When Falsely Shouting "Crime" Pays

Over at the Huffington Post, they're running a gigantic 15-part 58,000 word serial by Steven Brill titled "America's Most Admired Lawbreaker."   Today they're up to Chapter 6.  The subject is the off-label marketing by Johnson & Johnson of a drug called Risperdal, to young and old people, without specific approval from the FDA to do so.  Already Nicholas Kristof of the New York Times has devoted an entire op-ed column, titled "When Crime Pays: J&J's Drug Risperdal," to the series and its supposed revelations.  

This is the most blatant possible chasing of the Pulitzer Prize, intended to impress you as being great crusading in the tradition of muckraking journalism.  The theme is that great old standby, evil corporation puts profits over people.  In Brill's telling, this story represents a particularly egregious instance of corporate misbehavior, first because J&J made a lot of money, second because J&J presented itself to the world as a particularly ethical company, but most importantly because all the while J&J's behavior, according to Brill, was systematically and intentionally "illegal" and "criminal."  The evil company cynically committed "crimes" because the pay-off was bigger than the fines they would have to pay.  Here's the very first line:

Over the course of 20 years, Johnson & Johnson created a powerful drug, promoted it illegally to children and the elderly, covered up the side effects and made billions of dollars.      

Accompanying the series is a "Letter From the Editors," signed by Greg Veis and Rachel Morris of HuffPo, telling you (as if you hadn't already figured it out) how terribly, terribly important this story is, and how it is intentionally designed to play on your emotions:

At some point over the course of this massive, magisterial 15-chapter story, you will get angry, and you will stay angry. It may happen when you learn that Johnson & Johnson handed out promotional Legos to pediatricians so that they’d be more likely to prescribe a drug called Risperdal to children with behavioral problems, although the FDA had repeatedly told the company not to market it to children. . . .

Actually, I have gotten angry after reading the first few chapters of this series, but not for any of the reasons given by Veis and Morris.  I have gotten angry because the story throws around accusations of "illegal" and "criminal" conduct without ever giving an accurate statement of what is legal and illegal in the area of off-label marketing of drugs.  I have gotten angry because Brill unthinkingly accords to the FDA the status of God and lawgiver, without any recognition that we have in this country a Constitution that gives no authority to bureaucrats to make law, and a First Amendment that restrains what government bureaucrats can order the people to do and not do.  I have gotten angry because the article is permeated by the unthinking and ignorant premise that if the self-important pooh-bahs at the FDA "tell a company not to market" a drug to some category of people, then it is then a crime for the company to market the drug to those people.  A correct statement of the law is that when the FDA purports to tell a company that it cannot market a drug to someone by making truthful statements about it, it is the FDA that is behaving lawlessly, not the company.  The FDA systematically behaves in this lawless manner, so far without consequence to itself or any individuals who work for it, and in my view that is a far, far bigger problem for this country than anything that J&J may have done in marketing Risperdal.

Not that I'm standing up for everything that J&J may have done here.  They may well have stepped over the line in some instances.  But Brill's series goes so far in making accusations of criminality for conduct that is specifically legal that I don't think any of the rest of his series can be trusted at all.

In Chapter 2 of his article, Brill lays out what he apparently thinks is the law of off-label marketing of drugs:

A key provision of the [1962 amendments to the Food and Drugs Act of 1906] made it a crime for drug companies to promote drugs to doctors for patients with illnesses for which the drug, according to its FDA-approved label, was not intended and approved for use. . . .  Thus, for Johnson & Johnson to expand the market to reach its [Risperdal] business plan targets, doctors had to be sold on the value of Risperdal in populations that were not included on the label as the drug’s intended users. Yet it was a crime for the company to sell the doctors on the benefits of using Risperdal to treat those populations.  

This is just plain, dead wrong as a statement of the law.  It's not just that people like me have been pointing out since at least 1999 that this interpretation of the FDA Act cannot be reconciled with the First Amendment.  It's that the courts have specifically and emphatically agreed with me and have shot down lawless FDA efforts to criminalize true speech -- on the few occasions when those issues have actually reached the courts.  But those occasions have included one in the Second Circuit Court of Appeals in 2012, and another in the Southern District of New York just last month.  Are Brill and the HuffPo unaware of this decisive case law?

In 2012 the Second Circuit reversed the conviction of Alfred Caronia for what was clearly and admittedly off-label marketing of a drug to an FDA-unapproved population.  Here is the key language of the court:

[W]e decline to adopt the government’s construction of the FDCA’s misbranding provisions to prohibit manufacturer promotion alone as it would unconstitutionally restrict free speech. We construe the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA-approved prescription drugs. Our conclusion is limited to FDA-approved drugs for which off-label use is not prohibited, and we do not hold, of course, that the FDA cannot regulate the marketing of prescription drugs. We conclude simply that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug. 

Then, just last month, Judge Engelmayer of the Southern District of New York actually granted an injunction against the FDA, prohibiting it from bringing a so-called "misbranding" action against a company called Amarin for off-label marketing of a drug to an FDA-unapproved population.  That opinion was covered at Manhattan Contrarian on August 10 here.  After quoting the language of Caronia above, Judge Engelmayer concluded as follows:

Therefore, insofar as Amarin seeks preliminary relief recognizing its First Amendment right to be free from a misbranding action based on truthful speech promoting the off-label use of an FDA-approved drug, Amarin has established a substantial likelihood of success on the merits on this point.  

Brill seems to think his view of the law is supported by the fact that in 2013 (after the Caronia decision) J&J settled FDA charges over the off-label marketing of Risperdal and paid a fine in excess of $2.2 billion.  So?  To me, all this proves is that large companies with a franchise to protect will never take the government to trial.  Partly that's because they can't risk losing, but more important is that they can't risk having the FDA hold up twenty other drugs in the pipeline as revenge.  After the clear holding in Caronia, the FDA cooked up a preposterous position that Caronia's outcome was just a result of peculiar aspects of the trial in that case, and that the Second Circuit's statements as to legality of off-label marketing were not the "holding" of the case.  Judge Engelmayer shreds those arguments in the Amarin decision.  That 71-page decision is too long to summarize here, but read it yourself at the link above if you are curious.  The important thing to note is that these precedents have been set in the situations of an individual (Caronia) and a very small company (Amarin) who have nothing to lose beyond the particular case in which they are involved.  Not so for the big companies.  As Judge Engelmayer notes in his opinion, lots of other big pharma companies have settled FDA off-label marketing charges for huge dollars, including a $3 billion settlement of GSK involving marketing of drugs including Paxil and Wellbutrin, and a $2.3 billion settlement with Pfizer over Bextra and other drugs.  That doesn't mean that any of the conduct was in fact criminal.  It's just a reflection of the leverage that the petty and vindictive bureaucrats at the FDA have over their subjects.

Brill also endlessly cites as evidence of J&J's criminal intent various facts indicating that J&J took steps to conceal from the FDA the actions it was taking to market Risperdal off-label.  Sorry, but again that proves absolutely nothing.  Here we have a lawless bureaucracy repeatedly threatening to prosecute you for conduct that is completely legal, and that you know is legal.  They have hundreds of lawyers and infinite resources.  They have extracted billions upon billions of dollars from your peer firms for conduct that is completely legal.  How would you proceed?

If you read this series, or at least the first 6 Chapters (I would not recommend it) you will come away with the clear impression that Risperdal is way too dangerous to be used for the unapproved populations of young people and the elderly.  Well, what about this:  The J&J 2013 Risperdal settlement covers off-label marketing of the drug to those two populations in the period 1999 - 2005.   Dare we mention that Risperdal was specifically approved by the FDA for treatment of children and adolescents ages 10 - 17 for certain conditions in 2007?  That's right, in 2013 the FDA collected $2.2 billion for off-label marketing of a drug to a population and for conditions that it had actually approved well before the settlement?  Huh?  Here's what you (and Steve Brill) don't understand:  This has nothing to do with whether this drug is appropriate and useful for these populations.  This has only to do with the FDA protecting its bureaucratic prerogatives and fiefdoms.  The FDA would gladly see half of the American people die while they consider and reconsider for years approving some drug, in order to establish the proposition that the FDA and only the FDA has the bureaucratic say-so to determine when and how a drug can be marketed.  I can't find any discussion of that issue in Chapters 1 through 6 of Brill's series.  Maybe it will turn up in Chapter 14.

There are lots of problems with the pricing and marketing of pharmaceuticals in the United States today.  The large majority of drugs are paid for by third-party payers, including the government (Medicare and Medicaid) and insurance companies, and the pharma companies have perfected the art of charging high prices to these price-insensitive entities.  Many important issues in this arena could have been explored by Mr. Brill had he chosen to do so.  Instead, he chose the easy and cheap narrative of evil company committing crimes to put profits before people.  That narrative is just wrong, and misses everything important.    

Donald Trump And The Trade Deficit Fallacy

I think I've picked on Bernie Sanders enough lately, so how about somebody else?  Donald Trump comes to mind.

I was watching a news show last night, and they were playing a video of a speech that Trump had made yesterday on the battleship Iowa in Los Angeles harbor.  Here's a clip of the speech.  As I tuned in Trump was in the middle of things and starting to talk about one of his favorite subjects, trade deficits.  The following appears starting at about 8:30 of the clip:

What is the United States trade deficit with Mexico, Japan and China?  Let's start with China.  Almost $400 billion per year.  If you have a company when you're losing $400 billion you've got to do something very fast.  We don't.  We've been losing hundreds of billions of dollars per year, frankly for decades.  It's not going to happen any more.

Wow -- Donald Trump thinks that a country like the United States, issuing a reserve currency and running a trade deficit, is like a company losing money.  I would have said that running a trade deficit for such a country is equivalent to a company making money.  It's very hard for me to get my head around Trump's apparent level of incomprehension and confusion.  Where to start?

Well, what does it mean for the United States to run a $400 billion trade deficit with another country?  Very simply, after netting out everything else, it means at the end of the year the United States ended up with $400 billion dollars worth of real goods and services produced by the other country through hard work and sweat, and in return the other country got $400 billion face value of non-interest-bearing pieces of paper created out of thin air at essentially no cost by the Federal Reserve system.  Now, who came out ahead?  If you're struggling with this, think of it as people rather than countries.  Suppose you (like the Fed) are given the magical ability to issue unlimited amounts of money that everybody else will somehow take in payment for goods and services.  In a given year, you spend a couple of minutes running a photocopy machine to produce a few million worth of your money, and then you buy yourself a nice mansion, a few luxury cars, and a couple of fur coats for the wife.  Who came out ahead -- you, or the people who worked thousands of hours to make all that stuff and sold it to you and got nothing in return but your scrip?  And, playing out the analogy further, the people who got your money could theoretically use it to buy something back from you, but by hypothesis they are never actually going to do it (because if they did, then you wouldn't have any trade deficit any more).

More broadly, the power to issue money is probably the most jealously guarded perk of governments and sovereigns.  Why would this be a carefully-guarded perk if it's a terrible detriment?  The power to issue money is the power to buy stuff without work or effort, not even levying a tax if you are a government.  Of course that's a benefit, not a detriment, to the money issuer.  Certainly, no one gives up the power to issue money if they don't have to.  Now, you do have to be somewhat judicious in using this power.  Within your country, you as sovereign can compel everyone to accept your money; but if you just flood the place with new currency, you'll soon find yourself in an inflation, and then a hyperinflation, and you can kill the goose that laid the golden egg.  Outside your borders, you need to be even more judicious.  You have no ability to compel anyone to take the money, so your ability to go on for years running trade deficits financed only by your own currency depends on nurturing the confidence of your trade partners that you are not going to hyperinflate the currency.  If you are Venezuela and you hyperinflate your currency, no one outside your borders will take it,  and then you need to get your hands on some reserve currency issued by someone else if you want to buy anything.  On the other hand, if you are issuing a reserve currency (meaning only a currency such that trade partners are psychologically willing to accept it), then you're golden.  As long as you are reasonably careful about it, you can go on essentially indefinitely consuming more than you produce.  You are doing a service to the world providing it with a relatively stable international money supply, and the grateful world compensates you to the tune of hundreds of billions of dollars worth of goods and services per year.

The United States has an incredible advantage in that, as irresponsible as we are in managing our money supply, virtually all the other countries are even more irresponsible.  (An exception is Switzerland, but they don't have nearly a big enough economy or enough money in circulation for the currency to act as a world money supply.)  So even as we run large trade deficits, our dollar has been appreciating in value against almost all world currencies for the past several years.  Essentially, that means that the dollar is acting as the world money supply and the world needs the liquidity.  The United States makes literally hundreds of billons of dollars per year (last year it was $505 billion according to the Economic Policy Institute) by getting to act as a reserve currency for the world.   That $505 billion is what is otherwise known as the trade deficit.  One way of looking at it is that it pays for almost all of the defense budget.

Admittedly, Donald Trump is far from alone in being completely confused about the significance of a trade deficit.  Certainly, almost no journalist understands this subject, and the number of newspaper and magazine articles equating higher trade deficits with "bad" or "worsening" and lower with "good" or "improving" is way too many to count.  And I have no idea how many of the other presidential candidates have any good grasp of this either.  Most of them just keep their mouths shut about the subject.   But Trump has somehow chosen to take a subject that he knows nothing about, and where everything he says can be shown to be 180 degrees wrong to anyone who pays attention for even two minutes, and make this a centerpiece of his campaign.  And then there's this (from about 10:00 in the video clip linked above):

The leaders of Mexico, Japan, China and every other country that we do business with -- they're smarter, more cunning, sharper than our own leaders. . . .

Well, if Trump is out to demonstrate that he is "smarter" and "sharper" than the geniuses from Mexico, Japan and China, he's going to have to do a lot better than his pronouncements to date on the subject of trade deficits.  Our current leaders certainly can't claim credit for getting us into the excellent position we currently find ourselves in as reserve currency provider to the world, but at least they haven't intentionally destroyed that position (yet).   If, as he claims, Trump is a really great negotiator, maybe he'll end us up in the position where the Chinese yuan is the reserve currency and instead of them paying us, we'll pay them $500 billion dollars a year for the service of providing the world money supply.  Way to go Donald!  Would it be even better if we paid them $600 billion?

One Last Update On Bernie Sanders

The Wall Street Journal weighs in this morning with a front page article headlined "Price Tag of Sanders Proposals: $18 Trillion."  They've gone through the various proposals of the Sanders campaign and put a ten-year price tag on each.  The big number is a $15 trillion ten-year price tag that they attach to Sanders's proposal to extend the Medicare-style "single-payer" healthcare system to all.  (That number comes from a study by economist Gerald Friedman of UMass Amherst of a similar proposal by Congressman John Conyers of Michigan; but the article quotes a Sanders spokesperson as agreeing that the $15 trillion is a "fair estimate" of the cost of Sanders's universal single-payer plan.)

Other than the single-payer healthcare proposal, here are the sources of the other amounts:

• Social Security benefit increases -- $1.2 trillion
• Infrastructure program -- $1.0 trillion
• College affordability (free tuition for all!) -- $750 billion
• New paid leave fund -- $319 billion
• Bolster private pension funds -- $29 billion
• Youth jobs initiative -- $5.5 billion

Do you notice anything a little odd about the $18 trillion?  That's right, not a dime goes for the poor, or for doing anything about poverty.  Not that I'd be in favor of more government spending on the failed anti-poverty efforts.  But, after all, this is a guy who pretends to "care about the poor," and who advocates that we show how much we "care about the poor" by spending government money on them.  Oh, and none of this proposed new spending addresses income inequality either.  (Do you think that government spending on healthcare or education counts in anyone's income?  It doesn't.)

Actually, it's much worse than that.  $15 trillion for single-payer health care -- wait a minute, don't the poor and the elderly already have near-complete single-payer health-care through Medicaid and Medicare?  That means that essentially all of the $15 trillion is to be spent on the non-elderly middle class and affluent.  And this is someone's idea of how to use government coercive redistribution to improve social justice?

Keep going through that list and see if you can spot any of the spending that might arguably improve the poverty or income inequality statistics even a little.  How about "college affordability," you ask?  Highly unlikely.  Bernie's program calls for the free tuition to be at state colleges and universities.  Sure a few low-income kids go there, but far and away these are semi-elite schools that cater to the top half of the income distribution.  The post-secondary schools that cater to the bottom half of the income distribution are predominantly the trade schools and for-profit schools.  Nothing in Bernie's program for them!  OK, so how about the "youth jobs initiative" -- surely some of that would go to poor kids?  Well, at $5.5 billion it's all of 0.03% of Bernie's proposed incremental spending, and if I know anything about government jobs programs, the well-connected will somehow figure out how to claim most of that money.  And not many of the well-connected are poor.

Meanwhile, to support this additional spending, the federal government's share of GDP goes from about 20% to about 30% (WSJ estimate).  That means that everybody's ability to spend on anything other than healthcare goes down by much more than 10%.  Here's the calculation:  Federal, state and local governments already take about 40% of GDP.  Adding 10% to the federal share of GDP raises the total government share to 50%, and shrinks the private share of GDP from 60% to 50%, which is a drop of 16.7%.  So if the question is, how much of your current disposable income would the Sanders plan cost you, the answer is, about 16.7%.  And that's without proposing anything to address the issues of poverty or income inequality.  

Do you think that an incremental 10% of GDP can be extracted from just the top 1% by income?  The entire adjusted gross income (base for federal income tax) of the top 1% is less than 10% of GDP.  And by the way, they are already sending about 35% of that (and in some cases 50% and more) off the top to federal, state and local governments.  So taking 100 cents on the dollar of everything that the top 1% currently has left nets you at most 5% of GDP -- and that's assuming that everybody in the top 1% is so stupid that they will continue to declare all that income when it is completely confiscated by the government.

Yes, socialism is just so inspiring!  But at least this is not as bad as North Korea!

Time To Round Up The Hoarders And Speculators!

They go by different names in different places.  The most generic description is the "hoarders and speculators," a term currently in favor as the preferred scapegoats of the disastrous Venezuelan regime.  For Stalin, it was the "kulaks."  For Hitler, it was the "Jews."  For Bernie Sanders, Elizabeth Warren, and others on the current Democratic left, it's the "greedy Wall Street bankers."  In economies hobbled by brain-dead socialist policies or by overzealous regulation, they are the people making lots of money doing things that many people don't understand.  Most commonly they have found a way to bet on the failure of government coercion to keep people from acting in their own self-interest.

Latest to join the theater is the government of China.  China had made it official policy to encourage margin borrowing to drive stock market valuations to unsustainable heights.  When that all started to come apart over the summer, this now wasn't just a normal market correction, it was a dissing of the all-knowing and perfect leaders.  The New York Times reports on the government's reaction in last Thursday's lead article in the upper right on page A-1, headlined "China's Response To Stock Plunge Rattles Traders."  Catching up with the Manhattan Contrarian from two weeks ago, the Times now reports that the Chinese government is responding to the plunging of its stock markets and the onset of an obvious recession (not reflected in official statistics, which are thereby revealed to be fraudulent -- but you already knew that) by rounding up the usual suspects.  In this case the usual suspects are stock traders, including those who had the nerve to do no more than to sell securities when the market was declining.

Police officers under the Chinese Ministry of Public Security specializing in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.  Police officers have downloaded extensive trading data and asked fund managers why they sold shares when the market was going down, prompting discussions about basic investment strategy. Officers have bluntly told some fund managers to just stop selling.

The all-knowing and perfect leaders seem to have no idea that they will need to have a lot of non-spooked investors and traders around if they ever want their stock market to recover and resume providing capital to businesses.  Well, all I can say is, thank God that here in the United States our enlightened authorities actually understand and believe in capitalism and resist the unjustified criminalization of normal market transactions!

Oh, wait a minute.  There on the same front page of the same September 9 New York Times, immediately adjacent to the article about China linked above, we have another one headlined "Justice Dept. Sets Its Sights On Executives."    This article reports on a memo and subsequent interview with one Sally Yates, Deputy Attorney General in the U.S. Justice Department.  Seems that Ms. Yates has just announced a renewed Justice Department initiative to focus its efforts and energies on jailing top executives of Wall Street firms for allegedly "criminal" behavior.

The [Yates] memo is a tacit acknowledgment of criticism that despite securing record fines from major corporations, the Justice Department under President Obama has punished few executives involved in the housing crisis, the financial meltdown and corporate scandals.  “Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates, the deputy attorney general and the author of the memo, said in an interview on Wednesday. “It’s only fair that the people who are responsible for committing those crimes be held accountable."

The "criticism" referred to would be from the likes of Senator Elizabeth Warren, known for her repeated demands that the government put Wall Street bankers in jail.   Of course a small problem here is that they need to come up with some crime that has been committed to justify the jailing.  I call that a "small" problem, because the lack of any clearly defined statutory crime to charge has not deterred many prosecutions against large banks for things like participation in the mortgage-backed securities markets, or against individuals for the non-crime of non-insider insider trading.  Nor has the lack of a crime to charge prevented dozens of convictions for non-crimes.  But then there is the pesky appeal process.  And thus the government, for example, continues to press its cert petition in the case of Messrs. Newman and Chiasson for non-insider insider trading, even as many people convicted of that non-crime continue to languish in limbo.

But even as the Justice Department descends further into lawlessness, there is a small piece of good news from the SEC.  Just this afternoon, an SEC Administrative Law Judge has dismissed after trial a non-insider insider trading case against a Well Fargo trader named Joseph Ruggieri.   (You'll have to wait until tomorrow to find a non-paywalled link.)  Ruggieri's alleged "insider trading" consisted of trading on Wells Fargo analyst reports before they were released to the public.  How is that even "insider trading" at all?  The government argued in the case that the Second Circuit's Newman/Chiasson decision should be ignored (!), or alternatively that Ruggieri's "friendship" with a stock analyst at WF was sufficient to constitute "compensation" to make Ruggieri into an insider.

Really, is this the best that our government can come up with in the way of scapegoats that are supposedly harming our economy?  The case was so pitiful that they couldn't even win in front of their own rigged ALJ.  Somebody who's paying attention might even get the idea that the economy languishes because of the government's own incompetent policies, and not because of any mythical "hoarders and speculators."

Does Bernie Sanders "Care About The Poor"?

It seems that my last couple of posts have done what I would have said was impossible, namely scare up several people willing to attempt to argue in favor of Bernie Sanders and his policy proposals.  The latest is someone identifying him/herself as "Tehy."

For Tehy, the crux of the matter is that Bernie "cares about the poor":

But what this is about is that ultimately, bernie cares about the poor and wants to help them. That could and even probably will end up going south, but at least he's a guy willing to try.  

Oh yeah?  I don't believe it for a second.  In fact I find the statement that Bernie Sanders "cares about the poor" to be completely preposterous.  Here's why.

If Bernie Sanders actually cared about the poor, he would be loudly demanding every day and in every way HOW CAN IT POSSIBLY BE THAT WE SPEND A TRILLION DOLLARS A YEAR SUPPOSEDLY FIGHTING POVERTY AND YET THE NUMBER OF PEOPLE LIVING IN POVERTY NEVER GOES DOWN?????  If Bernie Sanders actually cared about the poor, he would be loudly and insistently demanding accountability and answers from the hundreds of thousands of bureaucrats who disburse the annual trillion without ever achieving the slightest measurable progress toward the goal.  If Bernie Sanders actually gave a hoot about the poor, he would be demanding a complete housecleaning of the failed programs that spend the trillion every year, only to maintain tens of millions of people in handout-dependent poverty from which it is almost impossible to escape.

Bernie Sanders has been in Washington now for about 25 years.  He can't pretend to be an outsider.  After twenty-five years in Washington, it is impossible for Sanders not to know that the entire point of Washington "anti-poverty" efforts is to make absolutely sure that the number of people in measured "poverty" never goes down.  The only real goal of every government program is to grow the program.  That goal is the exact opposite of the goal of curing the problem that the program is supposed to cure.  And so the bureaucracies actively scheme to keep the number of people in poverty up, so that the poverty figures can then be used to sell a gullible public on yet more spending and further growth of the programs.  I have written many previous articles on this subject, for example here.

Sanders is absolutely complicit in this scam.  For example, the section of his website on "Income Inequality" contains this chart of child poverty statistics:

View fullsize

Well, Bernie, you've been in Congress for 25 years and you have had a big say in how all that government money is spent.  How can you have gone along with spending all those hundreds of billions every year in a way that would address this issue so ineffectively as to leave the U.S. child poverty rate still at 32%, well above the rate in every other advanced country?  (By the way, I am not saying that I accept the validity of the figures in this Unicef chart.  But Bernie does.)

The answer is that Bernie absolutely knows that the government spending never removes anyone from poverty and is explicitly designed to do the opposite and make sure that poverty never goes down.  But he also knows that there are millions of people like Tehy out there who will never figure this out, and who will always believe that the people who advocate to spend more and yet more money on such disastrous programs should be elected because they "care about the poor."   So Sanders advocates for precisely the kinds of programs that send the federal dollars straight to the core constituencies of the left wing of the Democratic party, like college professors (free college tuition for all!) and that he knows will have no measurable effect on poverty whatsoever.  Are the voters really this easy to fool?

At the end of his/her comment, Tehy asks, if I supposedly hate "crony capitalism," "besides campaign reform, what is your solution for it?"  There is only one solution:  shrink the government.  The smaller and less powerful the government, the less need and use for trying to buy favors.  As government control and regulation become more and more intrusive, then the government can crush the businesses it does not like, and success goes to those who make the political contributions and hire the batteries of lawyers.  And at the socialist extreme, when the government controls everything about the economy, you get the situation of Venezuela, where the richest person is the daughter of recently deceased dictator Hugo Chavez.

I'm Not Making Any Progress In Trying To Understand The Bernie Sanders Phenomenon

A few days ago I asked if someone could explain the Bernie Sanders phenomenon to me, and commenter Justin Ferraro actually took me up on my request.  After giving a series of reasons, his conclusion is that Sanders supporters are just "normal people with brains."

Unfortunately, having read Justin's comment, I'm still scratching my head at the Sanders phenomenon, particularly the explicit willingness to embrace socialism by name even after the series of unmitigated disasters that it has inflicted on humanity in the last century and now the current one.  So, a few thoughts are in order.

I think Justin's main point is his first one, which is that somehow the Soviet Union was not real socialism and if we just execute correctly it will work this time.

Just as the USSR was a sham of a communist country it is also a failure of socialism, which is doomed, like any other economic system, if it exists within an authoritarian framework. American socialism, rooted in democracy, protection of workers, and representation of the people, is a vastly different (if equally maligned idea).

Well, we do have numerous examples of socialist systems implemented by democratically-elected governments.  The current prime example is Venezuela, with Bolivia and Ecuador not far behind.  Then there's Nazi Germany, although I'm not sure that Justin would embrace it as "socialist" despite the Nazis' own use of the term and their adoption of the economic model of extensive government ownership and/or control of industry.  Of course, despite the initial rise to power through democratic elections, each of these examples then more or less took forcible control of the election process to prevent political competitors from ever regaining power.

More importantly, what exactly is socialism without an "authoritarian framework"?  Isn't the very essence of socialism the forcible prevention of consensual economic transactions?  This asset cannot be owned, bought or sold (or only under restrictive conditions specified by the government) because if that is allowed some people will become wealthy and others will not.  The whole idea is to prevent people from enhancing their wealth by trading privately owned property.  That can only be accomplished by government force.

Justin does hold up current day Western Europe as the example of successful execution of socialism:

[T]he fact that [the Manhattan Contrarian] ignores the incredible, demonstrable success of socialist ideas in Western Europe is completely inexcusable.

I guess we'll just have to disagree about that one.  As far as I observe, Western Europe has hugely backed off the main principles of socialism during my lifetime.  When I was younger, governments in places like the UK, France, Italy and Spain owned huge swaths of the economy, mostly (but far from entirely) sold off since.  And of course, the waves of privatization led to substantial economic revivals.  Today these countries don't so much have public ownership of the economy as large welfare states, many consuming 50% and more of GDP in government spending.  Is that the current official definition of "socialism"?  Look at a chart of government spending as a percent of GDP by country and it's easy to see that those that spend the most have languishing economies with all or nearly all growth stamped out: France (56%), Greece (52%),  Italy (50%), Portugal (49%).  All these countries have lower per capita GDP than the U.S., and with no growth, no ability to catch up.  How does that help the middle class?  The UK has cut government spending by several points of GDP in the last few years and has seen economic growth revive.  The strongest economies in the world have dramatically lower government spending (e.g., Switzerland - 34%; Singapore - 17%!).  And then there's the issue that the coddling welfare states have brought plummeting birth rates and incipient population declines.  Are the Western European welfare states sustainable?  This issue will play out over a long time horizon, likely the next 20 to 40 years, but my prediction is that the current situation is not sustainable.  It's what I've called the "socialist death spiral."    An incentive structure has been created where it's in everybody's interest to maximize receipt of state benefits, work less, retire early, and have fewer children.  But we have less income inequality! (at far lower levels of income).  Is that how we define "demonstrable success"?  It's not how I would define it.

And let me mention a couple more of Justin's points.  One is the issue of "big money in politics":

[Sanders] wishes to combat a system that allows unlimited money from corporate interests to directly fund political campaigns, thus decisively wresting any vestiges of government control from the feeble hands of the individual citizen.

Go to Sanders' site, and sure enough he has a section on "Getting Big Money Out Of Politics."  That section talks about the evil Koch brothers and about a "constitutional amendment to overturn the Supreme Court’s Citizens United decision" -- I guess that means doing away with the First Amendment.  But here's my question.  Suppose you give government complete control over all money-raising to support political speech.  Then consider the phenomenon of the Clinton $500,000 speeches and the hundreds of millions raised by the Clinton Foundation, largely from the biggest corporations and wealthy foreign governments -- all completely outside the campaign regulatory process.  Can't everybody else then just copy that model?  So now we've done away with the First Amendment, only to find a completely cynical end run.  And how then do you do away with this end run?  Perhaps by making it illegal to pay anybody a large amount of money or to give any money to "charity"?  Well, that would be socialism all right.

And finally, here's something else that Justin thinks Sanders would do away with:

A system of unregulated, speculative finance that contributes nothing to society and in fact threatens to upturn it completely by triggering economic disaster.

I won't try to stand up for every aspect of our system of finance, but still, I'm fascinated by the fact that some people think it is "unregulated," and also that it "contributes nothing to society."   On the "unregulated" front, I do happen to have a copy of the Dodd-Frank legislation here on my desk, and it's almost too heavy to pick up, about 2000 pages in this printing.  That's just the statute, not the regulations, which are a multiple of the size, and still coming out today five years after the law was enacted.  I can say with great assurance that Justin has not read the Dodd-Frank law and regulations, because nobody has.  It's not physically possible to read it all in a lifetime, and if you could, you could not remember enough of it when you're done to be able even to give a comprehensible summary.  That's why we need hundreds of expensive lawyers, each to become expert in one little sub-part of the law.  And of course, Dodd-Frank itself is just a small part of the many statutes and regulations that cover the financial industry in this country.  Wasn't Dodd-Frank supposed to be the ultimate be-all-end-all answer to the supposed problem of "under-regulation" of the financial businesses in the U.S.?   What it actually demonstrates is the limits of the regulatory model.  The human brain is not capable of learning and complying with this much dense verbiage.  And Justin calls this "unregulated"!  By the way, all this "regulation" has little or nothing to do with market bubbles or their prevention, and even in the world of Dodd-Frank and twenty more such laws there will be more of them as surely as night follows day.

And finally we have the contention that our system of finance "contributes nothing to society."  Really?  I'll definitely have to have subsequent posts on this, but come on.  Our system of finance provides intermediation between millions of investors all over the world and tens of millions of homeowners to enable a housing stock far beyond anything previously known in the world.  Our system of finance enables vast saving for retirement independent of the government and use of those savings to finance factories, farms, offices and shopping centers around the world.  Our system of finance has created the venture and start-up culture that brought us the computer and the smart phone and the internet.  Our system of finance makes it so that a farmer can sell his crop before he plants it (to a speculator!) and be free of the wild price swings that regularly wiped farmers out in past generations.  Our system of finance makes it possible to go to just about any country and charge purchases on a card or withdraw local currency from an ATM with remarkably small losses in the exchange (a fraction of what the exchange losses were when I was younger).  Are there market bubbles that burst from time to time?  Sure.  They are a very small price to pay for the tremendous benefits of our modern financial system.  Really, I just can't get over that some people think the system "contributes nothing." 

UPDATE, September 11:  Word comes from Venezuela via Bloomberg News that opposition leader Leopoldo Lopez has been sentenced to 14 years in military jail for "inciting violence" in connection with his campaign in the 2014 "elections."  The sentence follows a year-long trial held in secret.  Question:  Is this the "authoritarian" or "non-authoritarian" version of socialism?