The Nobility of Manufacturing

Luke Johnson's columns in the Financial Times are hit-or-miss for me, and mostly misses. But this one Wednesday was one of the hits, "The genuine nobility of manufacturing". A brief excerpt:

There is something authentic, something noble about making physical objects. It appears to me the essence of capitalism. Service and support sectors are all very well, but their output feels so much less tangible than a production business. Moreover, economies need balance: that way they are better equipped to ride out downturns.

[...]

But manufacturing matters not simply because of vaguely romantic notions about creating things. It provides well-paid blue-collar and professional jobs. It generates exports to help offset trade deficits generated elsewhere in the economy. It adds far more value pro rata than service industries. Every major plant fosters clusters of other businesses.

Yes.

This seems so self-evident, that you might think smart soi dissant progressives would embrace the notion. Not Michael Lind though, who, in his Financial Times column last week ("Healthcare can get America working") followed fellow progressive Matt Miller in arguing for eschewing manufacturing in favor of health care as a source of future jobs. Lind gives the same rationale as Miller: manufacturing jobs can be outsourced (as if health care jobs can't be -- and increasingly aren't being - insourced, i.e., filled by immigrant workers). Lind writes, apparently without irony,

Will the health aide be the typical worker of the 21st century, as the factory worker was the iconic figure of the 20th?

If the elites in both major parties don't come up with more coherent responses to the challenges that globalization presents to those who are vulnerable to outsourcing or insourcing (i.e., most private sector workers), they will leave open a large political void. They may not like what fills it.

Dean Kamen on Health Care

From an interview with the prolific inventor in Popular Mechanics (HT: Megan McCardle):

Popular Mechanics: Yet health-care costs do keep rising. Is there a point at which we simply can't afford the most advanced treatments?

Kamen: Diabetes alone, if you include all of the long-term, insidious consequences of a lifetime of diabetes, is responsible for about 30 percent of the federal reimbursement for healthcare. Taking care of the diabetic every day is a small piece of it. But what if tomorrow we could wipe out diabetes, suddenly everybody takes a pill and it cures the people that have it, and it inoculates the other people so they'll never have it? Forgetting what a great life that would give people and their families, you take care of 30 percent of what now we project as this insurmountable problem of healthcare, which they project is going to kill us.

Well, it would kill us if we look at the 30-year actuarial data based on our 19th century confidence in technology. But I'm sure in 1920 if you asked actuaries to say what percentage of our GDP are we going to spend taking care of people with polio, they'd say: "They get polio, it goes to their lungs, they sit in iron lung machines, they could live a whole lifetime with three people watching over them. We can't support them all."

But what did it cost to deal with everybody with polio? Oh, $2 apiece. We gave them the Salk vaccine. But in the 1920s Salk wasn't around yet.

I'm with Kamen on the importance of market incentives in spurring innovation in health care, but I don't know if the Polio vaccine was the best example for him to use here: Salk refused to patent it¹. Nevertheless, even if he had patented it, the cost of the vaccine could still have been far less than the cost of keeping people alive in iron lungs, so Kamen's point still stands. He could have used a better example though to support his point. Back to the interview:

PM: In other words, R&D spending now may save money later?

Kamen: If you project forward these horrific costs of treating everybody and you want to assume we are not going to respond to that by making the therapies better, simpler and cheaper and in some cases completely wiping out the [diseases], well you know what? We might actually get to that situation—if we stop investing in technology, if we stop believing that the future ought to be better than the past.

If we want to sit here and keep assuming we should be fighting, and that we should be striving to spend less of our intellectual power and our money on great achievements to come in healthcare—that we should be fighting to make it a smaller piece of our economy—I want to know what you want to make a bigger piece of our economy. What do you want to see the future look like?

I think this debate shows a fundamental lack of vision, a lack of confidence, a lack of understanding of what's possible.

Coincidentally, Tim Ferriss blogged about Kamen today, and in the comment thread I mentioned that Kamen was featured on an episode of the Sundance Channel series Iconoclasts (he was paired with Isabella Rossellini). Kamen is a fascinating character, which made this a fascinating episode to watch. Here is a brief clip from that episode.

The photo above of Dean Kamen accompanied the Popular Mechanics article.

¹If Salk's research weren't funded by the University of Pittsburgh and National Foundation for Infantile Paralysis -- if, say, he had been the founder of a start-up pharma company -- he would have had to patent the vaccine in order to recoup his and his investors' investment in the drug's development.

John Mauldin's Latest

A few excerpts from this week's Thoughts from the Frontline newsletter, "Faith Based Economics":

On America's Fiscal Challenges:

The following headline caught my eye: "Obama Says US Long-Term Debt Load is 'Unsustainable.'" Yet they announced a $1.8 trillion deficit, which is really going to be at least $2 trillion, and are getting ready to pass health-care programs that will mean at least a trillion in deficits for as long as one can project.

How will they pay for it? Even getting rid of the Bush tax cuts will only produce a few hundred billion a year, which is nowhere near enough. They project much lower medical costs in the future, because they assume they are going to figure out ways to cut costs and make medical care more efficient¹. As if no one has ever tried that.

[...]

You cannot propose massive increases in spending without either creating crushing debt that the markets will simply not allow, pushing interest rates much higher and really slowing growth and hurting the economy. It is a simple fact that you cannot increase the debt-to-GDP ratio without limit.

We found the limit on personal and corporate debt this past year. We pushed the limits until the system crashed. And now the US government wants to basically do the same thing. They are planning to see where the limits on government debt-to-GDP will be. Unless cooler and more rational heads in the Democratic Party prevail, this is not going to be pretty. Sometime in the middle of the next decade we will hit the wall, and it will make the current crisis pale in comparison.

The only way to solve the problem is to grow GDP more rapidly than debt, and for that to happen you have to have policies which are shaped for the growth of the economy or massive savings by consumers. And right now we have neither. Cap and trade is hugely anti-growth. So are high corporate taxes, and Obama is proposing to effectively raise corporate taxes by closing loopholes for income earned outside the US. Much better would be to lower the overall corporate level to a competitive world rate and then require the offshore income to be taxed.

Some Potential Good News about Health Care:

This week I visited the Cleveland Clinic and went through their Executive Health Program (more on that below). I got to visit for several hours with my doctor, Michael Roizen, of YOU: The Owner's Manual fame (not to mention all his subsequent books). They have now sold over 20 million copies, and I highly recommend them.

I have long been a student of medical trends, and long-time readers know that I think the next really big boom will be in the biotech world. I asked Mike what three things he thought would have the biggest impact in the next five years in medicine. What he said gave me hope, because he thinks there may be some advances in medicine that could help solve some of the basic health issues we all face, and at the same time give us some relief from the high and rising costs of medical care. I was aware of most of the research, but did not know that we were as close as it appears we actually are.

Briefly, he feels there are three developments in late-stage trials that could have major impacts. The first is the development of sirtuin, which so far seems to be delaying the effects of diabetes but also seems to work for a host of diseases that are inflammatory in nature (including many heart-related issues). It essentially delays the symptoms for 30-40 years. While the current trials are for very specific diseases, he thinks sirtuin will have a wide applicability and that it could be huge, as inflammation is the cause of a number of diseases. This could prolong useful life and forestall a number of debilitating conditions.

Second, there is a late-stage-three trial due out soon that promises to increase muscle mass. I have been reading about such developments, but was not aware that something might be available within a few years. This promises to help people stay active a lot longer than currently possible, which will be a good thing if we are going to live longer.

And finally, there is a study and trial which shows that DHA may delay the onset of Alzheimer's disease, which eats up a significant portion of US medical budgets.

It would be a sad irony if pending universal health care legislation leads to price controls which dry up the funding for these potentially cost-saving advances.

¹Megan McArdle had a good post on this on her Atlantic blog earlier this week, "Medicare is going to bankrupt us, which is why we need universal health care". Excerpt:

Perhaps predictibly, someone showed up in the comments to my post on Medicare and Social Security to argue that liberal analysts have very serious plans to cut Medicare's costs, which is why we need universal coverage, so that we can implement those very serious plans.

I hear this argument quite often, and it's gibberish in a prom dress. Any cost savings you want to wring out of Medicare can be wrung out of Medicare right now: the program is large and powerful enough, and costly enough, that they are worth doing without adding a single new person to the mix. Conversely, if there is some political or institutional barrier which is preventing you from controlling Medicare cost inflation, than that barrier probably is not going away merely because the program covers more people.

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A Canadian's Comment on Health Care

Interesting comment from Tom West on a health care post on Megan McCardle's Atlantic blog:

Boy, the more I read, the guiltier I feel about living in Canada. We sort of have the ideal position.

We're large enough that most of us don't see the direct comparison with the American system, (which is nice, but three times the price). America operates as our second tier which is close enough that the rich aren't upset about going there for expensive health-care, but far enough away that the even the moderately well-to-do don't look at it as a serious alternative.

We're insulated enough so that when the doctors say "there's nothing we can do", you can believe it without feeling guilty about not destroying your family's finances to pay for some sliver of hope. We benefit from the American innovations when they're finally brought down to a cost that our bureaucrats consider acceptable¹. The doctors don't have to cater to ridiculous demands for unnecessary tests, and have no incentive to give them.

We have a Corolla health-care system as opposed to the American Lexus, but it does a decent job for most of us, and ends up being an element of society that binds most Canadians together rather than becomes a source of resentment and distrust. (Tommy Douglas who introduced our health-care system was recently selected as Greatest Canadian ever by viewing audiences.)

That said, sadly for those few Americans that look at our health-care system as a model, I'm afraid it wouldn't work for you. You'd be missing the one ingredient that helps it work as well as it does... You.

¹Tom uses the passive voice here, but Canadian bureaucrats often actively lower drug costs by imposing price controls.

Undertaxed America

Prompted by the recent trend of anti-tax tea parties, Bruce Bartlett writes in Forbes that the United States is a low tax country ("Tax Tea Party Time?"):

The truth is that the U.S. is a relatively low-tax country no matter how you slice the data. The following tables illustrate this fact by comparing the U.S. to other members of the Organization for Economic Cooperation and Development, a Paris-based research organization.

[...]

[T]otal taxation (federal, state and local) amounted to 28% of the GDP in the U.S. in 2006. Only four of the 30 OECD countries had a lower tax ratio. Taxes averaged 35.9% for the OECD as a whole and 38% in Europe. Citizens of Denmark and Sweden paid very close to 50% of their total income in taxes.

I suspect that the complexity of the tax system in the U.S. partly explains why many Americans think they pay higher taxes than they actually do. Also, it's possible that many workers pay more attention to the large amount of taxes that are withheld from their paychecks and pay less attention to the amount that gets refunded to them every year. Bartlett goes on to note that higher taxes in many OECD countries are offset by generous transfer payments. He also notes the effect of government health care spending:

Another way that workers in other countries benefit is in having almost all of their basic health care expenses covered by the government. According to the OECD, 19 of its 30 member countries cover 100% of health care costs, and another eight cover more than 89% of costs. Of the three remaining countries, Turkey covers two-thirds of health expenses, and Mexico pays for half.

In the U.S., however, the government covered only 27.4% of health costs in 2006. And almost all of that went either to the elderly in the form of Medicare or the poor in the form of Medicaid. The American average worker either had to pay for his own insurance in the form of deductions from his pay or go without.

In 2008, employer-provided health insurance reduced the cash wages of American workers by 7.9%, according to the Bureau of Labor Statistics. If businesses didn't have to pay for health insurance, they could afford to pay their workers 7.9% more and be no worse off. If workers paid 7.9% more of their income in taxes to pay for national health insurance, they would also be no worse off.

To a large extent, this is exactly what happens in other countries. Workers see the higher taxes they pay the same way Americans view the deduction from their pay for health insurance--not as money down a rat hole, but as the payment for a tangible benefit.

This isn't necessarily an argument for national health insurance. There are lots of reasons why it may be preferable to maintain the largely private health system we have in America. No one thinks it would be a good idea to pay higher taxes in return for having the federal government provide us with food. Variety and quality would undoubtedly suffer a great deal. The same would be true if the federal government took over the provision of health care.

NY Insurance Department Forces Low-cost Doctor to Raise Fees

From Dr. Mark Perry's Carpe Diem blog, "NY Bureaucrats Force Low-Cost Doc to Raise Fees". Apparently the New York City physician pictured above, Dr. John Muney, was offering uninsured patients a broad range of medical care for $79 per month plus $10 per office visit (as many visits as patients needed), and the New York insurance regulators challenged him, claiming that he was offering insurance without a license. Dr. Muney had to raise his per office visit to $33 to become compliant with state insurance regulators.

The photo of Dr. Muney is from Dr. Perry's blog.

An Atypical Perspective on Health Care in the NY Times

Last month, the New York Times Magazine published a sprawling cover article by David Leonhardt on how the Obama administration might "remake" the American economy ("The Big Fix"). One of Leonhardt's arguments was that the U.S. spends too much on health care, often without commensurate results, and in his article he suggested spending less on health care and more on education (this view seems to be gaining traction on the left). Despite the length of his article, Leonhardt didn't offer much by way of empirical data in support of his claim about the limited benefits of health care spending or the potential benefits of spending more on education (his argument in support of more emphasis on education included this observation, "The two most affluent immigrant groups in modern America — Asian-Americans and Jews — are also the most educated," without addressing any of the obvious questions that observation raises).

Last Sunday, the New York Times business section offered a different perspective on health care spending, from William Hawkins, the CEO of Medtronic ("The Boss: For Medtronic’s Chief, Success That Hits Home"). Excerpt:

Advances in technology enable us to do things today we weren’t able to do years ago, such as monitoring and managing patients remotely. Twenty years ago when we implanted a defibrillator, it cost $100,000 and wasn’t nearly capable of the performance of today’s devices that are a fraction of the cost.

My family has also been a driving force behind my journey. I have a photo in my office of three of my relatives. My father, 83, has eight coronary stents, some of them ours. My 91-year-old uncle, an injured World War II veteran, suffered from a tremor for years that made his hands shake. When he was 89, doctors implanted one of our deep brain stimulators, which controls movement. When they turned it on, for the first time in 40 or 50 years his hands stopped shaking and he got his life back. My father-in-law, who is 86, has a Medtronic heart valve, stents and a pacemaker.

One of the reasons I’m working is to make sure I can take care of my family so we can enjoy a long life together.

It sounds like Mr. Hawkins's relatives have gotten some positive results from their health care spending. Would we really be better off as a country if that money were thrown into the latest sisyphian federal program to improve public education instead?

The image above, of the deep brain stimulator, is from Wired.