How Wobbly Is the Chilean Miracle?

The BBC has a report on violent street protests in Santiago, Chile. They raise concern over whether Chile has finally made the acquaintance of Mancur Olson.

Olson, in his classic book The Rise and Decline of Nations, noted that prosperous nations and empires decline when pressure-group warfare over the redistribution of the national wealth becomes fatally toxic to continued economic dynamism, i.e. to the creation of the wealth to be redistributed. Evidence of this is legion in Western Europe, and the U.S., with its tax code crammed with special-interest provisions running to thousands of pages in length, is hardly immune.

Chile is an anomaly -- a country that works in a continent full of countries that don't. All of this is due to the legacy of the economic policies enacted under the brutal dictator Augusto Pinochet, who stumbled accidentally into a set of radical free-market policies that completely transformed his nation. After his 1973 coup, the initial impulse of the military government was to do what comes naturally to dictators (and probably with most government officials), to use its power to try to run a command economy. But he ultimately settled on a set of advisers known as "the Chicago Boys," so named because of their Ph.D.'s in economics from the militantly free-market University of Chicago. They enacted reform that would look radical now and was more than radical in the 1970s, when outright socialism was still a viable economic idea. After initial stumbles amid the general global economic dysfunction of the 1970s, these policies launched a great boom that totally remade that nation, moving it solidly into the ranks of middle-income countries and causing it to draw illegal immigrants from the collapsed economies around it.

When he left office, General Pinochet left behind a constitution and a climate of fear that made reimposing a command economy difficult. But the social acid of pressure-group warfare is ultimately hard to resist, and Chile may be reaching that point now. Its current president is a socialist, as was her predecessor. The previous president only tinkered around the edges of Chilean economic policy, and Michelle Bachelet promised much the same during her campaign. But the redistributionists are ever restless, and now appear to sense an opening. There may be more agitation for greater restrictions on the labor market, for higher levels of social spending funded by higher rates of taxation, and for manipulation of the other levers of national decline.

In the BBC story, its own reporter is quoted as saying that “a family of four, without thinking of pension plans and health insurance etc, needs about $1000 to $1,500 a month to live comfortably.” But this is a nice problem to have in that neck of the global woods. In many other countries in South America, the poor worry not about pensions and health insurance but about slums, cholera, basic health care, gangland crime, etc. They worry, in other words, about poverty of the traditional Latin American sort, not the sort of rich-country poverty that preoccupies the much more comfortable residents of Chile. The next time Chileans contemplate taking to the streets in protest over such lofty concerns, they might give some thought to the sort of economic policies that allowed them the freedom to worry about these problems to begin with. Chile has in the last couple of years, like Venezuela and elsewhere, drawn a good hand because of rising global commodity prices (Chile is a major commodity exporter), but over the next several months, is a country that definitely bears watching.

Tax That Fellow Behind the Tree

Because of our alleged health-care crisis, governors all over the country are seeking to expand children’s health-care insurance coverage by increasing the income limit on who is eligible for a decade-old federal effort known as the Children’s Health Insurance program. In an opinion piece in The Dallas Morning News, John Castle of the Center for Public Policy Priorities (responding to an earlier piece by Texas Sen. John Cornyn) writes:

For every $1 Texas invests in CHIP, the federal government sends $2.64 in matching funds that go into the important health care sector of our economy.

In short, CHIP is good for Texas. Our congressional delegation needs to work with Mr. Bush to make sure that CHIP provides health care to as many Texas children as possible, and Mr. Cornyn needs to change sides in this fight.

Now CHIP, like Medicaid, and indeed Medicare and private insurance, is far from perfect as a way to deliver health care; more on that in a later post. But it appears that, since Medicaid is a program with federal matching funds (i.e., funds extracted from taxpayers nationwide), governors and state legislatures who are expanding coverage in their states via this channel are in fact raising the taxes of people who have no say in the decision, even if voting counts (as arguably it should not) as a “say.” This, once upon a time, was called taxation without representation, and I wonder whether an argument into the constitutionality of such a decision by a state government to have taxpayers in other states pay the freight for its programs has ever been mounted.

Cue Russell Long.

Law for the Lawyers' Sake

Thanks to an Adam Liptak piece in The New York Times (behind the Times Select barricade; registration required)), I learned abut a remarkable speech by Dennis Jacobs, a federal appellate judge. The whole speech is online at the Fordham Law Review (pdf). Here is the gist of it:

If you arrived in an appellate court as counsel for a medical-malpractice plaintiff, and the three individuals on the bench were wearing white coats instead of black robes and had stethoscopes around their necks, I think your heart would sink. I could tell you that the three doctors deciding your case have taken an oath to be impartial as between patients and the medical profession and that they are conscientious, decent individuals who take seriously the obligation to be neutral. You would not be reassured: You would understand that there is (at least) an internalized bias that the doctors would not acknowledge because they would not notice it. A similar dread would come over the defendant’s lawyer if the three judges each had a limb suspended in traction.

In our courts, judges are lawyers. They are all lawyers. Most of us have never been, nor want to be, anything else. We are proud of being lawyers. For many of us (like myself), lawyering is our only talent (assuming we have any talent at all), and it is the source of as much esteem as we enjoy. Our calling says a lot about how our minds work, what we respect, and whom we trust.

I am not—I repeat, I am not—speaking about a bias based upon politics or agenda, economic class, ethnicity, or para-ethnicity. When I refer to the secret life of judges, I am speaking of an inner turn of mind that favors, empowers, and enables our profession and our brothers and sisters at the bar. It is secret, because it is unobserved and therefore unrestrained—by the judges themselves or by the legal community that so closely surrounds and nurtures us. It is an ambient bias.

The result is the incremental preference for the lawyered solution, the fee-paid intervention or pro bono project, the lawyer-driven procedure, the appellate dispensation—and the confidence and faith that these things produce the best results. It is an insidious bias, because it is hard to make out, in the vast maze of judicial work and outcomes, the statutes, doctrines, and precedents that are woven together like an elaborate oriental rug in which the underlying image of the dragon emerges only after you stare for a while. I discern in this jumble a bias in favor of the bar and lawyers: what they do; how they do it; and how they prosper in goods and influence.

Lawyers, in other words, make laws for the benefit of lawyers. The judge doesn't say so, but the same reasoning would apply to Congress, which is now well over half attorneys, even though there is no justification in any theory of representative democracy for it to be this way. The law is increasingly a tool to ensnare the rest of us in the lawyers' web, to make us dependent on legislators and litigators. Despite the framers' bequest of separation of powers, federalism and constitutionally guaranteed liberty, lawyers in particular and lawmakers in general are now, pound for pound, the single most powerful pressure group in America. But then some of us already knew that.

Asking the Wrong Questions

The BBC international service, on its Have Your Say program, had an odd competition today to name the most multicultural city in the world. Radio hosts from each city were solicited to boast of how multicultural their burgs were. A Sydney host was prompted by a New Yorker, oddly, to cough up how many “Latinos” there are in his city, artificial though the idea of a “Latino” is. In addition to Sydney, the other candidates were London, New York, Sydney and Toronto. What no one thought to say was far more important than what was said.

First, note that all four cities – presumably selected because they are those that strike the BBC’s worldwide staff as the most tolerant – are in the Anglosphere. Presumably, a key requirement of a tolerant city is that it have British colonial heritage, which more than any other culture makes the individual the focal point of social analysis and political theory, and which enshrines individual rights as the primary governing principle. The idea of universal human aspirations that transcend our ethnoreligious differences is, frankly, not shared by all cultures. It is at least a Western and arguably a uniquely Anglo-American notion. There is little or no multiculturalism on display in Riyadh, Beijing, or even Rome or Athens.

Second, it was taken for granted that vast diversity is an ideal in itself. This sort of empty cheerleading, whereby we choose to be heedless of or even overturn centuries of tradition so that we can have a lot of ethnic restaurants to go to (one commentator on the BBC web page actually says that “My vote goes to New York, solely based on the variety of food one can find there”) avoids the hard question, which is how can people from different traditions and anthropological categories be persuaded to live together peacefully, for maximum mutual benefit? How, in other words, can a society be structured so that people from anywhere and everywhere can get along? This requires them to have some allegiance to common purpose beyond their tribal identity. Where does that common purpose come from? Surely not from continued subsidy of difference. Indeed, the willingness to tolerate annihilation of traditional cultural boundaries and engagement in cultural experimentation is a key feature of a truly peaceful yet diverse civilization. And surely there is no common purpose in the idea of diversity itself; no one ever volunteered to risk his life for diversity.

Having just visited it, I would nominate Houston as the most diverse yet harmonious place. While there, I saw, next to a very utilitarian tollway designed not to make a n architectural statement but to get people where they’re going in the most effective way possible, both a very large Chinese supermarket and very large mosque next to one another. There is something striking in that. Like most American and many European cities, Houston has had a demographic revolution in recent decades. Unlike them, Houston is a city where commerce is largely free – no zoning, low taxes, etc. And so people there have all kinds of incentives to work together for mutual gain as individuals. That is what allows "What can you do for me?" to have a chance at shoving aside "What group are you from?" as the most important question on people's minds when they meet someone new. And therein lies the key.

Euro-Doom: A Reader's Guide

Some of us have been emphasizing Europe’s current difficulties – the perfect storm of low native birth rates, being swamped by immigrants from the collapsing societies around them, the anemic economic growth that cultivates resentment against these immigrants – for awhile. But now whole books are literally being written (finally, in the view of some of us) on the subject. Some are better than others; for those with an interest in this topic, I provide my reviews of those I have read.

While Europe Slept, by Bruce Bawer. Mr. Bawer came to embrace Europessimism via a most unusual path. He is a gay man who originally left the US for Europe (Holland and Norway in particular) in search of greater tolerance. There he found deranged anti-Americanism everywhere, and the rapid spread of militant Islam, which he now judges to be a greater threat to gays than religious fundamentalism in the U.S. The book is his recounting of Europe’s irrational hatred and ignorance of America, and its rising tide of Islamism. He writes passionately, but plays fast and loose with the facts on several occasions. Once he claims, relying on an erroneous report in The Economist that they have since corrected, that Sweden now has a higher homicide rate than the U.S. This claim is absurd on its face, and that he believed it so easily testifies, I think, to the strong possibility that many of his (unsourced) claims about European demographics are probably false. Compellingly presented, but unreliable; the assertion of shocking facts without citations eventually becomes just too much.

Mr. Bawer also has a blog which is devoted not just to Europe’s troubles but to its high culture as well.

Menace in Europe, Claire Berlinski. Like Mr. Bawer, Ms Berlinski writes as a concerned secularist, who would but for Europe's troubles have much more in common with their elites than with her fellow Americans. Europe, in principle, believes in much of what she believes in. But she sketches economic dysfunction more thoroughly than Mr. Bawer, along with chilling descriptions of European youth sliding into 1930s-style nationalism; her chapter on the neo-fascist leanings of the German rock act Rammstein and their admirers is worth the price of the book all by itself. She is a terrific writer, but the book is mostly personal stories rather than hard data. Still, the stories are revealing about a Europe mired in decline and having moved beyond such trivialities as reproducing itself, despite doubts a critical reader might have about how representative they are. I recommend it highly.

America Alone, by Mark Steyn. Like Ms Berlinski, Mr. Steyn is an amazingly gifted writer; along with Christopher Hitchens he is perhaps the most compelling pundit in the English-speaking world. The book is full of terrific Steyn one-liners, and for the uninitiated it is a fabulous introduction to Euro-doom. Perhaps the most compelling story he tells is of being in a maternity ward in Paris and seeing France's future in the demographic composition of the nursery. Like the prior two books, however, it is full of demographic statistics that are not cited (the book has no notes), and some of which I know to be outdated. Don’t buy it for research purposes, but most definitely buy it to get a brilliantly written does of extreme pessimism about the future of the West.

The Last Days of Europe, by Walter Laqueur. Unlike the other authors, Mr. Laqueur is an academic. He does provide a significant bibliography at the end, but does not link particular demographic claims to particular sources. It is not as stylishly written as the others, but more solidly sourced. Mr. Laqueur was himself once a Euro-optimist, having written numerous works on the triumph of the emerging EU (a fact he ruefully acknowledges). He also wanders around from extreme pessimism to mere concern, and sometimes seems to believe that Europe is headed for Islamic rule and sometimes that Europe will come to some sort of mutual accommodation with its Islamic residents. Academic caution is admirable, but his exposition of different predictions about whether Europe will go quietly, go loudly or not go at all is a significant drawback.

One could argue (as I speculated here) that economically, things may be at last turning around at least in parts of Western Europe, although it is certainly debatable whether they can now avoid irreversible economic decline. Because the economic min-revival in France, Germany, Italy and elsewhere is so young, it is hard to fault these books for ignoring it. All the Euro-doom reading is also disappointing from the point of view of accurate demographic data. But that is hardly the fault (Mr. Laqueur aside) of the authors, who are not scholars. Reliable European demographic data, broken down on ethnoreligious grounds, is extremely difficult to get for anyone. France refuses on principle (Frenchness is said to be completely separate from nationality or religion) to even collect such data. For me, as someone who wants to understand these trends, the books are thus not as helpful as I would like. And if someone reads somewhere or another that Muslims are going to be a third of the French population by such-and-such a year, and then that finds its way into an op-ed piece, and from there into a mass-distribution book, it suddenly takes on the unjustified status of unchallengeable dogma. But for those seeking to get a picture of what may be brewing in Europe, the last three books are all an immense asset despite the lack of documentation of these demographic factors. And if you can only buy one, buy Ms Berlinski’s.


If anyone is familiar with other books along these lines please pass them on and I will read them ASAP.

The Drug Companies Did It

The New York Times has an occasionally strange piece (registration required) on new views on controlling the complications of Type II diabetes. The hypothesis summarized is that controlling blood sugar is not enough. Those with the disease most also keep their LDL cholesterol down and otherwise be mindful of heart disease.

So far, so good. But why don’t patients and doctors know this as much as they should? Numerous causes are offered, but one of the accused, bizarrely, is the drug companies:

In part it is the fault of proliferating advertisements for diabetes drugs that emphasize blood sugar control, which is difficult and expensive and has not been proven to save lives.

And then:

That leaves cholesterol lowering, for patients with Type 1 and Type 2 diabetes, as the most effective and easiest way by far to reduce the risk of heart disease and the only treatment proven to save lives. But doctors say achieving the recommended cholesterol levels usually means taking a statin. Some patients resist, wary of intense drug company marketing to patients and afraid of side effects like muscle or liver damage which, although extremely rare, have frightened many away from the drugs, Dr. Brownlee and other diabetes specialists said. (Dr. Brownlee said he had no financial ties to statin makers.)

Others point to drug company advertising itself. Statin advertising, said Dr. Irl B. Hirsch, a professor of medicine and director of the diabetes clinic at the University of Washington, is all about heart disease, and the advertisements do not mention diabetes. The diabetes advertisements are all about blood sugar. Dr. Hirsch has seen few that put the two together.

Yet lowering cholesterol with statins, Dr. Hirsch and others said, is much simpler than anything else diabetes patients are asked to do. And, he added, the drugs are among the best studied and the safest on the market. (Dr. Hirsch said he had no financial ties to statin makers.)

Several points are worth making. First, the idea that blood-sugar control is critical to good health is not some distraction manufactured by drug companies; it has been the best medical knowledge for years among diabetes specialists. Second, it is not clear why drug-company ads promoting one sort of drug (those to control blood sugar) preclude finding out information about complementary drugs like statins. Indeed, as well known as the beneficial effects of statins are to medical researchers, it seems much more likely the problem is a communications breakdown between researchers and practitioners. The article acknowledges this problem, but the drug-company criticisms are completely extraneous. The drug companies, after all, make the sugar-control medicines that clearly provide significant medical benefits, even if (recalling the dangers of making the perfect the enemy of the good) they are not complete cures. Third, the implication that drug-company ads are mainly devious in design is revealing of a philosophical presumption that people are not fit to evaluate the information for themselves, but are instead passively manipulated by these firms into pressuring their doctors. How dare, in other words, patients be in charge of their own health care.

Finally, patients who are “wary of intense drug company marketing to patients” are themselves frankly part of the problem, fueled by anti-Big Pharma hysteria whipped up by, among others, The New York Times. Indeed, the article prissily assures readers that its set of sources who recommend statins (also a product of drug companies) have been meticulously scrubbed clean of any who might have financial ties to those companies, as the excerpt above illustrates. When critics of drug companies (Sidney Wolfe, say) are used for quote fodder, the advancement of their anti-corporate interests, every bit as real to them as financial interests are to drug companies, is never seen as cause for doubt.

The drug companies, which have made the lives of people all over the world immeasurably better by maximizing shareholder value, are increasingly the bête noire of those who criticize the American health system from the left, a symptom of the rising tide of obsessive-compulsive anti-corporate thinking that increasingly defines the American and global left. But here are the fundamentals of the drug companies and Type II diabetes: the sugar-control drugs are made and distributed by them; the same holds true for the statins that apparently are also needed by diabetics; and they are critical, through both their research and market-making skills, to any possible advancements in diabetic treatment. This is the big picture, but the spreading tide of anti-drug company paranoia, so vivid in the Times article, will have none of it.

The Kids are Alright - in the US

The BBC tells the tale of a remarkable set of identical quadruplets:

A Canadian woman has given birth to extremely rare identical quadruplets.

The four girls were born at a US hospital because there was no space available at Canadian neonatal intensive care units.

Karen Jepp and her husband JP, of Calgary, were taken to a Montana hospital where the girls were delivered two months early by Caesarean section.

Autumn, Brooke, Calissa and Dahlia are in good condition at Benefis Hospital in Great Falls, Montana.

Canada is a country of over 30 million people. Great Falls is a city of fewer than 60,000. Why did a Canadian couple have to drive hundreds of miles across a border before they could find a routinely small city with enough medical technology to treat their problem, rather than using technology in their own country? Hint: your answer will involve the phrase "single-payer."

Universal health care, until such time as you really need it. Hat tip: Thomas Lifson.

The Market Mess

So what is going on with all this subprime housing mess anyway? Economists are always much better at explaining the past been predicting the future, so take what follows with several grains of salt. But the turmoil on Wall Street around the world is revealing in several respects.

I often tell my students in the class I teach on globalization that rapid financial-market meltdowns following sustained run-ups are really just a weeding-out process, the elimination of mistakes that occurred, perfectly justifiably, during the boom. In particular, whenever there is some significant change for the better in economic policy or economic potential, investors know that there is great potential out there, but there is also tremendous uncertainty. And so for a time they throw their money at everything, uncertain of exactly how the new potential will play out. Ultimately, many of these bets turned out to have been misplaced, and so they have to be liquidated. The rapid crash following the long, sustained buildup, accomplishes this.

The stock market has been rising for some time, and I confess that the underlying economic fundamentals in the US seem unable to explain it. However, the rest of the world is undergoing what Fortune magazine, with lamentable timing perhaps, recently called "the greatest economic boom ever." And American companies of course have been deeply wrapped up in the amazing transformations going on in places like India, China, in Vietnam.

But in some respects this crash almost seems like the reverse -- the uncertainty is not about the upside in the past, but about the downside in the present and near future. Many commentators are saying that huge numbers of companies and funds all over the world are turning out to have been enmeshed in the American housing mess, and right now financial markets are in the process of discovery -- of trying to figure out just who owns what bad assets. In the meantime, they punish stocks across the board. This is not "panic," but a rational reaction to the information set available -- lots of whatever the opposite of potential is, plus great uncertainty about how it is distributed. Eventually the markets will oversell, and bounce back; the fundamentals of the global boom are still in place. I wish I knew when, but if I did, I would be living the life of a Corona beer commercial instead of toiling away in the groves of academe.

The first lesson I take away from this is that the United States is still critical to the global economy. During the financial turmoil 1997 and 1998, it was the resilience of US financial markets that largely prevented disasters in East Asia, Russia and Brazil from turning into a global recession. The strength of the tech boom in the US led to many a week in which markets would decline all over the world until some gigantic rally on Wall Street would save them. That seems not to be happening this time, which has led some to suggest that the US is a substantially diminished economic force

In recent years there has been a lot of comment about how the rise of China and India means that the US economy is less important to the global economy than it has been in many decades. The US can stagger, and yet emerging markets can continue to surge forward. And yet it is really surprising to see how investors all around the world react badly to perceived weakness in the US economy. There does not seem to be any obvious reason why credit-market difficulties in the US should devastate markets in Europe and Asia, unless the US continues to be a bulwark of the world economy. The US still matters, a lot.

The second thing that is worth saying is a few words in defense of subprime mortgages. The narrative that always takes hold during these times -- of financial excesses, criminal behavior by predatory fraudsters, etc. -- is already beginning to rear its head, and it is best to strike it down now. It is certainly true that the innovative mortgages created in the last 10 to 15 years have left a number of people -- overstretched home buyers and investors alike -- in significant financial trouble. But it is also true that they have allowed many people to buy homes who otherwise never could.

The chart below is from a doomsaying Website called The Market Oracle:



How do we interpret this? Very optimistically, if we think about it in terms of enabling people to achieve their dreams rather than in terms of what are in the big picture momentary financial-market fluctuations. Five out of six subprime mortgages are not even delinquent. Only seven percent are in actual default. Thus, significant corrections will have to be made to account for those sections of the housing-credit market having problems, but the big picture is that these innovative instruments (which the website calls “toxic waste”) have put people who -- either because most of their income is in cash or because they have poor credit relative to the price of housing where they live -- could not make use of conventional mortgages in a position to achieve the American dream of home ownership. These new instruments will long outlive the nitpicking criticism of them that currently prevails. Assuming, that is, they are not regulated to death in a hysterical overreaction to an ordinary part of the business cycle. Such controls will have the same effect that they always do -- penalizing the most economically vulnerable, and preventing the vast majority of responsible people among this group from achieving things that the rest of us take for granted. The subprime mortgage should be celebrated as a tremendous financial innovation.

We are still living in economically transformative times, the momentary ups and downs of particular markets in particular countries (and breathless reporting of same by the media in need of a good story) notwithstanding.