Po People

Poor me. A month or so ago, I received an email from a member of an online religious discussion group I enjoy. A prior post of mine had confused him because (in so many words) it expressed sympathy and compassion and he hadn't known that I could do that. In effect, his email was meant to encourage me in my softer side. I thanked him and responded to specific points he had made. Since I never heard from him again, I'm relatively certain that I offended him afresh and that my compassion has been safely filed in his mind among those things that happen occasionally out of the aberration of human personalities and that I remain as harsh a bastard as before.

Which happens a lot when the topic is poor people. That's because I'm a firm believer in individual responsibility and fiscal autonomy (if such a thing is possible). I think that people should work and that if they aren't making enough to support their families, that it is typically their own fault. Particular examples that came up in that discussion included a teacher who loved to teach and whose family had barely enough and the father spent time with the children, but they didn't have much materially (my opinion—good for him! He is fulfilling his duty to his family and doing so responsibly). And another example of a father who loved being in the Highway Patrol, but due to lousy wages he had to hold another (and sometimes two) job that kept him from his home (my opinion—the selfish jerk is sacrificing his family's interests just so he can work in a job he enjoys). And a single mother who lived so close to the bone that she didn't have a TV (in the U.S. where 98% of the population has a TV, this is a pretty extreme level of poverty) and lived in a house too small for her children and when her car broke she went to her bishop (equivalent to what ya'll might think of as pastor or priest—the head of a congregation) for help (which is what she should have done) who told her that she should be budgeting a little each month for just such emergencies (my opinion—the jerk bishop, you do not make such statements unless you first ensure that you are intimately familiar with the realities of her life and can give specific advice about things that she can/should change—information that it is his duty to obtain should he feel his advice is necessary).

You can see why someone might be confused. While talking in terms of principles, my position can be pretty harsh—people should shoulder their responsibilities and provide for their needs as much as possible. But when I talk about real people, I have no trouble admitting that sometimes the principle doesn't apply (as in the case of some single mothers). And in all my examples above, I'll freely admit that there are details that might mitigate, even reverse, my opinion. And my principles are harsh—personal responsibility often is.

The interesting thing is that the same principles that you apply to individuals can often be ported into the realm of nations. And again, my attitude is often described as harsh. Right now, poor countries are gathered together for an economic conference. In the past, this conference is mainly a meeting to discuss tariffs and so on. This year, just to change things up I guess, they decided to complain a bit about how globalization discriminates against them,

"The envisaged benefits have not materialised for most of the poor countries and even when they have, these are not equitably shared while the costs are borne by all," the statement said.

First, it's a stupid statement. I'm willing to bet that the costs aren't equitably shared, either. And frankly, anyone who gripes that, hey, I'm getting help but someone else is getting more, isn't going to get access to my heartstrings. Now, assume that their statements are true—they're still behaving like people in a downhill race without any gas who complain about bumps in their tires—smooth tires might help, but let's stop kidding ourselves. Poor countries don't have to be poor. And they aren't being kept poor by evil Americans.

The way to stop being a poor country is no longer a mystery—but it does take a lot of work and sacrifice by the people least likely to want to work or sacrifice in the country—the rulers. Fiscal responsibility, freedom, private property, the rule of law, and building an infrastructure of knowledge and innovation are how it's done. If you aren't willing to do the work, then you don't have a lot of call on my sympathy. Countries have pulled themselves up with nothing but rock or desert for natural resources—Singapore, Taiwan, and Israel to name a few. Turkey and Iran could be next if they can manage to get over the internal forces holding them back.

The problem is, though, that if I ever get popular enough for people to start listening to what I'm saying, I guarantee that I'll be called all kinds of bad names starting with mean and probably not ending until I withdraw. It's much more acceptable to sit back with a show of sympathy and maybe some weak token assistance. Well, the point I am trying to make here is that these shows of sympathy and even the money being given are not only not helping they are actively harming the people they claim to want to help. Assistance that is not accompanied by true concern and a willingness to confront harsh truths is waste and, worse, it builds dependence and undermines actions that bring lasting change.

The people of Iraq are poor, with inadequate health care, medicine, and sometimes food. But a lack of food and medicine is not the cause of their poverty. Now, some people have the audacious mendacity to claim that the cause of Iraq's problems is the U.S. embargo. As if everything was perfectly fine there until we imposed it (here's a clue: they weren't). Anybody with a lick of sense can see that the cause of the poverty is the ruler. Iraq is an easy case, but other countries aren't that hard to understand, either—provided you're willing to take a hard look and not assume that external factors can be found for every ill.

Which is why I am so unwilling to soften my principles. Weakness kills. Vacillating when lives are on the line is irresponsible and, just maybe, evil. Showing sympathy and giving pocket change to look good to your friends is selfish, immature, and wrong. And I'm tired of being yelled at about how mean I am when I'm the one who cares about the well-being of those in need.

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19. July 2002 13:38 by Jacob | Comments (0) | Permalink

Third World Aid

The World Wildlife Fund has released a "report" that claims the Earth can only last till 2050 at the most. I suspect that this little cultural artifact will bring much amusement in 48 years time. The details of our "plundering" include things like deforestation, disappearing species, and certain fish stocks dwindling. I'll let Bjorn Lomborg carry the brunt of countering those claims, mainly because he did such a fine job of it. What I want to point out is that the real aims of the environuts is readily ascertained,

Matthew Spencer, a spokesman for Greenpeace, said: 'There will have to be concessions from the richer nations to the poorer ones or there will be fireworks.'

There you have the crux and the threat. Their purpose is to extort payments from rich countries to pay off poorer ones. The motives probably aren't bad, I believe they probably really do want to help people. They're just stupid. Money has never been the problem. Neither has resources. My biggest problem comes, though, with their methods. Like making outrageous (and easily disproven) claims. Or choosing a metric that has no meaning,

The WWF report shames the US for placing the greatest pressure on the environment. It found the average US resident consumes almost double the resources as that of a UK citizen and more than 24 times that of some Africans.

Based on factors such as a nation's consumption of grain, fish, wood and fresh water along with its emissions of carbon dioxide from industry and cars, the report provides an ecological 'footprint' for each country by showing how much land is required to support each resident.

America's consumption 'footprint' is 12.2 hectares per head of population compared to the UK's 6.29ha while Western Europe as a whole stands at 6.28ha. In Ethiopia the figure is 2ha, falling to just half a hectare for Burundi, the country that consumes least resources.

The report, which will be unveiled in Geneva, warns that the wasteful lifestyles of the rich nations are mainly responsible for the exploitation and depletion of natural wealth. Human consumption has doubled over the last 30 years and continues to accelerate by 1.5 per cent a year.

Now WWF wants world leaders to use its findings to agree on specific actions to curb the population's impact on the planet.

A spokesman for WWF UK, said: 'If all the people consumed natural resources at the same rate as the average US and UK citizen we would require at least two extra planets like Earth.'

You should automatically be suspicious of any metric that privileges Burundi over the U.S. as a model to follow. The suggestion is ridiculous on its face and worse when explored in depth. For one, never, ever forget that consumption has a flip-side—production. The U.S. produces more than it consumes and is a net benefit in all those measurements that show how bad we are. Take CO2 production, for example. The technology of the U.S. has let us give more land to forests than ever before with the result that we are a net CO2 sink (i.e. our forests absorb more CO2 than we produce). If you counted net and not gross, you'd be begging the U.S. to have higher not lower populations for while our consumption might be accelerating by 1.5 per cent a year, our productivity is increasing by over 2 per cent a year.

Don't get me wrong, I don't think we should simply ignore poorer countries. I'd like them to be as well-off as possible. Economics are not a zero sum activity and their progress is not at all a detriment to us. The problem is that too often, they're not much interested in doing the kinds of things that are needed for the prosperity they claim to desire. That's mainly because the foundation is so unglamorous. I mean, farm reform is the basis of gaining lasting prosperity, but that's nowhere near as cool as building a new soccer stadium or airport. And it means a lot of effort (and money) spent with the 'peasants'—people who don't have the power to reward your generosity even in a democratically elected government. And don't ignore the fact that the very eco-nuts who want us to send aid to foreign countries are often the same people who will oppose exactly the reforms that are needed to produce lasting benefits—we don't dare alter centuries old lifestyle and customs. Well, that's what has to happen if you want a country to pull itself out of the third-world pit.

Anyone who wants to convince me that they want to help the third-world has to pass a simple test—how do they want to help? If they talk about drug and food shipments or they go on about the superb native cultures that must be preserved (and they aren't talking about on film or such), then you know immediately that they aren't being very serious about it and are likely trying to assuage a guilty conscience (their own or in presumptive behalf of others). If, on the other hand, they talk about capital investment, you know that they're probably self-interested and that they mean capital they plan to collect money for in one way or another (like by building an airport they plan on capturing the contract for). But if, slim chance, they talk about sending teachers down there who can help people learn new farm and medical techniques then you have yourself a winner and someone you can back with confidence. Real improvement, real aid, takes actual ground-level knowledge and low-level work in improving the technological skills of the people (as opposed to simply improving the technology of the people).

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8. July 2002 11:35 by Jacob | Comments (0) | Permalink

Caveat Renter

Renter beware. I've heard a number of technology companies lately extol the great virtues of renting—both hardware and software. They sell the concept to their investors and shareholders and talk about the wonderful revenue stream they will build. And I'm afraid that is all that they see. As such, they are doomed to failure. There will be a backlash, mark my words. The thing is, as pointed out in Infoworld,

But we don't see any vendor propaganda promising that we'll save money by renting.

In fact, companies moving to rental are missing a fundamental rule of business—the customer is king. The whole point of capitalism is that the absence of compulsion means that you have to win customer dollars by providing something people want. And the bottom line here is that nobody wants to rent. At the very most fundamental, nobody wants to rent unless doing so is significantly cheaper than buying. Not just a little cheaper, significantly cheaper. Renting means that someone else has control over your destiny. It means you do not own the tools that make your business run. In something like IT spending for businesses in particular, where change represents significant cost, you do not want to be dependent on another company for the continuing good function of your computer systems. It is suicide. And Ed Foster at the same magazine says similar things about "maintenance" contracts which is rent on the back side.

Companies aren't going to agree to draconian rental policies just because tech companies want them to. Even when they want them to really badly and they prattle on about bug fixes and free upgrades.

  • Fact, free upgrades won't happen—companies will invent new names and split upgrade paths to, well, generate more revenues.
  • Fact, bug fixes aren't going to happen any faster with rental agreements—you can guarantee that companies won't bump spending on support and programming just because they have more revenues coming in.
  • Fact, new revenues will go to new programs, new initiatives, and new products to generate new revenues.

Consumers are not stupid. Companies who see their customers as walking revenue streams have lost the focus that made them successful in the first place. You build revenues by accurately identifying the wants and needs of your customers—not by accurately identifying their budgets. My advice? Avoid tech companies with great plans for rental revenues like the plague—not only their products, but I'd stay away from their stock, too. The resentment of their customers will rebound and they will end up the worse for it.

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13. June 2002 10:34 by Jacob | Comments (0) | Permalink


Immigration in general is going to be something that gets a lot of attention in the coming decade so I should probably take some time to articulate my position. The latest census shows that we had a record breaking decade in immigration growth, even when measured in terms of population percentages. Personally, I think that immigrants are what make this country so great. We keep skimming off the risk-takers of other countries and it has rebounded to our benefit a hundred fold. Frankly, immigration stands a good chance of off-setting a small population bomb scheduled to hit us in a few years—you know, when the boomers begin to retire. And I don't buy the whole degradation of society or xenophobic issues of race and culture. We're a richer culture for their additions.

I do have a concern, though, and I think it is an important one. In past generations, new immigrants were encouraged to adapt to the wider American culture. Not necessarily giving up their own, but learning to accommodate ours. This was, in my opinion, a good thing. Now, however, too many misguided intellectuals and well meaning advocates are trying to tell us that we are wrong (they use words like imperialistic or paternalistic) to push for accommodation. Apparently, these elites want to erect some kind of pen to hold new immigrants so that they can cling to the ideas and culture of their homeland—incidentally, the origins of the word and fact of "ghetto".

This policy stands on the foundation of relativism and the belief that no culture or idea is better than any other. This is a corrupt policy. America is great because of the ideals of freedom, responsibility, the rule of law, and private property. We should insist that new immigrants study our founding precepts, that they try to learn English, and that they accommodate our wider culture and not the other way around. I'm not saying that all our ideas are better than theirs, but some of them most definitely are. And I’m not saying that we make it harder for them any more than necessary. But what they are attempting is hard and we make it even harder if our attempts to make it easier mean that they never really do learn to accommodate the culture they now live in.

And really, my concern is that in moving here to find better opportunities, we'll end up adopting the corrupt ideals that caused the problems they are attempting to escape. It would be a bitter irony if they came here only to find that we have recreated the very problems they have attempted to leave behind.

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5. June 2002 11:32 by Jacob | Comments (0) | Permalink

Sun Blind

Attack! One of the fundamental rules of business I have learned is that to succeed, you must attack the leader. If your efforts aren't geared to become better than the current #1, then you don't really have any justification for existence. Find the weaknesses, become more efficient, discover hidden customer wants.

Attacking yourself is a problem with Sun Microsystems. They just don't seem able to do it. Oh, they do okay when they’re in the pack somewhere competing for profits, but whenever they find themselves ahead, they have a tendency to sit back and enjoy the scenery. But even worse is when Sun only thinks that they’re number 1. Their release of Java as a competitive development language was brilliant and they managed to put it out there with enough oomph to attract every anti-Microsoft developer on the planet. And they achieved enough momentum and enthusiasm that they thought that they would be able to coast into number 1 position in development languages. Coasting along for the last year, they haven’t been very responsive to the development community. They’ve delayed standards reviews. They’ve stalled on effective IDE issues. And, perhaps worst of all, they stopped pushing Java in broad marketing initiatives.

The result is disaster. Java is steadily losing ground to Microsoft’s .NET and there’s no end to the slippage in sight. By not maintaining their momentum, Sun has allowed Microsoft to overcome their advantages and leverage the millions of existing Microsoft developers into the Internet development arena. As a result, Sun faces more than just the direct challenge of VBScript vs. JavaScript (or even VB.NET vs. Java). Now they face whole architectures they let get out of the bag with what amounts to no answer from Sun—XML, ADO and SOAP to name the most obvious, and groundbreaking, examples.

So have they learned from their mistakes? Unfortunately, the answer seems to be “no”. Scott McNealy seems to have decided that his ego alone can overcome any obstacle and he has failed to give any answers with substance about how Sun will manage to overcome these threats to Java. This is making a lot of developers who have banked on the popularity and utility of Java very nervous. New third-party tools are coming out that help extend the usefulness of Java immensely, but these tools can be expensive and make a poor comparison for a development house that is looking at the ease of VB.NET and comparing that to the hoary, expensive, patch-work monster that Java has become.

Good thing Sun has that lovely server business to fall back on. Um, or maybe not. While Sun was playing around doing whatever they were doing back there, their server market is being eaten alive from the bottom. Sure, Sun makes incredibly reliable servers, but they’re pricey suckers and Sun hasn’t implemented any substantive improvements recently. In other words, they didn’t attack themselves. Their prices didn’t come down until they started losing business and that is far, far too late. Further, consumers have found that if reliable costs too much, they can often achieve the same results with less reliable, but redundant. Thank Michael Dell for that little epiphany. Dell pushed server prices so low that you can afford three of his servers for the price of one Sun. And that’s after a major price-slash on the part of Sun.

My prediction? Sun is in for a tough time. They’re clearly in decline and the pit seems to be bottomless. McNealy and co. don’t seem to have fully realized their danger. Upon hearing that Sun needs to recalibrate, Scott McNealy’s response is simply “We couldn’t be better positioned.” He’s known as a tough guy, but even tough guys get knocked out if they’re not careful. Particularly when they walk around with their eyes closed.

What do you do once you're #1? Same thing. Attacking yourself is a tough thing for companies to do and it isn’t something they typically do well. Those who do, however, will tend to reach number 1 and stay there. This principle is the single biggest factor in the continuing success of Microsoft. Bill Gates is the most paranoid man on Earth and he is convinced that if he rests on his laurels for even a moment, some upstart will come around and nail him. He’s right.

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15. May 2002 10:29 by Jacob | Comments (0) | Permalink

Family Sacrifice

The post-40 mother seems to be the topic of the day, particularly with Mother's Day so near. I watched a late-night women's issues show earlier this week and one topic they covered is the dangers of having babies post-40. They discussed how women don't seem to give enough weight to this difficulty and that they delay having children too long due to career and other achievements. Some of the women (the panel had a good mix of conservative and liberal women, actually--it was a good discussion) bemoaned the fact that men didn't have the same restrictions and could have children even as their careers flourished. Mention was made, of course, of Karen Hughes who recently resigned a high-powered post in the White House in order to be a parent for her teenage son. Supposedly, men don't ever do this--resign a position in order to spend more time with their families. Or at least, if they do, it isn't as extreme as pulling entirely out of the work force. I found a great treatment of the topic by Marianne Jennings. It's worth a look.

But I want to go into the whole man thing. You see, I'm personally in a position to attest that some men make career sacrifices for their families. I met this specifically when I worked at Jenkon. Unlike other programmers there, I went home at 5 or, at the latest, 6 every night. I did so to be with my family. This "lack of dedication" was noted. It came up in conversations with my boss. I'm convinced it played a role in my compensation. And really, it should play a role in my compensation because, frankly, it means that I'm arguably not as productive as I would otherwise be (I believe that I am more productive than other co-workers, and I believe that part of that is the rejuvenation I get with my family, but that's a belief and hardly proven). The call of family is an important one and having a family means making sacrifices. That's just the way it is.

Some claim to perceive the workings of Satan in this pressure on the family. While that may certainly be true (I'm one of those quaint religious people who actually believes in an active force in opposition to good), it is not the whole story. You see, this sacrifice hasn't always been an issue. In past centuries, a married man could out produce a single man on the job. That's due mainly to the amount of home manufacture that was required to maintain a household. Think of it in terms of making dinner and doing laundry. These activities had to be tackled in the home and took a significant amount of work. Eating a balanced, healthy meal required literally hours of preparation. Likewise clean food and healthy living conditions. In the absence of chemical soaps and automated washing processes, it took hours of care and a lot of hard work to ensure a clean home environment. It was weighted enough to the advantage of the married man that single men often congregated in boarding houses--thus pooling their resources and essentially "renting" domestic service.

And it wasn't just having the wife that helped out. Children were also a net asset to the household income with the average child bringing in close to 1,000 pounds net before leaving home--in the study I read about a year ago (I'd reference it if I could--I hate vague statistics thrown out like that, so I'm open to refutation or confirmation). Children worked farms and stores, they did chores, there were no child labor laws. Having children was more than just a personal joy in your offspring, it was a direct benefit to the home in specific material ways--and a form of retirement insurance as well. This dynamic exists still in poor countries. Population controls in countries with heavily agrarian economies is going to continue to run into road-blocks as long as children contribute to total household income. This is why you see the average number of children per household decline in developed countries and birth control initiatives run into brick walls in undeveloped countries.

Contrast all that to today. Home production is a thing of the past. A balanced meal can be had in five minutes and a microwave. Laundry is similarly streamlined and home maintenance is easier and cheaper than it has been in the past. Further, children are now a huge sacrifice on the part of parents costing literally hundreds of thousands of dollars before leaving home and requiring a huge amount of concentrated effort to rear--often incurring the double whammy of requiring the wife to stay at home in addition to their consumption of family resources. Which means that the strains on the family are as much economic as they are demonic. This economic pressure is real, it is harsh, and it requires sacrifice on the part of men and women if it is to be done right.

For me, the trick has been to accept that and move on. I decided to have children, not for their economic benefits, but because I believe that it is right for me to have children. It is a religious conviction for me. It is an explicit doctrine of my church. So I make the sacrifice. I don't achieve the peak of my profession and never will. I'm resigned to that. And I'm happy to support and applaud those others who resign from the full extent of their potential achievements in order to raise a family. So, I guess this is a Mother's Day post when it comes right down to it. Thanks Mom! You pioneered a difficult process and I hope I can live up to the standard you set.

9. May 2002 10:27 by Jacob | Comments (0) | Permalink

Capitalist Greed

"Capitalism: The system of modern countries in which the ownership of land and natural wealth, the production, distribution, and exchange of goods, and the operation of the system itself, are effected by private enterprise and control under competitive conditions." --Webster's Collegiate Dictionary, 1945

There has been a lot of criticism of capitalism lately. The most common charge is that capitalism promotes greed. In fact, in many circles including popular media and entertainment, capitalism tends to be synonymous with greed. A popular movie in the last decade starred Michael Douglas (I think) in a role where he played a CEO who lived by the motto "Greed is Good".

I'll go on record as someone who believes that greed is *not* good and can in fact lead to great evil. But the problem is, greed is impossible to quantify. Greed is the motive of actions, not the action themselves. How can you tell if someone is successful because they are greedy or because they sought to serve their customers well with products they want? In fact, how can you tell that someone who is successful is greedy at all? Or that a poor person isn't greedy (I mean, they might be very greedy, just bad at satisfying their greed)? In fact, the sanctimonious finger pointing about the greed of successful people can just as easily be a function of the envy of other (less talented) greedy people as anything else.

Well, since you can't quantify greed, I think that it might be more useful to look at command economies vs. free market economies and look at how they handle any greed that might crop up. I mean, what are the effects of greed under different economic systems? Or, put another way, what might greed motivate someone to do under different systems?

The central feature of a command economy is that somebody, well, commands the economy. Socialism is a mild command economy where the government controls certain universal services like health, broadcast TV, transportation and, well, anything they can control without actual armed revolution. Communism goes further and attempts to control the production of everything (er, so does fascism, come to think of it...) and just makes sure that any armed revolution is beat down. So if you are a greedy person and you are born in a country with a lot of command over the economy, what activities would you undertake if you wanted more stuff? To me, the answer would be that I would do what I could to make sure I was the commander rather than the commanded. Greed reinforces oppression.

In a free market however, since few outside influences can touch the economy, anyone who is greedy is forced to figure out a way to get the stuff that others have. As long as the free market is accompanied by the rule of law, Greedy people have to convince someone to give them stuff--they have to be persuasive (this is where Russia is failing, by the way--they have a free market without the rule of law). I have to give others something that I value less than whatever it is that they will give me for it. In other words, I have to figure out what others want and try to provide it. Did you catch that interesting transformation? Free markets turn the impulse to greed into a search to satisfy the needs of others. Pretty darn cool, I think.

What that means is that a free market is the only way to take the inherent greed of people and turn it to the service of others. Now, this isn't as clean as it should be. For one thing, there is no such thing as a free market. None exist in the world today at any rate. I'm afraid that in our world once a certain level of wealth is achieved, that wealth tends to be directed towards controlling the hand of commanders to protect or grow the wealth. So greed reinforces oppression in any system. In the United States, that means that once companies become a certain size, they feel the need to manipulate government force to their advantage by erecting barriers to competitors (taxi companies in Las Vegas for example or Doctors and Lawyers with their respective legally enforced practice requirements) or by directly petitioning for government subsidies and "protection". If you want pristine forests, but can't afford to buy one, your greed will seek to oppress those who don't value pristine forests as highly.

But here's my conclusion. The freer the markets that can still maintain the rule of law, the less problem they will have with greed. Not because greed won't exist but because the effects of greed are ameliorated by the freedom of those around the greedy. Our society *does* have a problem with greed, no doubt about it. Too many people are willing to sacrifice morals and relationships for material possessions. I'm just glad that our freedom provides us some protection by forcing the greedy to get our permission before taking our stuff. There's a warning in that. The more power to oppress that we give others, *any* others, the more greed can hurt us.

Greed is bad. But amassing power to take stuff from the greedy as is proscribed by the political left in the United States is entirely the wrong way to solve the problems of greed. That just leads to the smarter greedy people switching sides to where the power has been amassed. The antidote to greed is to reinforce freedom from oppression and to put as many checks on power as we can find. That won't get rid of greed, nobody can do that, but it *will* turn the effects of greed into services and goods we might actually find useful.

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1. May 2001 11:20 by Jacob | Comments (0) | Permalink

Paying for Drug Research

I'd like to point some things out about the ongoing debate about prescription drugs. This is important stuff, so please bear with me.

The latest hue and cry by budding socialists is the cost of prescription drugs. There are a lot of reasons for this and I'd like to explain my position a little bit. The price of prescription drugs makes a great target for several reasons. First off, drugs are life-saving and it becomes tragic when a poor person cannot afford to save (or even just improve) their life because the cost of doing so is too high. Obviously, we want to help as many people as we can and our impulse is to call for clemency or mercy to supply them with the means to save or improve their lives. Second, other "industrialized nations" have cheaper drug prices. Third, drug companies are huge and they have profit margins in the teens and large budgets for things that we don't understand (like marketing).

Okay, that's why drug companies are such lovely targets by the soft-headed socialists in our press and government. Here's some things that you should bear in mind when you try to call for regulated drug prices.

Number one, drugs are in our discourse now because drugs have become such a large part of our lives. In fact, many ailments that used to require hospitalization can now be remedied for about a tenth the cost with a prescription. Drugs now account for about a third of our medical spending where they were barely on the map just ten years ago. Improved medications account for about ten additional years of our ever increasing life-span estimations. Unfortunately, for all their benefit, drugs aren't as visible as a hospital stay and we are used to their costs being a marginal portion of our health care costs. This is too bad because if we understood the actual trade-offs we would be grateful for the advances we have instead of being so resentful. If a patient understood that they were paying $250 for a month of pills that saved them a two-day hospital stay they would understand better that the true cost of drugs adds up to a substantial savings. In fact, our medical costs have been decreasing in recent years in large part due to increasingly effective medications.

Number two, there are a lot of factors that go into the cost of drugs that we aren't used to considering when we evaluate a product. Drugs are the heaviest research industry bar none. It costs approximately $500 million to bring a drug to market. That is before even one pill has been sold. That price includes research and the government approval processes. This expenditure is only possible because of the patent laws that we have in the United States that allow the company to profit from the sale of their drug. Now, a company only has 20 years from the time the patent is applied for before they lose patent protection. That seems like a long time, but remember that a) the patent has to be applied for as soon as possible in order to protect the company, b) it takes between five and ten years after application to bring the drug to market, and c) a competing drug can be introduced at any time that might make your drug obsolete. That means that a company has approximately five to ten years (and a maximum of 15) to make back this huge investment and sometimes they have less than two.

This brings us to number three, the marketing costs. Drug companies spend approximately as much on marketing as they do on research. The reason for this is simple: if nobody knows about the drug, how can they benefit from it? Now, our drug companies actually fit all their philanthropy under their marketing budgets as well, so you have to be careful when people decry the marketing budgets of drug companies. In fact, fully half the marketing cost of the drug companies is in the form of free samples given to doctors for their poor patients.

All of this means that the cost of drugs will be high. So what about all those countries that restrict drug prices to a certain percentage over manufacturing costs like all of Europe and Canada? Well, you can thank them for your high drug costs. In fact, it turns out that the United States citizens are supporting the entire research and development costs for all the drugs in the world. Well, that's a little extreme. Perhaps it would be better to state that the United states supports the research and development costs for all the socialist countries in the world. Oh wait, same thing. In fact, the next time you read some article about the Canadians paying $5 for a pill that costs you $100, you can thank the Canadians for raising the price of your pills by forcing you to support the entire R & D costs of the drug companies.

What's left for the left to gripe about? Oh yeah, obscene profits. It is true that the drug companies are some of the most profitable in the U.S. You can understand why by the simple saying that "with the greatest risk go the greatest rewards". Drug companies take huge risks with their capital. They have the highest research costs, the highest "product-to-market" costs of any industry in the United States. In order to pull together the money to invest in that kind of risk, the rewards at the end will naturally be higher than for a company (like mine) with little start-up cost. And here's some things to bear in mind when people talk about profits. First, high profits generate high taxes. And second, only a small portion of company profits get paid out to the owners of the company (usually, profits are funneled back into the company in the form of increased spending on things like labs, researchers etc.).

Two short facts that illustrate the success of the United States vs. everyone else. Five of the top ten drugs in the world were developed in the United States. That means that all the other "industrialized nations" combined can't match us. Canada is actually improving some because they toughened up their patent laws recently and saw an immediate increase in research (with the goal of actually recouping their costs in the U.S., by the way because they won't get their money back in Canada). Both of the top two drugs in the world (which account for over 80% of world-wide drug sales) are U.S. drugs. No other country comes anywhere close to the innovation of the United States in improving our lives.

Finally, a short note on medical innovation. Everyone has heard of wonderful herbal remedies for common ailments. In fact, some people claim to be able to cure cancer (which I doubt) and epileptic seizures (which actually bears up under scrutiny) by controlling diet alone. I'd like to point out that the reason we never pursue these cures is because there is no money in it to do so. You cannot patent a diet. You cannot patent a plant extract. In order to make medical claims about, say, St. John's Wart, you would have to make multi-million dollar investments that you could never, ever recoup because once you documented it, anybody who wanted to could sell St. John's Wart at the super market. This is sad, but I don't see any way around it under our current system (beyond philanthropic donations or government subsidy--both expensive options fraught with opportunities for fraud and abuse).

Anyway, long live capitalism. And God Bless the United States for continuing to bear the costs for helping the world solve their medical problems. If you want to see an end to innovative research on drugs that save and improve our lives, please pursue price controls on prescription drugs.

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27. April 2001 12:19 by Jacob | Comments (0) | Permalink


Napster has been in the news a lot lately with legal injunctions pending in the appeals court ruling against them. Copyright is a tricky issue and one that I think is very important. The problem is, in our modern era, copyright is tied to the distribution channels. You will notice that the law suit against Napster was brought not by artists (though Metallica is certainly a driving force behind the RIAA suit) but by an industry organization put together primarily by distributors.

I think this is the heart of the true problem. The thing the Internet fundamentally alters is not the cost of producing music. The thing the Internet alters is the cost of delivering music. That means that the value added by distributors has been reduced to essentially zero. People don't *want* CDs anymore. The business model of Sony, Virgin, and all the other RIAA subscribers has been essentially trashed. Their practice of putting three decent songs together with eight lesser pieces and selling the whole thing together for $20 is now over. People want control over what they purchase and that control will win over all the legal issues RIAA is trying to throw up to protect their business. People will keep on ripping MP3s of their favorite songs in order to put their own collections together based on what they *really* want regardless of whatever legal issues may stand in their way.

In my opinion, the law is *not* intended to protect businesses beyond their usefulness. Just ask carriage makers in the early 20th century.

Now, people are saying that artists deserve to make money on their hard work. I agree with that. However, the place that most artists make money is *not* currently album sales. Album sales act as a primer for concert and merchandizing sales where the real money is made. Smart artists should recognize that fundamental fact and relearn the lessons they learned with radio--i.e. that if you restrict the access, you end up hurting yourself where you actually make the money. Artists now compete for radio (and MTV, but less so) air time. They should do the same with their Internet distribution systems. Frankly, they'd be smart to give their music out in exchange for basic demographic data. Stuff that will allow them to gear future venues to their greatest fan base.

Ripping CDs to MP3s is tough. I've done it and I can tell you that it is a non-trivial effort for non-geeks. The value that Napster provides is that you can find the songs you want without the hassle of trying to rip the stupid album yourself. This is a valuable service when you consider that even after I've slain the technical issues, I can download a song faster than the computer can rip a new copy off a CD. In this light, Napster provides a perfectly legitimate service to people like me who have purchased valid copies of music they like. I fear that the potential illegal uses of Napster will cause the legal authorities to broaden current copyright law beyond the original protective intent.

It is perhaps instructive to note that the court that issued the injunction against Napster is the same court that issued a similar ruling against VHS. The potential to use new technology to make illegal copies should *not* preclude the legal use of that technology. Change brings pain as systems you built up on the current model are found to be obsolete. Companies want their revenues to be protected from these changes and as such, the lawsuits are understandable. RIAA and the artists eventually behind them need to come to grips with the new technology and figure out how they can continue to make money using the resources they have available. Otherwise, their fear that they are obsolete will become self-fulfilling.

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15. February 2001 11:17 by Jacob | Comments (0) | Permalink

Bank Policies

I received a notice from one of my banks, today. They included a notice that beginning March 19th, they will begin processing my checks nightly from highest to lowest. They claim that this policy is enacted to ensure that my most important checks get paid first. This is pure BS. I hate this policy and have to vent some. I apologize for taking up your time with it, but I want everyone to know the real reason for this policy.

The truth is that they process from highest to lowest so that your balance will go down as fast as possible. The reason this is significant is because of bounced checks. Banks know that it is the large checks that will pull you under your limit. So if you make a mistake in your balancing, they want as many checks to bounce as possible. Since they charge $20 per check and not some percentage of the amount, they want you to incur the charge on as many checks as possible. That way, instead of bouncing one check and charging you $20, they bounce five checks and charge you $100.

The fact is, though the large checks do tend to be most important, they are also the ones where you have the most leverage and where you have the greatest relationships. If my check to my landlord bounces, all I have to do is call them up, apologize and write a new check. It's much worse for me if I bounce a check at the local grocery store because they'll just put me on a list and begin refusing my checks.

Another aspect of this scandal is the $20 fee. It costs the bank maybe $0.30 per bounce. It isn't like they have to pay a clerk to go through each individual check and hand-write a notice to you. The biggest cost is the postage for the notice they send to you (after two days delay--got to let those fees build up)--and even then, they don't send you a notice for each check, just one notice to let you know you screwed up.

So they make $100 on something that costs them maybe $1 to process.

The problem is that this policy only hits people who are too stupid or undisciplined to track their bank balance. That's apparently a safe group of people to rip off on an institutional basis. Chances are, they won't notice the real effect of the policy. And if they do, they won't want to broadcast their lack of intelligence or discipline to alert others. The proof of this is that consumers in Nevada (who are apparently not ashamed of being stupid or undisciplined :) got wise and enlisted the state government in the cause. I don't like the method, but it is enlightening to know that they are the only state USBank is in that requires checks to clear lowest to highest.

Anyone know a bank with this policy on a voluntary basis? I'd be happy to throw my business their way...

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6. February 2001 09:16 by Jacob | Comments (0) | Permalink


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