defect.

But the fact that he's willing to vote for Bush (for other reasons) is key--he's still sticking to his main party affiliation. The phenomenon of protest voting is only a problem when it morphs into a long-term switch in ID, which seems unlikely to happen with most libertarian Republicans (since they're aware that the alternative would be worse for them, most of the time).

>>Any drug sold at a price below the floor would be subject to tariff, possibly equal to 100% of the drug's price.

Interesting idea but there are two practical problems:
1) Export taxes and duties are specifically prohibited by the constitution (Art I, sec 9 clause 5) and there is no real chance of passing an ammendment to this.
2) Even if we did the rest of the world would promptly abrogate the patents for affected drugs and make them locally.

Brad de Long,

I know this is like whistling an aria to the deaf, but Bubba only did what he had to do (i.e. "balancing budgets") in order to stay "electable." Clinton was every bit as anxious to spend money foolishly as Bush is now, but the '94 Congressional smackdown began his renewed committment to his never-very-sincere DLCism. (plus, to his credit, he DID realize that Carter's punative "progressive" economic policies were a no-no)

Getting mad at the GOP's spending record helps to keep them on their toes, but remember: there's a political cycle, just like there's a business cycle. If and when GWB wins reelection next year, I expect to see two full-scale assaults: one on North Korea and one on Social Security.

Re NK: These guys are clearly a huge threat to world peace; why haven't we done anything about it yet? In 2005-06, as the US commitment to Iraq winds down (fingers crossed here), we're going to dramatically ratchet up the diplomatic, economic and (if necessary) military pressure on NK. We're already laying the groundwork, what with multi-party talks, moving topics to the UNSC and -- significantly -- moving our own troops away from the DMZ.

Re Social Security: Not even Grover Norquist could look at the mounting deficits and expect us to just "grow" out of them. The Bushies know that something's gotta give. So, once GWB is safely back in the White House, there will be a major effort to cut the single largest item on the expense side of the budget: Social Security. It's as plain as day that the system as currently set up is just not viable over the long term; the IRR for citizens born today is close to zero percent. SS will be means-tested at minimum, and probably partially privatized.

Of course, both of these predictions may be wishful thinking, what Atrios called the "Chewbacca defense": if it makes no sense whatsoever, it must not be true.

I'm Canadian and embarassed that my country has become a nation of envious thieves.

You Americans better wake up and stop being bored by medicare, which was one of the principal 'mole' issues used by the left. Who could be against free medicine for the poor, poor peepul?

Medicare is a combination Ponzi-theft scheme designed to steal from some to assist...the poor? Hogwash. It rewards certain segments of the middle class; lousy doctors, civil servants, unionized folk.

In Canada you wait, usually behind some slow-stepping, fat arsed 'health care workers' trundling down a corridor at 1/2 a mile an hour, and you wait, and you wait. Unless you're a senior civil servant or union official; then you go to the US for immediate service.

You Yanks go to medicare anything like ours and you will destroy your medical system.

Even worse, you'll damage your morals.

The boring dry issue at the unspoken dark heart of the Medicare drug dilemma is 'Intellectual Property Rights, Intellectual Property Rights, Intellectual Property Rights!.

The issue is that copyright laws need to be updated and their enforcement agreed to by truely multilateral trade treaties. It is costing more and more to generate new drugs. In order to recuperate the many dead-ends, successful drugs are being charged for more and more. The more drugs are being charged for, the more incentive poorer nations and others such as Europe have to freeload by producing generic knock-offs well before patent expiration dates.

In this case, Market Theology meets harsh reality. Competition and deregulation does not necessarily reduce costs and increase profits unless there is robust regulation producing an even playing-field.

The solution is to let pharamaceuticals write off research costs on taxes from dead-end ventures. They also need a new compact. They get more flexible longer lasting patent protection, in return for lower costs. That is they can have the drug longer and make more money, so they don't have to charge as much for it. Also drug-churning has to be reduced - producing new drugs that don't substantially improve treatment over old drugs - can be reduced by encouraging pharmaceuticals to write off these ventures against profitable genuine breakthrough drugs rather than letting them try to use promotion through physician networks to get their drug adopted over yesterday's equivalent drug. Laws also have to be changed reducing the risk of investment in new drugs to compensate for increased capital requirements for drug development pipelines.

Now Intellectual property rights is pretty damn boring, but unless you address this fundamental market-regulatory imbalance ain't no number of fixes are going to stop the 10-15% prescription drug cost increases every year.

The problem ain't that these problems are unfixable, it's that people are more interested in getting into power than examining and fixing root causes. People here have commented on many various aspects of why, but it's time to stop talking about the third person. We are the American people. We are responsible. We are not disinterested time-traveling observers watching the foundering of a great civilization - we are the citizens of such momentous times and events. Here has been shown us a problem so vast, that commentators from every perspective are visibly awed by the sheer magnitude of the problem. In that unity of perception of a problem, is the seed of a solution. People are the problem, and people are the solution. If we truly united together, right and left, we could bring sense to this debate. So long as unreality dominates the debates of our great Republic, in matters military and domestic, then the dark shadow of doom shall overhang our fair land.

“...by basically taking care of Europe and Canada's defense needs, leaving them with more money to spend on their health care systems (instead of their generally-laughable militaries).”

The EU and Canada don't have better health care just because they lowered their defense spending, but because the national health care solution has the lowest overhead cost.

Low Overhead? Maybe?

Crappy product, so low overhead don't excite me much. I expect the old GUM department store in Moscow had low overhead.

Why would anyone want 'low overhead' for health? For matters of life and death? Low overhead ought to be the least of concerns. Who cares if a percentage of GDP that the lefties say is too high goes to medical care? When I'm old I expect I'll want to devote 100% of my personal GDP to staying alive and alive. If someone prattles to me about overhead to justify lousy medicine I'll punch them with my well doctored 120 year old, still productive, fists.

Well, Fred you'll be decrepit at 120, since the high overheads left you with a shittier service than a low overhead.

The high overhead costs left you with LESS money to pay for real care. You'll get a "take two and see me in the morning" from the HMOs. Or worse, your high blood pressure from dealing with the runaround they'll give you, will lead you to an earlier grave still.

As for crappy product, Canadian health care maybe slow, but it is high quality and a far better bang for the buck (or loony). Where in Canada are you from, eh ?

Joe Shaw writes:

Interesting idea but there are two practical problems: 1) Export taxes and duties are specifically prohibited by the constitution (Art I, sec 9 clause 5) and there is no real chance of passing an ammendment to this.

I'm sure there's a way around this: e.g. to tax any foreign income of a corporation found to be selling drugs outside the U.S. below cost, etc. The point really wasn't to suggest a detailed plan, but to get the government to actively interfere and frustrate the attempts of foreign govenrnments to keep drug prices where they don't even cover the per-unit cost of development. As of now, it's simply easier for pharmaceuticals to take what they can get, and hope their U.S. sales cover the difference. But I do appreciate you pointing out this obstacle.

2) Even if we did the rest of the world would promptly abrogate the patents for affected drugs and make them locally.

Possibly, but that would be quite an escalation. And ultimately, the U.S. could retaliate even harsher, whether by abrogating other foreign patents, or -- more likely -- by restricting free access to pharmaceutical research. The Europeans lack the infrastructure to compete with the U.S. on drug development -- and even if they did, their own price restrictions would make the venture less than worthwhile. The Europeans and Canadians already play dirty; if the U.S. starts kicking them below the belt, they are going to feel major pain.

ch2 writes:

The EU and Canada don't have better health care just because they lowered their defense spending, but because the national health care solution has the lowest overhead cost.

There are lots of reasons for this, though, most of which have little to do with whether they are governmnent-run or private-run systems. The U.S. healthcare system has plenty of structural problems of its own, not least of which is enormous malpractice insurance costs because of our outrageously powerful tort lobby. But my point was that without enormous U.S. subsidies for their pharmaceuticals and defense costs, Europe and Canada would likely not be able to run the healthcare systems they do today.

Even with that in mind, health care in Europe and Canada is rationed, so essentially what they run is giant nationwide HMOs. Not that the idea is totally invalid, but to think that all U.S. healthcare problems would be cured if only we went to universal government-funded coverage, is nothing short of absurd. We'd keep a bunch of existing problems (like our nursing shortage), and gain a whole lot of new ones: politicization of health care, budget overruns, lack of accountability, never mind the pork (What, do you want to be the senator denying Cleveland another hospital? You heartless bastard! etc). I mean, this whole article is about how the Republicans are falling all over themselves to give a huge handout to old people in exchange for votes, and the Democrats are fuming because they weren't able to give an even bigger handout, so they could get the votes instead. As more baby boomers get old and form an immovable political bloc, I'm frankly not in love with the idea that they might be in charge of rationing out health care. Like it or not, government health care is political health care, and I can't say I relish the thought of being pitted against my parents and my children for care that is guaranteed to be resource-constrained.

Something else to think about: providing for your health care gives society license to monitor your behavior much more closely. You know those statistics about what accidents cost us every year, etc.? Well, suddenly those costs are borne by all of us, directly. And some people may not find it fair to subsidize your doctor's bills if you smoke. Or eat high-fat foods. Or mountain bike. Or watch TV, or play videogames, or drink beer, or play football, or work too many hours, or whatever. All sorts of busy-bodies will suddenly be able to restrict every kind of behavior simply because by "irresponsibly" engaging in it, you're costing all of us money. Society will have a stake in your steak, to coin a phrase, and you won't be able to do anything about it, because hey! why should we have to pay for your self-destructive behavior? So follow the rules, and do those jumping jacks!

Don't get me wrong: much in the American system of healthcare is thoroughly screwed up, and it may very well need to be razed to the ground and reubilt, so to speak. I just have severe doubts that building it on the Canadian model will give us something better.

It is high time those of us in states that are getting RIPPED OFF by the Feds stand up against Washington and demand our money back. I don't know how Nevada and Illinois can stand it. Bring back the Whigs!

"... the Medicare bill passed by the House this weekend"

Hmm I wonder who wrote this bill?

"Conservatives aren't thrilled about it either."

Must not be the Republicans then.

"Conservatives are so afraid of losing their majority status right now that they feel a need to . . . pass the other side's legislation to prove how moderate they are," [Not Drezner's words, but quoted by him.]

Oh, it is the Republicans, but hey, there's an excuse.

And the Democrats?

"During the eighties, it was this kind of Democratic high-handedness..."
"Not that the Democrats have covered themselves in glory"
"some of them can be bought on the cheap"
"This was an awful week for the Democrats" [Again, quoted by Drezner.]

I haven't been impressed by the Democrats opposition to this or the energy bill either, but this summary of what went down is too balanced, and not fair enough.

Good post, E. Nough. Let me add just a few points. When you talk about the role of US medicine in the world today, innovation in pharmaceuticals is just the tip of the iceberg. I lived in Durham,NC for most of the 90s. I cannot tell you how many Canadians (and Europeans, and Asians, and Arabs) flowed through our area for sometimes extensive treatment courses at Duke Medical Center. What does this small example tell us? That the experimental treatments (including new surgical techniques, with the novel instrumentation and drug regimens that accompany them) are fostered best in a hodgepodge public/private medical ecosystem like our own. It isn't always pretty, but the results are matchless.

A university hospital like Duke succeeds because of underwriting by wealthy students (tuition), government grants (to scientists and the institution they work at), and yes, even the wealthy of other countries who would, perhaps, never give up their NHS-type systems but prefer not to die prematurely when they can spend a few thousands over here and live.

I get a little tired of Canadians and Europeans tsk-tsking America's "ridiculous" health care system when I have seen so many of them getting life-saving treatments here that NEVER would have existed were the system "rationalized" along the lines of their own.

This 'low overhead' 'high overhead' stuff is a red herring. When was the last time government made anything cheaper? Go check out what medicare is spending right now and tell me about low overhead. Its a scandal. There is a very simple, inevitable progression to socialized medicine. Bulk buying, which layers of bureacracy waste and fraud soon neutralize, followed by the inevitable price controls, followed by rationing. Look at Canada. Sadly, Canadian have a beautiful emergency overflow outlet called the US to fall back on. We have no such luxury. Socialized medicine will kill thousands of people. Mark my words.

It seems that if you want other countries to stop getting drugs that are essentially subsidized by the US consumers all you have to do is allow re-importation. It will stop the drug companies from pricing drugs lower overseas if they know they are going to have to settle for the same price in the US market.

It might even lead to marginally lower prices in the US. It is pretty clear why big Pharma opposes re-importation, which is why we should look at it as a relatively easy way to make the system work just a slight bit better.

Principle indeed. What is happening to the Democrats is what you would expect to happen to a party each of whose members takes their direction from specific interest groups -- when the interest groups disagree, party unity falls apart. That's why AARP's endorsement clinched the Medicare bill.

What has changed is the Republicans, who no longer have a President genuinely hostile to large new government programs or a Democratic Congressional majority to fight against. Without them they have in fact turned into the Democrats, multiplying payoffs for interest groups to gain their approval and only coming to political grief when -- as on the steel tariffs issue -- a step taken to help one group hurts another.

Their sponsorship of the prescription drug benefit may yet come back to hurt them by creating precisely this kind of situation. Millions of seniors already have prescription drug coverage through their retirement plans, coverage that could start to disappear as retirement plans save money by directing beneficiaries to Medicare. Since most of the retirees are not among those offered the greatest protection under the new bill -- they have relatively high incomes and less than catastrophic drug expenses -- the new legislation could increase their outlays for prescription drugs substantially.

This won't happen until after George Bush is reelected next year, which makes it OK for the White House. Republicans who expect to be in politics after George Bush is gone, though, may have cause to regret ramming this bill through.

The beauty of health care in the U.S. is that the market works, and the question is, how will the health care market respond to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (PDIM), which I have blogged against all year?

Most important, increased payments to physicians will cause fewer of them to turn Medicare patients away, as they have been. The increased price for their services will create increased supply. The market works.

Second, increased payments to rural hospitals and their physicians will help those hospitals attract and retain more physicians, nurses and allied professionals. Increased price creates increased supply.

Third, higher payments to HMOs and PPOs, or managed care organizations, will cause more of them to offer insurance to Medicare beneficiaries who will benefit from higher quality care and other benefits of belonging to MCOs. Increased price....

Fourth, paying Old American employers to live up to their contracts with their retired employees and to continue providing drug benefits will cause some, but not all, to continue those benefits. In effect, the government is contracting with Old America to provide those benefits, and it is trying to help those employers keep their jobs in this country and to be competitive with New America and low-cost employers around the world. The labor market is telling the government it has to do something, and the government is trying. The world labor market is working in that it's forcing politicians to act.

Fifth, PDIM '03 protects and rewards drug makers. The market is telling politicians and drug makers that American drug prices are too high, and buyers are voting with their feet and browsers, buying drugs abroad.

Sixth, in response to soaring costs, employers and workers are buyng less coverage or going bare. That is, high prices cause buyers to withdraw from the market. So the market is working. One reason health insurance premiums are soaring is that providers have been underpaid under the Balanced Budget Act of '97 and have been shifting costs to private payers, including the workers who pay higher deductibles and co-pays. Now, hospitals will be paid more and will have less incentive to shift Medicare costs to the private payers. This may be the hidden cost containment feature in the Medicare act, because there will be less cost shifting and possibly a slower rate of increase in health insurance. That's how the health care market works.

People who say the health care market in America is a failure either don't know a market when they see one, or don't like what's happening in the market. Or they just want to use the big lie that the health care market doesn't work to promote their nationalized health insurance agendas, imho.

Since Congress really does control the money, it is more important for low-tax folk to have control in Congress. Usually Congress moves against the current President. 9/11 and terrorism has changed this dynamic -- Bush being great on this most important issue has allowed him to be terrible on all other pork-spending. Similarly Nixon & Clinton; presidents must "do something", and the easiest stuff to do is what the other party wants.

Libertarians should want: Dem pres., vs. Rep congress. But with 9/11, Dems are choosing to oppose Bush on defense, instead of on pork. So yes, they're trapped -- they either say "me too, but better", or else they oppose (Bush's) Big Gov't.

We need a new gov't system to fund drug research OTHER than IP -- info that is easily & cheaply copied & reproduced can no longer justify the enforcement costs of treating it like property. Eliminating IP is the revolutionary part of the "Information Revolution".

In most things I believe in market solutions. But healthcare is one area I'm a socialist, because of the empiric evidence. The US has one of the youngest populations in the developed world but spends far more on health (12% of GDP) than anyone else. Yet its infant mortality rates are close to the highest, and life expectancy is among the lower ones.

Moribund old Europe seems to be getting an awful lot more bang for their health buck than the US. And that's without even thinking about equity as well as efficiency - some people think its really cool to make sure all your citizens have access to reasonable health care, regardless of income.

And David Thomson, some people also think spending all your money on guns rather than butter makes you less safe (vide the USSR, the Shah's Iran or even Saddam's Iraq) - certainly it makes everyone else less safe. What terrible enemy is the US supposed to be protecting us all from, that it needs to spend as much on 'defense' as the rest of the world put together? The "War on Terrorism" doesn't require a massive technology edge or a massive army - just a lot more smarts than the present administration has shown.

Derrida, you ignore the fact that the U.S. subsidizes much of the world, on health as well as defense. It's true that U.S. health costs are higher, but it's also true that virtually all of the advanced research happens here, and most of the revolutionary medical techniques that eventually become routine -- bypass surgery, for example -- are pioneered here. We pay a lot of money for the cutting-edge research, which others later freeload on, just like Panasonic is able to offer cheaper electronics by freeloading on Sony's research. The same is true in other areas as well, drugs being one of the more obvious examples.

You're right that we have a very young population, but our population is also growing, and there are wide disparities in income and education -- due in no small part to large numbers of poorer immigrants and other poor sections of the population, who do not seek proper routine or prenatal care. That's a problem, but not necessarily one you solve by putting medicine under the exclusive control of government. (I'm guessing the statistics for the U.S. middle and upper classes are comparable to, or even better than, those of Europe.) Were the U.S. to go socialist on health care, research costs for the most advanced medicine would eventually dry up, and it's quite likely that the whole field would advance much more slowly, if at all. The question is whether we want the best possible medicine for some vs. a medical standstill for all -- and contrary to some people's self-righteous posturing, the answer is not obvious.

As to guns, it's important to note that neither the Soviet Union nor Iraq went away on their own, but precisely because they were outspent on guns by the United States (which could do that, thanks to its more robust -- i.e. less regulated economy). And yeah, the U.S. spends much more on guns than the rest of the world -- particularly because we subsidize Europe virtually wholesale on that score, never mind that much of the world actually ends up freeloading on the stability provided by the overwhelming advantage of a benign power. Your "what terrible enemy" question was particularly specious -- ever heard of the Chinese? A nuclear Pakistan? Iran's nuclear program? I have no idea who the next threat is going to be, and neither do you -- so I want the U.S. to have a huge military advantage that newcomers cannot match. The fight against terrorism does, in fact, require an overwhelming advantage, simply because you get rid of terrorism by making it too dangerous for others to sponsor, as was done to Afghanistan. (And not by sitting around and calling for "understanding," "negotiations," and "UN approval.") The greater your military advantage, the more credible you can make your threat, the less likely someone will want to harbor the next Osama bin Laden and demand "proof" that he was involved. (Also, the less likely they are to build a WMD program of their own -- I bet Iran is thinking about this really hard now.)

There is a point of diminishing returns, of course, and it can be argued that we passed it, though I would disagree. But in general, I am very glad that the U.S. spends way more on its military than everyone else, though it'd be nice if Europe would actually pick up its share. (But they can't, because, the UK excepted, their economies don't produce enough revenue to fund both their generous welfare states and non-trivial militaries. So they end up completely dependent on U.S. protection.)

To repeat what I've said before, I am not totally opposed to some government-provided medical benefits, but I view with deep suspicion the Canadian/European model where health care is a government-provided entitlement. I don't believe it would solve our problem of health care costs (because no one is around to subsidize us), and I fear a major decrease in quality for the vast majority of the population that currently does have health insurance -- not to mention the thorough and unavoidable politization of health care that would make the recent Medicare fight look trivial.

Rich writes:

It seems that if you want other countries to stop getting drugs that are essentially subsidized by the US consumers all you have to do is allow re-importation. It will stop the drug companies from pricing drugs lower overseas if they know they are going to have to settle for the same price in the US market.

This is true, assuming you can control for counterfeits, etc. I wouldn't be surprised if, at some point, the benefiting countries didn't restrict exports of their discounted drugs, to prevent exactly this. My guess as to why Canada hasn't done so already is that (a) the re-imporation has been trivial in scale, and (b) politically, it's very hard: they couldn't maintain their high-moral "people-over-profits" stance, and would be admitting their own dependence on U.S. subsidies.

The thing is that we probably shouldn't be completely opposed to some countries getting discounts -- Third World countries that really can't afford the high prices, for example. (Why deny them medicine altogether? That benefits no one, and encourages a counterfeit market. And it's inhumane.) But countries that are not destitute, be they Canada or France, should be made to pay the maximum, not freeload off Americans.

It might even lead to marginally lower prices in the US. It is pretty clear why big Pharma opposes re-importation, which is why we should look at it as a relatively easy way to make the system work just a slight bit better.

Yes, but then we will also have to do more to protect our pharmaceutical industry -- which is really the only such industry left on the planet. Other countries' implied threat is that they can always disregard patents and start pumping out generic versions of the drugs unless their extortion demands are met. That's when the U.S. government has to step in and be willing to take extremely drastic measures, such as hugely punitive tariffs on anyone who tries this, all the way up to re-working the research model so that drug composition and research are no longer public knowledge (and therefore, much more difficult to make generic quickly). The latter, of course, is the "nuclear option," and would also hurt medical research in general. But we can't have other countries freeload off our population forever, and there aren't many points of leverage.

E-Nough,

I was not trying to imply that we should allow imports of knock-off drugs. I was mostly thinking about re-importation from nations like Canada, the UK, Germany, France, etc. These nations have complete respect for our IP (there are slight differences in patent law, but only at the margins).

I think the safety issue is entirely cooked up by the drug makers. After all they the ones making the drugs, and often times they are making the drugs in the US for export to the EU and Canada. They are just cutting deals with groups like the NHS in Britain to sell the drugs for less than the deal that they cut with American HMOs and far less than what the sell to US consumers (it is a travesty that people without insurance in the US are stuck paying the most for drugs, but that is the way the market is currently set-up)

Now I don't think this will end up screwing over developing nations because they are in an entirely different market. They are not buying any drugs made by big Pharma. India is producing the knock-off drugs, and I am not proposing that we get too aggressive about cracking down on their industry. But I also don't think we should allow those Indian knock-off drugs into the US. Even if we start importing from Canada and the EU, they are not going to take up the India model because they know that would be tantamount to destroying our entire IP protection system, and basically ending world trade as we know it.

Drug prices, like everything else we purchase, will come down when people pay for them out of their own pockets. As long as insurance companies (out of customers premiums) or the government (out of taxpayer funds) pay all or part of the costs, the end consumer doesn't care how much they cost.

When the government sets the price they'll pay for drugs and drug companies profits go down, the only thing that suffers is R&D. Without large profits, drug companies cannot fund huge research departments. Many of the avenues scientist go down in search for better drugs run into dead ends. There are far more "failures" in the drug research than successes. If we stop this process, where will the next miracle drugs come from?

Of course, this is true of everything including health care, cleaner and more efficient automobiles, the price of tea in China, etc. We, as individuals, buy what we can afford. When somebody else is picking up the tab, the sky's the limit.

There are two reasons I was never a Democrat: 1) Nation building; 2) Spending....

"Drug prices, like everything else we purchase, will come down when people pay for them out of their own pockets. As long as insurance companies (out of customers premiums) or the government (out of taxpayer funds) pay all or part of the costs, the end consumer doesn't care how much they cost. "

We don't have to eliminate insurance companies from the equation - we just have to let them set prices freely based on risk factors. Which in turn would mean stopping our ridiculous practice of buying our insurance from the company store.

"We have no such luxury. Socialized medicine will kill thousands of people. Mark my words."

Socialized medicine will kill every last one of us. A market system with vigorous research will eventually produce an anti-aging treatment, probably soon enough to save a healthy chunk of today's population. Socialized medicine in the US will curtail research and will prevent or severely delay the development of anti-aging treatments, thereby dooming us all to slow, painful deaths in less than a century.

The first quote listed by Tom Ault is a myth. Here's the quote:

"A democracy can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on, the majority always votes for the candidates promising the most money from the public treasury."
-- Alexander Tyler

This quote is usually attributed to a Scottish historian writing about Athens. But it's bogus.

(1) the name varies ("Sir Alex Fraser Tytler" is one of the other versions)

(2) the source reference doesn't exist; nobody has been able to find a copy of the book or paper the quote is alleged to have come from. (sometimes it's from an alleged book called _The Rise and Fall of the Athenian Republic_, sometimes it's "lecture notes", other times it's just left off entirely as above.)

(3) Even if such a person did exist, the quote makes no sense given the context. Athens didn't HAVE "candidates" as it was a direct democracy, not a representative democracy. The majority didn't vote for candidates, they voted directly on the issues.

One theory is that P.J. O'Rourke fabricated the quote as a practical joke - it's in one of his humor books - and everybody since then has been repeating it to one another.

Here is the best history I have found of the "Why Democracies Fail" quote. Its source is certainly in question.