Thursday, October 29, 2009

How Payment By Third Parties Distorts Health Care Decisions

Following is the third installment of a nine-part series excerpting the chapter on medical care from the new edition of Thomas Sowell's "Applied Economics." All installments can be found online at

IBD Exclusive Series:
Thomas Sowell on The Economics of Medical Care

Third-party payments are at the heart of much confusion about the cost of medical treatment— and are a major factor in the increased cost of that treatment.

In government-run medical systems, the public pays in taxes for its medical care, either wholly or in part, with a share being paid directly by the individual patient.

Political slogans about "bringing down the cost of medical care" are almost invariably about programs or policies directed toward lowering the price paid directly by the patient. But the fact that only part of the costs are reimbursed by direct out-of-pocket payments from individual patients to doctors, hospitals or pharmacies in no way indicates that the total cost of the particular medical treatment is any lower than before.

When the public pays part of its medical costs in taxes that the government uses to subsidize medical treatment, or in premiums paid to health insurance companies, none of that lowers the total cost in the slightest.

To the extent that the direct payments by patients are lower than they would be if they had to cover the full costs, medical treatments tend to be sought more often — and that alone is enough to cause the total cost of medical care to rise, not fall. Whether these lower payments are due to price control or to supplementary payments by insurance companies or the government, the net result is that lower prices tend to cause more of any goods or services to be demanded, including medical treatment.

To the extent that third-party payments require a bureaucracy to administer these payments — whether a government bureaucracy or a private insurance company bureaucracy — the people in those bureaucracies have to be paid, adding still more to the cost of medical care.

Finally, there are costs of medical care not counted in any economic statistics comparing costs in different countries with different medical payment systems. These are the costs in pain, debilitation and premature deaths, as well as costs in lost income while unable to work for medical reasons.

All these costs tend to be greater in countries with government-run medical systems, which almost invariably have longer waiting times between diagnosis and treatment, and especially for treatment that requires a referral from a primary care physician to a specialist.

To compare "the costs of medical care" in countries with such systems to the costs in countries with privately financed medical care is to compare apples and oranges. Even within a predominantly private medical care system, such as that in the United States, many payments for medical care are made by third-party payers, whether insurance companies or the government.

The particular system of private third-party payments for medical care in the United States, with health insurance provided by employers, was a fortuitous consequence of tax laws and wage controls during the Second World War— and had nothing to do with any special qualifications of employers to deal with medical care issues.

Because employers were prevented by wage controls from raising pay rates to attract more workers during the labor shortages brought on by those controls, they resorted to increased "fringe benefits" to achieve the same results, and these benefits were not taxed, so that their value to the workers exceeded their costs to the employers. Before the war, in 1940 only 10% of Americans had private health insurance, but a decade later half did.

Given the situation in which employers could pay workers something worth more to the workers than the cost to the employers, it is hardly surprising that the proportion of the population covered by private insurance plans — many, if not most, provided by employers — continued to increase, just as other "fringe benefits" grew to be such a substantial part of total worker compensation that the word "fringe" disappeared over time.

Even in the absence of the price-control factor, having medicines or medical care paid for by third parties changes the way individuals use medical care. Despite a tendency to regard medical care as a more or less fixed "need," the amount that is demanded can vary greatly according to who is paying.

For example, the use of tax-free medical savings accounts in the United States has tended to increase sharply in December, since unexpended money in those accounts is not carried over to the next year. One chain of eyeglass stores reported that its sales were 25% higher in December than in any other month "as people scoop up a second or third pair of fashionable frames."

As one such customer, who already had eight or nine pairs of glasses, put it, "They go out of style after a while."

Even if it is medically necessary for a given person to wear glasses, is keeping up with fashions also medically necessary? More to the point, would this same customer have bought eight or nine pairs of glasses with her own money?

If not, then medical savings accounts have led to a misallocation of resources to buy things that are not worth what they cost, but which are purchased anyway because the government is helping to pay for them by exempting from taxes the income that goes into medical savings accounts.

Eye glasses are not the only goods or services that can be charged to these accounts. Condoms, birth control pills and massages have also been paid out of medical savings accounts. So long as a physician signs off on the expenditure, it is legal — and the physician has no strong incentives to hold back on the spending of someone else's money.

Free market prices, paid by the customer, do not simply convey more or less inevitable costs. They restrain costs by providing incentives for the individual to use a given good or service only to the extent that its incremental value to that individual is greater than its incremental costs.

But when third parties cover all or part of these costs, then additional increments continue to be used beyond that point.

Often a given medical problem can be treated in more than one way. For example, an arthritic knee may be treated by taking medication, having therapeutic exercises or undergoing surgery. Eyesight problems can be treated not only with glasses of varying degrees of fashion, but also with the use of contact lenses, eye exercises or laser surgery.

Choices among these and other treatments depend not only on how serious the medical problem is, but also on how much each of these treatments costs — and who pays those costs. When third parties pay, the more expensive treatments become more likely than when the individual pays.

Because medical care is so often discussed in politics and in media as if there is a more or less fixed amount of "need" and the only question is how to pay for it, much attention has been focused on those who do not have any form of health insurance. But these financial arrangements are not ends in themselves.

The real question is: How much medical care is available, whether or not particular individuals have health insurance?

The most poverty-stricken person living on the streets in the United States will be treated in an emergency room, with or without health insurance. Abandoned babies are likewise treated without regard to their ability to pay.

No doubt those with insurance, and still more so those with wealth of their own, can get more comfortable accommodations with more amenities in a hospital and can afford more elective or even cosmetic, medical procedures. But to discuss people without health insurance as if they were also without access to medical care is very misleading. The availability of medical care, regardless of health insurance, in fact reduces the incentives to become insured.

Some uninsured people have low incomes, but others with incomes sufficient to purchase health insurance simply choose to use their money for other things, especially when they are young and feel less at risk of medical problems.

Forty percent of uninsured Americans are under the age of 25 and more than 60% are under 35. Fewer than 10% of people over 55 are uninsured, despite the widespread political use of an image of old people who have to choose between food and medical care. That may be the political image of the uninsured, but it is hardly the reality.

Third-party payments for medical care transfer the decision-making ability to determine how much medical care, and of what kind, each individual will receive. Given that economic resources of all sorts are scarce — that is, insufficient to provide everyone with enough to satisfy all desires — rationing is going to have to take place, whether for medical goods and services or for anything else, and whether those decisions are made by each person individually or by a government agency collectively for the population at large.

But the location of that decision-making power can change the decision itself, with consequences that can be very different from what they would have been if the decision were made elsewhere.

We have already seen what can happen — quantitatively and qualitatively — when the government simply provides or subsidizes medical treatment and leaves individuals free to determine what they want. Skyrocketing costs have forced either restrictions on individual choice or have rationed those choices with waiting times — whether waiting hours in a doctor's office or months for surgical or other procedures.

Other options include having government officials approve or disapprove particular medical treatment for certain conditions.

In Britain, medical care officials determine who can and cannot receive certain expensive treatments, based on those officials' judgment or on formulas or guidelines about how much quality of life is likely to be achieved and for how many years. Thus an 80-year-old man is unlikely to be approved for receiving a heart transplant. While some medical choices and trade-offs may be obvious, many others are more complicated.

Here, as elsewhere, the most important decision can be: Who makes the decision?

Monday: The real cost of medical malpractice insurance.

From the book "Applied Economics" by Thomas Sowell. Excerpted by arrangement with Basic Books, a member of the Perseus Books Group. Copyright 2009.

June 1975
Government Can Be Hazardous to Your Health
M. Stanton Evans

M. Stanton Evans graduated cum laude from Yale University and did graduate work in economics at New York University under Ludwig von Mises. He was the editor of the Indianapolis News from 1960 to 1974.

A nationally syndicated newspaper columnist and speaker, Mr. Evans also is a regular contributor to Human Events and Private Practice. He now makes two radio commentary broadcasts each week for CBS Spectrum, having appeared regularly for three years on the television Spectrum series. He has been the national chairman of the American Conservative Union since 1971.

Mr. Evans prepared this presentation as part of the most recent Center for Constructive Alternatives seminar, which examined national health care.

The secret of winning a debate is to define the grounds on which it is conducted. Liberals in Washington and in the various state assemblies have long been conscious of this simple precept, and as a result have been winning debates—and legislative roll calls—from time out of mind. Non-liberals seem to have trouble grasping it, and in consequence find themselves repeatedly debating which projected liberal remedy must be applied to "problems" obligingly formulated for them by their opponents.

A textbook example of this procedure may be discovered in recent discussions of the so-called health care crisis in America. Among others, Senator Edward Kennedy, organized labor, and various elements in the media have argued that private medical care is a shame and disgrace that should be corrected by some kind of Federal health care scheme. The Republican administration, the American Medical Association, and a variety of Republican legislators have hopped directly into this rhetorical bear trap, saying yes, there is a health care crisis, but our solutions are infinitely preferable to Senator Kennedy's. The major point at issue—the alleged defects of the private system and the need for Federal action—is thus conceded at the outset and further government intrusion all but assured.

This result becomes the more ironic when we reflect that the "health care crisis" cried up by Kennedy and confessed by the Republicans is almost totally devoid of factual content. The truth of the matter is that the quality of health care in our country has been getting better and better, that the benefits of such care have been made increasingly available to ever larger numbers of people, and that most of the asserted shortages and deficiencies complained of are imaginary in nature. Equally important, it develops that where our health care problems are real and not illusory, they are demonstrably the result of government intervention.

In his major speech on this question in the summer of 1970, Senator Kennedy alleged that health care services in our country were progressively deteriorating and that decent care was not available to most Americans. "In spite of the broad agreement that our population has a right to health care," he asserted, "the evidence is overwhelming that this right cannot be adequately exercised by most of our people…If we are to avoid the collapse of our health services and the disastrous consequences that would ensue for tens of millions of our citizens, we must take action…the cost is increasing, but the quality is declining." [1] *

[*The Kennedy health plan, as originally introduced, was a comprehensive program, compulsory on all Americans, providing for unlimited payment for physician services and most kinds of hospital care. It would have eliminated private health insurance plans. First-year cost of the program, as estimated by the Department of Health, Education, and Welfare, would have been $77 billion.]

A glance at the relevant statistics will show this picture to be completely erroneous. The quality of medical care in the United States has in fact improved continuously across the decades, conquering such once-dreaded diseases as polio, tuberculosis, and typhoid fever. Because of these achievements, average life expectancies have increased dramatically—from 49 years in 1900 to more than 70 years today. Among the more impoverished members of our society, particularly Negroes, the average life expectancy is lower than that for the population at large—64.6 for blacks as opposed to 71.3 for whites. But the gap has narrowed, and in the later years of life, when medical care is a crucial factor, there is virtually no difference at all. (At age 65 the average white American male can expect another 13 years of life; the average black American male another 12.7 years.) [2]

Among the major allegations against the present system is the "doctor shortage." In fact, the ratio of physicians to general population is better in the United States than in the major European nations to which we are so frequently and unfavorably compared. And it is continually improving—from one physician for every 712 Americans in 1960 to one for every 600 in 1972. (In France the 1972 ratio was one physician for every 750 people, in Britain one for every 1,150.) There are problems of physician availability in America created by the proliferation of government medical programs (28,000 MD's in government service), but the fact remains that physicians and health care personnel have been produced in impressive quantities. [3]

Concerning the complaint that there is a "maldistribution" of medical services, the 1967 comment of the presidential Commission on Health Manpower is to the point: "…physical distance from available care is not a major barrier for either urban or rural residents. Even in rural areas, hospital facilities of 25 beds or more are within a 25-mile distance of all but 2 percent of the population, and only one-tenth of 1 percent have to travel more than 50 miles." (Marvin Edwards, Hazardous to Your Health, Arlington House, 1972, pp. 104-5.)

Since 1965 the number of doctors in America has increased three times as fast as population growth, the number of auxiliary medical personnel almost four times as fast. As of 1970, there were some 323,000 physicians in the United States and an enormous army of four million health workers all told. Also in 1970 the nation had about 7,000 hospitals containing 1.6 million beds, and these institutions employed more than 2.5 million people. (In 1960 the corresponding figure was about 1.5 million employes.) These data compare to an average daily patient population in American hospitals of about 1.3 million people in 1970—which means almost two employes per patient. [4]

"…The entire year," notes Harry Schwartz of the New York Times, "there were almost 32 million hospital admissions. Between 1960 and 1970 the number of persons in the United States rose only about 13 percent but the number of hospital admissions jumped by almost 27 percent…In 1970, these data suggest there were 20 million or more patient-doctor contacts and about two million people spent at least one night in a hospital. In the United States in the 1970s medical care is available to the great bulk of the population; it is not limited to a small clique of the rich and powerful." (The Case for American Medicine, McKay, 1972, p. 10.)

Private health care insurance has been one of the major growth industries in America. Long before adoption of Federal health care programs the vast majority of Americans carried such insurance. In 1940, 12 million Americans were covered by medical policies; by 1959 some 127 million people, about 72 percent of the civilian population, had some form of health insurance. By 1972 the number had reached 182 million—roughly 90 percent of the American population. These figures do not suggest that coverage has been denied to most Americans or that they are too dumb to apply for it. Yet despite these facts the Federal planners insist on investing universal schemes of subsidy and compulsion to cover people already covered. [5]

Arguments for Federal health care make much of statistics for infant mortality—usually played off against the corresponding figures for Sweden and other Scandinavian countries and used as a reproach against the American system. Since these statistics are kept on totally different bases in other countries (the Swedish practice of not requiring a report of birth until five years after the event providing one notable example) such comparisons are completely invalid—and have been so designated by the World Health Organization, which compiles them.

Infant mortality statistics do, however, provide a convenient test of Senator Kennedy's charge of progressive deterioration in medical care—which they refute in to to. The figures for America show that in 1950, 29.2 babies out of every 1,000 died within the first year of life; by 1970, this figure had been reduced to fewer than 20 per 1,000— a drop of 33 percent. The record is one of obvious improvement, not progressive breakdown. [6]

On the total record, indeed, it seems the Federal health care proponents would be a little wary of invoking foreign comparisons—particularly with Sweden. The availability of medical services is a much greater problem in Scandinavia and Europe than it is in America. Author Allan Brownfeld reported in 1970 that "there is hardly a single hospital in Sweden where there are not long waiting lists for all kinds of hospital care. It is estimated that in Stockholm alone there are more than 4,000 persons waiting to enter hospitals, 1,800 for surgery. In some cases, waiting periods for minor operations may be more than half a year." 7 The reason for the crowding is that, under Swedish health insurance, people tend to use their "free" care to the fullest.

As noted by the New York Times, Swedish medicine is plagued with numerous other problems, including rising costs that have pushed the tax burden to stratospheric levels. An average Swedish family with about $12,000 in annual income pays 55 percent of that in tax, compared to less than 30 percent for an American family similarly situated. Since Sweden converted from a system of voluntary health insurance to government-provided coverage, medical costs have gone through the roof. Within 12 years costs increased ninefold—from $305 million in 1960 to $2.77 billion in 1972. [8]

This expansion is readily understandable. Since doctors have no incentives to control costs, patients come to hospitals for the most minor or imaginary ills and hospital stays are protracted. Private practice of medicine on an outpatient basis has been discouraged, although steps are afoot to alter this. In addition, the Swedish system has discouraged entry into medicine by new physicians, and it is noteworthy that the doctor-patient ratio is considerably lower than in the much more populous United States. In America there are 172 doctors for every 100,000 of population—in Sweden approximately 135.

A similar story has been written in England, where the crush of national health insurance has brought a marked deterioration of medical services. Medical writer Marvin Edwards notes that more than 40 percent of the hospitals in England are 100 years old or more, and most of the others are more than 80 years old. Between 1948, when socialized medicine was instituted, and 1962, there were no new hospitals built. Only three were built between 1962 and 1970.

There is a tremendous overcrowding of British hospitals, and only 30 percent of them, according to a committee of British physicians, have adequate emergency facilities. These problems are accentuated by the fact that length of confinement in British hospitals is considerably greater than in America—a usage encouraged, again, by the availability of so-called free medical care. Government figures in August 1966 disclosed that more than 100,000 elderly and chronically ill Britons were on waiting lists to get into hospitals. The situation prevailing in the United States seems almost ,idyllic by comparison.

Wherein, therefore, lies the American crisis? The answer appears to consist of one factor only—the rising cost of health care services. As President Nixon put it in his 1974 health care message: "The overall cost of health care has…risen by more than 20 percent in the last two and a half years, so that more and more Americans face staggering bills when they receive medical help today." 9 And this, we may grant, is indeed a problem. But what is the source of it? The answer, as in so many other species of national distress, is that the Federal government itself is directly responsible for the evil complained of.

It is rather plain that over the long pull the medical price index has been moving in synchronization with prices generally—in response to the inflation that has ravaged our economy. This inflation, of course, is itself the work of the Federal government through its continued expansion of the money supply. Like the more general effort to scapegoat private industry for inflation, the outcry over medical prices is a case of the Federal culprit crying "thief."

It is noteworthy that elements in our medical system have experienced slower price hikes than have numerous nonmedical items. Department of Labor statistics as of 1970 showed medical costs in the previous two years had risen less than meat, poultry, and fish, home ownership, transportation, and so on. Between August 1971 and August 1972, the medical price index rose only 2.2 percent, less than the general cost of living. And between 1965 and 1970, physicians' fees rose less than the average hourly compensation in the private economy. So in some particulars the price of medical care was moving upward in less vertiginous fashion than other elements of the economy.

Yet it would be foolish to deny there has been, on the whole, a continuous and often precipitate hike in medical costs—most notably hospital room rates, which approximately tripled in the decade of the 1960s. In general, both doctors' fees and hospital costs were increasing more rapidly in the early 1970s than they had in the early 1960s, and these factors have frequently been cited by proponents of further Federal intervention. So it is here, apparently, that we find the bedrock proof of privately generated crisis.

Yet in point of fact this hike in medical costs above and beyond the general inflation is also the consequence of Federal intervention in the medical marketplace—through the Medicare and Medicaid subsidy programs enacted in 1965 to provide medical care to the aged and the indigent. As a result of these programs, millions of extra dollars have been poured into the medical system, putting enormous pressure on facilities and boosting prices skyward—results that could have been predicted by anyone who had bothered beforehand to weigh the relevant economic factors.

Indeed, in viewing this procedure, one may plausibly reverse the usual complaint and contend the problem with American medicine, to the extent there is one, is that for many people it is much too cheap. If that statement seems outrageous in view of rising outlays for health and hospitals, it is because the people who incur the bills are often different from the people who pay them. This is, in fact, the essence of the problem. When people using medical facilities see the service as being "free" or extremely inexpensive, rising frequency of use will push the total cost up through the roof.

Consider what would happen, for example, if people were told they had a right to "free" gasoline, food, automobile repairs, clothing, airline tickets, or anything else, with the bills for whatever they consumed to be forwarded to someone else for payment. The crush of demand would be unmanageable, and the "someone else" who had to pick up the tab would be headed for the poorhouse. This is in essence what has been happening in the matter of subsidized health care.

The fact is that the free market pricing system is the only rational method of apportioning demanded resources. Among other benefits, that mechanism enables us to sort out demand intensities—providing service where it is seriously required but discouraging frivolous or excessive use. If airline tickets were free, you might fly to San Francisco or New York every weekend. If you had to pay your own way, you would be a bit more cautious in your traveling. Where price considerations are obscured, demand and resulting costs will skyrocket.

This pattern has been repeatedly shown in studies of health insurance programs, and has become especially acute in the decade since the Federal government got into the health care business. Our medical economy has steadily shifted away from direct payment by the patient to third-party systems in which someone else picks up the tab. The result has been skyrocketing use of services and facilities.

Between 1965 and 1971, for example, direct payment for medical care increased only from $18.9 to $24.2 billion. Third-party payment, however, leaped up from $22 billion to approximately $50 billion—with government outlays almost tripling from $10.8 to $28.5 billion. As recently as 1965, more than half our medical outlays were for direct payment; by the early 1970s the proportion was down to slightly more than a third. [10]

As that sequence suggests, the decisive factor was the arrival of Medicare and Medicaid, entitling millions of people to medical care at someone else's expense. An enormous surge of monetary demand was unleashed, crowding in on doctors' time and health facilities. The double effect was to saddle taxpayers with a staggering bill (up to $25 billion annually) and to push up prices as demand outstripped supply. Between 1960 and 1965, the physician component of the Consumer Price Index rose by about 3 percent annually—but between 1966 and 1970 it rose by an average of 7 percent. The unit cost of hospital care increased more rapidly still: In the early 1960s it was rising by about 6 percent a year. Since the advent of Medicare and Medicaid, it has gone up by an eye-popping 13 to 14 percent annually. [11] *

[*Other data on the medical trend of the 1960s are also instructive. For one thing, while the population of America increased by only 13 percent, the number of hospital admissions went up by 27 percent. For another, low-income Americans received more hospital care and physicians' services per capita than did those in high and middle income brackets. In the latter 1960s, the poor averaged 114.5 hospital admissions per 1,000 of population and 4.6 physician visits per capita. The corresponding figures for middle income Americans were 95.4 and 4.0.]

Economist Herbert Klarman suggests, in this connection, two principal explanations of our rising medical costs:

Medicare increased the flow of funds to hospitals. Along with other forms of health insurance or prepayment, Medicare also perpetuates a dual set of prices—a gross price received by the provider and a much lower net price paid by the consumer out of pocket at the time of illness. The dual price distorts reality for the consumer and encourages the provider to enhance and elaborate the quality of care, even at a higher cost.

The other explanation, which I tend to stress, focuses on cost reimbursement, which was widely adopted under Medicare (and Medicaid). Under this method of payment a hospital is paid a daily rate related to its own cost of operation. The hospital administrator can no longer deny requests for higher wages or more supplies on the ground that money is lacking; to get money, he need only spend more. [12]

It is precisely in the latter category that the most phenomenal increases in medical prices have been occurring. Hospital rates that stood at roughly $45 a day in 1965 had shot up to an estimated $115 a day in 1973, with further increases on the way. By far the vast majority of these expenditures—roughly 70 percent—have gone to pay the wages of hospital personnel, as wages pushed steadily higher by employe demands have connected up with public funds. (Ironically enough, the very union leaders who have helped to organize these demands are in the forefront of complaining about the excessive costs of hospital care.)

All these trends have been evident in the rocky course of the Medicaid program, which has provoked a deluge of medical claims and placed a number of states under severe financial stress. In California, the "Medi-Cal" program wound up in 1970 with 2.5 million people on the rolls and annual costs of $1.2 billion. Per capita medical costs in California were driven up to $517 a year, compared to $312 per capita for the rest of the nation. A similar story was written in New York, Texas, and numerous other states. In Indiana, a supposedly "minimal" Medicaid program that was to have cost some $300,000 a year soared in cost to $115 million in fiscal 1975.13

Nationally, Medicaid costs increased from $1.3 billion in 1967 to $5.5 billion in January 1970 in keeping with a similar explosion of costs for Medicare. Robert J. Myers, former chief actuary of the Social Security administration, observes that cost overruns for Medicare during the first three years of operation amounted to $11 billion—41 percent above the original estimates.14 For the hospital insurance portion of the program, costs were approximately double the original estimates. These results, of course, are in complete conformity with the experience of other nations that have adopted government "health insurance" programs.

As ever, a government-sponsored problem calls forth a government-sponsored solution, and legislators concerned about the rising cost of Medicare and Medicaid decided to pile another intervention on top of those already noted. In an effort to get the situation under some kind of control, Congress in 1972 passed a little-noticed amendment establishing so-called Professional Standards Review Organizations to determine the propriety of doctors' fees and the treatments being prescribed.

Through the device of PSROs, functionaries at the Department of Health, Education, and Welfare are able to sit in judgment on physicians; they are also able to examine medical records in doctors' offices. While the asserted purpose is to find out if doctors are making proper charges under Medicare and Medicaid, it is noteworthy that the right to snoop in medical files extends to private patients as well.

Since the regional review boards involved in the program are staffed chiefly with doctors, PSRO has been advertised as a way of letting the medical profession police itself. Close examination of the law, however, makes it plain that the real policing is to be done by the Secretary of HEW and his subordinates. The law repeatedly states that PSRO procedures shall be conducted "in accordance with the regulations of the secretary…" Under this direction, the network of PSROs is to establish national norms of treatment of illnesses that are or "may be" paid for by Federal programs.

The law says "each PSRO shall apply professionally developed norms of care, diagnosis and treatment" for specific ills and also maintain computerized profiles of individual physicians to see that they are behaving properly. If not, sanctions may be imposed, up to and including fines of $5,000. The offending physician would also be subjected to orchestrated professional opprobrium under the provisions of the law. Thus does one act of government intervention beget another, and another.

Similar lessons may be gleaned from another crucial aspect of American health care—the production and marketing of beneficial drugs. The long-term record of the American drug industry is phenomenally good; the production of such beneficial substances as sulfa drugs, penicillin, and the Salk vaccine has contributed enormously to the conquest of disease and improvement of life expectancies. Yet in recent years these advances have slowed perceptibly, as a direct result of Federal interference.

The principal villain in this scenario is a set of drug law amendments passed by Congress in 1962.

In response to drug scares of that epoch, our legislators decreed that no new drug could be licensed for sale until it had been proved "safe and effective" by laborious procedures. Before that time, the standard had been "safe," which is hard enough to determine by itself. But "safe and effective" has proved to be a formula for bureaucratic seventh heaven.

To establish compliance with these criteria, the Food and Drug Administration (FDA) has taken to pawing through thousands of pages of data covering tests and retests of proposed new drugs. The nature of the change may be judged from the fact that in 1948 one well-known pharmaceutical company (Parke & Davis) had to submit 73 pages of evidence to secure the licensing of a drug. In 1968, this same company had to submit 72,200 pages of data, transported by truck, in an effort to have an anesthetic licensed. [15]

As a result of this drawn-out procedure, it takes an inordinate amount of time for a new drug to be cleared, and the number of beneficial drugs arriving on the market has been reduced accordingly. Prior to 1962 it took about six months for a new drug application to be processed. A decade later the time lag was 27.5 months. More ominous still is the sharp decline in the total number of "new chemical entities" coming on the market. Prior to 1962, it was 41.5 a year; by 1970 it had dropped to 16.1. [16]

In the five years 1957 through 1961, before the new drug law amendments took effect, a total of 261 new drug entities were produced in America; in the ten years 1962 through 1971, the total was 167. In 1961 America was the world leader in production of new drugs, with a total of 31, compared to nine in France. Over the next eight years, the United States introduced only 35 new drugs all told, while France produced a total of 156.

What these figures suggest but cannot tell us explicitly is the number of Americans who are suffering in pain, or dying, because drugs that could have saved them are not being marketed in their country. We do know that dimethyl sulfoxide (DMSO), an effective painkiller developed in the United States and used around the globe, has been arbitrarily banned from use in America. We also know, on the testimony of Dr. John Laragh of Columbia University, that the FDA held up the marketing of diazocide—"a lifesaving drug for patients with serious high blood pressure"—for ten years of "clinical trial and administrative debate." [17]

Indeed, it is altogether possible that Americans could become a "have not" people in their access to medication—with the fruits of chemical and technological improvement created here exported to others but denied us. Medical Economics observes that three-quarters of the new drugs being developed by American pharmaceutical firms are going exclusively to people in other lands and are barred from use in America. [18]

In a similar vein, seven new asthma medications have been introduced in Europe in the past decade, but only two of these have made it to the United States. Forty-seven new medications to treat heart and circulatory problems came on the world market between 1967 and 1971, but only six were made available in this country. Five new drugs for the treatment of hypertension have recently appeared in Europe, but no new general-purpose hypertension medicine emerged in America between 1963 and 1972.

It is noteworthy that penicillin, if discovered today, probably could not pass the relevant tests of the bureaucracy. After all, the drug does cause unfavorable reactions in some people, and it is less effective in certain cases than in others—considerations that could flunk it on FDA's "safe and effective" meter. Yet penicillin has saved thousands of people from pain and death, and only a fanatic or perhaps a bureaucrat would contend that humanity would be better off without it.

The point of these reflections is that we can't know for sure how many penicillins are nowadays being blocked from the market or interminably delayed by the procedures of the FDA. We know simply that an enormous number of beneficial drugs have been denied to Americans by the self-same Federal government that is supposedly bending every effort to upgrade the quality of their health care.

We confront, in sum, a round-robin of government-generated answers to government-created problems—answers that are, or very shortly will become, considerable problems in themselves. Where private medicine has been allowed to do its work, the American record has been one of steady and often miraculous improvement; where evils in the system are complained of, we may almost invariably trace them back to one or another species of intervention. The indicated answer is not to get the government further into medicine, but to get it out—as rapidly as possible.

1. Senator Edward M. Kennedy, "National Health Insurance and Health Security," reprint from Congressional Record, August 27, 1970.
2. Marvin H. Edwards, Hazardous to Your Health (Arlington House, 1972), pp. 40-44.
3. Ibid., pp. 92, 103.
4. Harry Schwartz, The Case for American Medicine (McKay 1972), pp. 9-10.
5. Source Book on Health Insurance Data, Health Insurance Institute, 1973-74 edition, pp. 18-19; Rita R. Campbell and W. Glenn Campbell, Voluntary Health Insurance in the United States (American Enterprise Association, 1960), p. 1.
6. Schwartz, op. cit., p. 40.
7. lndianapolis News, November 3, 1970.
8. The New York Times, December 24, 1973.
9. Message to Congress, February 6, 1974; text in Congressional Quarterly, Feb. 9,1974, p. 254.
10. Schwartz, op. cit., p. 116.
11. Herbert E. Klarman, "Major Public Initiatives in Health Care," The Public Interest, Winter 1974, pp. 109, 112.
12. Ibid., p. 110.
13. Edwards, op. cit., p. 240, and Indianapolis News, January 16, 1974.
14. Edwards, op. cit., p. 250.
15. Walter S. Ross, "The Medicine We Need — But Can't Have," Reader's Digest, October 1973.
16. Milton Friedman, "Frustrating Drug Advancement," Newsweek, January 8, 1973.
17. Medical Economics, August 6, 1973.
18. Ibid.

Copyright © 2008 Hillsdale College. The opinions expressed in Imprimis are not necessarily the views of Hillsdale College. Permission to reprint in whole or in part is hereby granted, provided the following credit line is used: “Reprinted by permission from Imprimis, a publication of Hillsdale College.” SUBSCRIPTION FREE UPON REQUEST. ISSN 0277-8432. Imprimis trademark registered in U.S. Patent and Trade Office #1563325.

If you didn't want to see this, then consider yourself a member of the " complacency & apathy" group.

Interesting Statistic
Professor Joseph Olson of Hemline University School of Law, St. Paul , Minnesota , points out facts of 2008 Presidential election:

Number of States won by:
Democrats: 19
Republicans: 29

Square miles of land won by:
Democrats: 580,000
Republicans: 2,427,000

Population of counties won by:
Democrats: 127 million
Republicans: 143 million

Murder rate per 100,000 residents in counties won by:
Democrats: 13.2
Republicans: 2.1

Professor Olson adds:
"In aggregate, the map of the territory Republican won by Republicans was mostly the land owned by the taxpaying citizens of the country.

Democrat territory mostly encompassed those citizens living in government-owned tenements and living off various forms of government welfare.

Professor Olson believes the United States is now somewhere
between the "complacency and apathy" phase of Professor Tyler's definition of democracy, with some forty percent of the nation's population already having reached the "governmental dependency" phase.

If Congress grants amnesty and citizenship to twenty million criminal
invaders called illegals and they vote, then we can say goodbye to the USA in fewer than five years.

Pass this along to help everyone realize just how much is at stake, knowing that apathy is the greatest danger to our freedom

Interesting Statistic
Professor Joseph Olson of Hemline University School of Law, St. Paul , Minnesota , points out facts of 2008 Presidential election:

Number of States won by:
Democrats: 19
Republicans: 29

Square miles of land won by:
Democrats: 580,000
Republicans: 2,427,000

Population of counties won by:
Democrats: 127 million
Republicans: 143 million

Murder rate per 100,000 residents in counties won by:
Democrats: 13.2
Republicans: 2.1

Professor Olson adds:
"In aggregate, the map of the territory Republican won by Republicans was mostly the land owned by the taxpaying citizens of the country.

Democrat territory mostly encompassed those citizens living in government-owned tenements and living off various forms of government welfare.

Professor Olson believes the United States is now somewhere
between the "complacency and apathy" phase of Professor Tyler's definition of democracy, with some forty percent of the nation's population already having reached the "governmental dependency" phase.

If Congress grants amnesty and citizenship to twenty million criminal
invaders called illegals and they vote, then we can say goodbye to the USA in fewer than five years.

Pass this along to help everyone realize just how much is at stake, knowing that apathy is the greatest danger to our freedom

Wednesday, October 28, 2009

Nineteen States Move to Defend Individual Health Care Choice
Tuesday, October 27, 2009
By Susan Jones, Senior Editor

( – Regardless of what the U.S. Congress decides about health care reform, a growing number of states are standing up for individuals’ freedom of choice when it comes to purchasing – or not purchasing – health insurance.

Several Kansas Republicans have introduced a state constitutional amendment that would protect the right of Kansas residents to make their own health care choices. That makes Kansas the 19th state where legislators have introduced, or will introduce, such legislation.

The proposed Kansas amendment preserves the right of individuals to pay directly for medical care -- something that is not allowed in single-payer countries such as Canada. It also prohibits any individual from being penalized for not purchasing government-defined insurance.

Under the amendment, any state attempt to require an individual to purchase health insurance--or forbid an individual from purchasing services outside of the government-established health care system--would be rendered unconstitutional.

The legislation is modeled after a bill written by the American Legislative Exchange Council (ALEC), a membership association of state lawmakers.

"Federal health care reform efforts may include a requirement that individuals purchase health insurance, and a so-called 'public option' which will result in less choices for consumers and new government mandates," said Iowa State Rep. Linda Upmeyer, who chairs ALEC's Health and Human Services Task Force.

"Americans don't need more government mandates, we need real consumer choice. ALEC's Freedom of Choice in Health Care Act is designed to protect individual rights and our freedom to purchase health insurance of our choice, or not," she added.

Kansas now joins legislators in seven states (Alaska, Georgia, Louisiana, Missouri, Mississippi, New Hampshire and Utah) that have publicly announced their intention to file legislation to protect their citizens from any government health-care mandates.

Another 11 states have already filed or pre-filed similar legislation (Arizona, Florida, Indiana, Minnesota, North Dakota, New Mexico, Michigan, Ohio, Pennsylvania, West Virginia, and Wyoming). Arizona's measure, which passed the legislature in June, will be put before voters on the 2010 ballot.

Democrats in the U.S. Congress are now finalizing legislation that will make major changes to the nation’s health care system, and they are doing so without Republican input.

Republicans say they’re all for health-care reform, as long as it’s the result of true bipartisanship. Republicans say their ideas – including medical liability reform, tax credits to help individuals buy private insurance, and allowing families and businesses buy insurance across state lines – are a better approach than adding a huge new government-sponsored insurance plan into the mix.

Pravda article

America Moving from Kingdom of Cash to Socialism Slowly but Surely
19.10.2009 Source: Pravda.Ru URL:

Obama’s decision not to build the Missile Defense System in Poland and the Czech Republic and his Noble Prize have not yet been comprehended from a philosophical viewpoint. It’s time to do it.

Power of Money against Power of Spirit

The last turning point similar to the current one happened approximately 400 years ago. The Western European society discovered a new hierarchy of values. Feudalism that valued service and chivalry was replaced with capitalism. Wealth became the measure of success, and everyone was to care about his own pocket only. The cult of money replaced all other values, including religious.

Capitalism turned everything upside down and made people more excited about stuffing their bank accounts than anything else. This system turned out to be extremely efficient in terms of production of goods, services, and comfort. America benefited from the system the most, and decided that the rest of the world has to adopt it as well. If some underdeveloped countries are unable to appreciate the benefits of capitalism, they should be forced to do it.

Collapse of the Illusion

Meanwhile, philosophers say that capitalism is driven not by hard cash, but rather, striving for hard cash. It’s driven not by the production of goods, but rather, striving for consumption of these goods.

If everyone had these values, the “dog-eat-dog” principal would be the major principal in the world history. But America failed to do it. There are plenty of “underdeveloped” people in the world who continue to cherish spiritual values. There are not that many chances left to force them into worshiping money since these “underdeveloped” people adopt western technology and become stronger. The appeal to adopt American values doesn’t work either. Why would we adopt the system if the system is in crisis? Pragmatic America realized that billions of people are not willing to live in the kingdom of hard cash and decided that it would be better off leaving this kingdom itself. Now the USA is talking about introducing elements of socialism.

What does Obama’s decision not to build the Eastern European Missile Defense System have to do with all of this? Well, it means that it’s not capitalism that’s undergoing the crisis, but the belief in its high efficiency. And this, in turn, means that America, the bulwark of capitalism, is no longer the boss of the world. And if it’s not the boss any more, it has to be friends with everybody, including Russia. And it’s America’s turn to offer Russia to push the reset button. Or maybe it’s just tired of imposing its rules on others and felt that friendship is more valuable than money and power? If this is the case, we will soon witness another turning point in the world history.

Tuesday, October 27, 2009

Dismantling America

By Thomas Sowell

Just one year ago, would you have believed that an unelected government official, not even a Cabinet member confirmed by the Senate but simply one of the many "czars" appointed by the President, could arbitrarily cut the pay of executives in private businesses by 50 percent or 90 percent?

Did you think that another "czar" would be talking about restricting talk radio? That there would be plans afloat to subsidize newspapers-- that is, to create a situation where some newspapers' survival would depend on the government liking what they publish?

Did you imagine that anyone would even be talking about having a panel of so-called "experts" deciding who could and could not get life-saving medical treatments?

Scary as that is from a medical standpoint, it is also chilling from the standpoint of freedom. If you have a mother who needs a heart operation or a child with some dire medical condition, how free would you feel to speak out against an administration that has the power to make life and death decisions about your loved ones?

Does any of this sound like America?

How about a federal agency giving school children material to enlist them on the side of the president? Merely being assigned to sing his praises in class is apparently not enough.

How much of America would be left if the federal government continued on this path? President Obama has already floated the idea of a national police force, something we have done without for more than two centuries.

We already have local police forces all across the country and military forces for national defense, as well as the FBI for federal crimes and the National Guard for local emergencies. What would be the role of a national police force created by Barack Obama, with all its leaders appointed by him? It would seem more like the brown shirts of dictators than like anything American.

How far the President will go depends of course on how much resistance he meets. But the direction in which he is trying to go tells us more than all his rhetoric or media spin.

Barack Obama has not only said that he is out to "change the United States of America," the people he has been associated with for years have expressed in words and deeds their hostility to the values, the principles and the people of this country.

Jeremiah Wright said it with words: "God damn America!" Bill Ayers said it with bombs that he planted. Community activist goons have said it with their contempt for the rights of other people.

Among the people appointed as czars by President Obama have been people who have praised enemy dictators like Mao, who have seen the public schools as places to promote sexual practices contrary to the values of most Americans, to a captive audience of children.

Those who say that the Obama administration should have investigated those people more thoroughly before appointing them are missing the point completely. Why should we assume that Barack Obama didn't know what such people were like, when he has been associating with precisely these kinds of people for decades before he reached the White House?

Nothing is more consistent with his lifelong patterns than putting such people in government-- people who reject American values, resent Americans in general and successful Americans in particular, as well as resenting America's influence in the world.

Any miscalculation on his part would be in not thinking that others would discover what these stealth appointees were like. Had it not been for the Fox News Channel, these stealth appointees might have remained unexposed for what they are. Fox News is now high on the administration's enemies list.

Nothing so epitomizes President Obama's own contempt for American values and traditions like trying to ram two bills through Congress in his first year-- each bill more than a thousand pages long-- too fast for either of them to be read, much less discussed. That he succeeded only the first time says that some people are starting to wake up. Whether enough people will wake up in time to keep America from being dismantled, piece by piece, is another question-- and the biggest question for this generation.

Hillsdale College - Imprimis Issue

January 1978

Whatever Happened to Free Enterprise?

Ronald Reagan

During the presidential campaign last year, there was a great deal of talk about the seeming inability of our economic system to solve the problems of unemployment and inflation. Issues such as taxes and government power and costs were discussed, but always these things were discussed in the context of what government intended to do about it. May I suggest for your consideration that government has already done too much about it? That indeed, government, by going outside its proper province, has caused many if not most of the problems that vex us.

How much are we to blame for what has happened? Beginning with the traumatic experience of the Great Depression, we the people have turned more and more to government for answers that government has neither the right nor the capacity to provide. Unfortunately, government as an institution always tends to increase in size and power, and so government attempted to provide the answers.

The result is a fourth branch of government added to the traditional three of executive, legislative and judicial: a vast federal bureaucracy that's now being imitated in too many states and too many cities, a bureaucracy of enormous power which determines policy to a greater extent than any of us realize, very possibly to a greater extent than our own elected representatives. And it can't be removed from office by our votes.

To give you an illustration of how bureaucracy works in another country, England in 1803 created a new civil service position. It called for a man to stand on the cliffs of Dover with a spy glass and ring a bell if he saw Napoleon coming. They didn't eliminate that job until 1945. In our own country, there are only two government programs that have been abolished. The government stopped making rum on the Virgin Islands, and we've stopped breeding horses for the cavalry.

We bear a greater tax burden to support that permanent bureaucratic structure than any of us would have believed possible just a few decades ago. When I was in college, governments federal, state and local, were taking a dime out of every dollar earned and less than a third of that paid for the federal establishment. Today, governments, federal, state, and local, are taking 44 cents out of every dollar earned, and two-thirds of that supports Washington. It is the fastest growing item in the average family budget, and yet it is not one of the factors used in computing the cost of living index. It is the biggest single cost item in the family budget, bigger than food, shelter and clothing all put together.

When government tells us that in the last year the people in America have increased their earnings 9 percent, and since the inflation is 6 percent, we're still 3 percentage points better off, or richer than we were the year before, government is being deceitful. That was before taxes. After taxes, the people of America are 3 percentage points worse off, poorer than they were before they got the 9 percent raise. Government profits by inflation.

At the economic conference in London several months ago, one of our American representatives there was talking to the press. He said you have to recognize that inflation doesn't have any single cause and therefore has no single answer. Well, if he believed that, he had no business being at an economic conference. Inflation is caused by one thing, and it has one answer. It's caused by government spending more than government takes in, and it will go away when government stops doing that, and not before.

Government has been trying to make all of us believe that somehow inflation is like a plague, or the drought, or the locusts coming, trying to make us believe that no one has any control over it and we just have to bear it when it comes along and hope it will go away. No, it's simpler than that. From 1933 until the present, our country has doubled the amount of goods and services that are available for purchase. In that same period we have multiplied the money supply by 23 times. So $11.50 is chasing what one dollar used to chase. And that's all that inflation is: a depreciation of the value of money.

Ludwig von Mises once said, "Government is the only agency that can take a perfectly useful commodity like paper, smear it with some ink, and render it absolutely useless."

There are 73 million of us working and earning by means of private enterprise to support ourselves and our dependents. We support, in addition, 81 million other Americans totally dependent on tax dollars for their year-round living. Now it's true that 15 million of those are public employees and they also pay taxes, but their taxes are simply a return to government of dollars that first had to be taken from the 73 million. I say this to emphasize that the people working and earning in private business and industry are the only resource that government has.

In Defense of Free Enterprise

More than anything else, a new political economic mythology, widely believed by too many people, has increased government's ability to interfere as it does in the marketplace. Profit is a dirty word, blamed for most of our social ills. In the interest of something called consumerism, free enterprise is becoming far less free. Property rights are being reduced, and even eliminated, in the name of environmental protection. It is time that a voice be raised on behalf of the 73 million independent wage earners in this country, pointing out that profit, property rights and freedom are inseparable, and you cannot have the third unless you continue to be entitled to the first two.

Even many of us who believe in free enterprise have fallen into the habit of saying when something goes wrong: "There ought to be a law." Sometimes I think there ought to be a law against saying: "There ought to be a law." The German statesman Bismark said, "If you like sausages and laws you should never watch either one of them being made." It is difficult to understand the ever-increasing number of intellectuals in the groves of academe, present company excepted, who contend that our system could be improved by the adoption of some of the features of socialism.

In any comparison between the free market system and socialism, nowhere is the miracle of capitalism more evident than in the production and distribution of food. We eat better, for a lower percentage of earnings, than any other people on earth. We spend about 17 percent of the average family's after-tax income for food. The American farmer is producing two and one-half times as much as he did 60 years ago with one-third of the man-hours on one-half of the land. If his counterparts worldwide could reach his level of skill we could feed the entire world population on one-tenth of the land that is now being farmed worldwide.

The biggest example comes, I think, when you compare the two superpowers. I'm sure that most of you are aware that some years ago the Soviet Union had such a morale problem with the workers on the collective farms that they finally gave each worker a little plot of ground and told him he could farm it for himself and sell in the open market what he raised. Today, less than 4 percent of Russia's agricultural land is privately farmed in that way, and on that 4 percent is raised 40 percent of all of Russia's vegetables, and 60 percent of all its meat.

Some of our scholars did some research on comparative food prices. They had to take the prices in the Russian stores and our own stores and translate them into minutes and hours of labor at the average income of each country. With one exception they found that the Russians have to work two to ten times as long to buy the various food items than do their counterparts here in America. The one exception was potatoes. There the price on their potato bins equalled less work time for them than it did for us. There was one hitch though—they didn't have any potatoes.

In spite of all the evidence that points to the free market as the most efficient system, we continue down a road that is bearing out the prophecy of De Tocqueville, a Frenchman who came here 130 years ago. He was attracted by the miracle that was America. Think of it: our country was only 70 years old and already we had achieved such a miraculous living standard, such productivity and prosperity, that the rest of the world was amazed. So he came here and he looked at everything he could see in our country trying to find the secret of our success, and then went back and wrote a book about it. Even then, 130 years ago, he saw signs prompting him to warn us that if we weren't constantly on guard, we would find ourselves covered by a network of regulations controlling every activity. He said if that came to pass we would one day find ourselves a nation of timid animals with government the shepherd.

Was De Tocqueville right? Well, today we are covered by tens of thousands of regulations to which we add about 25,000 new ones each year.

The Cost of Government Regulation

A study of 700 of the largest corporations has found that if we could eliminate unnecessary regulation of business and industry, we would instantly reduce the inflation rate by half. Other economists have found that over-regulation of business and industry amounts to a hidden five-cent sales tax for every consumer. The misdirection of capital investment costs us a quarter of a million jobs. That's half as many as the president wants to create by spending $32 billion over the next two years. And with all of this comes the burden of government-required paperwork.

It affects education—all of you here are aware of the problems of financing education, particularly at the private educational institutions. I had the president of a university tell me the other day that government-required paperwork on his campus alone has raised the administrative costs from $65,000 to $600,000. That would underwrite a pretty good faculty chair. Now the president of the Eli Lilly drug company says his firm spends more man-hours on government-required paperwork than they do today on heart and cancer research combined. He told of submitting one ton of paper, 120,000 pages of scientific data most of which he said were absolutely worthless for FDA's purposes, in triplicate, in order to get a license to market an arthritis medicine. So, the United States is no longer first in the development of new health-giving drugs and medicines. We're producing 60 percent fewer than we were 15 years ago.

And it's not just the drug industry which is over-regulated. How about the independent men and women of this country who spend $50 billion a year sending 10 billion pieces of paper to Washington where it costs $20 billion each year in tax money to shuffle and store that paper away. We're so used to talking billions—does anyone realize how much a single billion is? A billion minutes ago Christ was walking on this earth. A billion hours ago our ancestors lived in caves, and it is questionable as to whether they'd discovered the use of fire. A billion dollars ago was 19 hours in Washington, D.C. And it will be another billion in the next 19 hours, and every 19 hours until they adopt a new budget at which time it'll be almost a billion and a half.

It all comes down to this basic premise: if you lose your economic freedom, you lose your political freedom and in fact all freedom. Freedom is something that cannot be passed on genetically. It is never more than one generation away from extinction. Every generation has to learn how to protect and defend it. Once freedom is gone, it's gone for a long, long time. Already, too many of us, particularly those in business and industry, have chosen to switch rather than fight.

We should take inventory and see how many things we can do ourselves that we've come to believe only government can do. Let me take one that I'm sure everyone thinks is a government monopoly and properly so. Do you know that in Scottsdale, Ariz., there is no city fire department? There, the per capita cost for fire protection and the per capita fire loss are both one-third of what they are in cities of similar size. And the insurance rates reflect this. Scottsdale employs a private, profit-making, firefighting company, which now has about a dozen clients out in the western states.

Sometimes I worry if the great corporations have abdicated their responsibility to preserve the freedom of the marketplace out of a fear of retaliation or a reluctance to rock the boat. If they have, they are feeding the crocodile hoping he'll eat them last. You can fight city hall, and you don't have to be a giant to do it. In New Mexico there's a little company owned by a husband and wife. The other day two OSHA inspectors arrived at the door. They demanded to come in in order to go on a hunting expedition to see if there were any violations of their safety rules. The wife, who happens to be company president, said "Where's your warrant?" They said, "We don't need one." She said, "You do to come in here," and shut the door. Well, they went out and got a warrant, and they came back, but this time she had her lawyer with her. He looked at the warrant and said it does not show probable cause. A federal court has since upheld her right to refuse OSHA entrance.

Why don't more of us challenge what Cicero called the arrogance of officialdom? Why don't we set up communications between organizations and trade associations? To rally others to come to the aid of an individual like that, or to an industry or profession when they're threatened by the barons of bureaucracy, who have forgotten that we are their employers. Government by the people works when the people work at it. We can begin by turning the spotlight of truth on the widespread political and economic mythology that I mentioned.

A recent poll of college and university students (they must have skipped this campus) found that the students estimated that business profits in America average 45 percent. That is nine times the average of business profits in this country. It was understandable that the kids made that mistake, because the professors in the same poll guessed that the profits were even higher.

Then there is the fairy tale born of political demagoguery that the tax structure imposes unfairly on the low earner with loopholes designed for the more affluent. The truth is that at $23,000 of earnings you become one of that exclusive band of 10 percent of the wage-earners in America paying 50 percent of the income tax but only taking 5 percent of all the deductions. The other 95 percent of the deductions are taken by the 90 percent of the wage-earners below $23,000 who pay the other half of the tax.

The most dangerous myth is that business can be made to pay a larger share of taxes, thus relieving the individual. Politicians preaching this are either deliberately dishonest, or economically illiterate, and either one should scare us. Business doesn't pay taxes, and who better than business could make this message known? Only people pay taxes, and people pay as consumers every tax that is assessed against a business. Passing along their tax costs is the only way businesses can make a profit and stay in operation.

The federal government has used its taxing power to redistribute earnings to achieve a variety of social reforms. Politicians love those indirect business taxes, because it hides the cost of government. During the New Deal days, an under-secretary of the treasury wrote a book in which he said that taxes can serve a higher purpose than just raising revenue. He said they could be an instrument of social and economic control to redistribute the wealth and income and to penalize particular industries and economic groups.

We need to put an end to that kind of thinking. We need a simplification of the tax structure. We need an indexing of the surtax brackets, a halt to government's illicit profiteering through inflation. It's as simple as this: every time the cost-of-living index goes up one percent, the government's revenue goes up one and one-half percent. Above all we need an overall cut in the cost of government. Government spending isn't a stimulant to the economy; it's a drag on the economy. Only a decade ago, about 15 percent of corporate gross income was required to pay the interest on corporate debt; now it's 40 percent. Individuals and families once spent about 8 percent of their disposable income on interest on consumer debt, installment buying, mortgages, and so forth. Today, it's almost one-fourth of their total earnings. State and local government in the last 15 years has gone from $70 billion to $220 billion. The total private and public debt is growing four times as fast as the output of goods and services.

Again, there is something we can do. Congressman Jack Kemp (R-N.Y.) has a bill before the Congress designed to increase productivity and to create jobs for people. Over a three-year period, it calls for reducing the income tax for all of us by a full one-third. And also it would reduce the corporate tax from 48 to 45 percent. The base income tax would no longer be 20 percent but 14 percent, and the ceiling would be 50 percent instead of 70 percent. Finally, it would double the exemption for smaller businesses before they get into the surtax bracket. It would do all of the things that we need to provide investment capital, increase productivity, and create jobs.

We can say this with assurance, because it has been done twice before: in the '20's under Harding and Coolidge and again in the '60's under John F. Kennedy. In the '60's the stimulant to the economy was so immediate that even government's revenues increased because of the broadening base of the economy. Kemp's bill is gaining support but unfortunately the majority in Congress is concerned with further restrictions on our freedom.

To win this battle against Big Government, we must communicate with each other. We must support the doctor in his fight against socialized medicine, the oil industry in its fight against crippling controls and repressive taxes, and the farmer, who hurts more than most because of government harassment and rule-changing in the middle of the game. All of these issues concern each one of us, regardless of what our trade or profession may be. Corporate America must begin to realize that it has allies in the independent business men and women, the shopkeepers, the craftsmen, the farmers, and the professions. All these men and women are organized in a great variety of ways, but right now we only talk in our own organizations about our own problems. What we need is a liaison between these organizations to realize how much strength we as a people still have if we'll use that strength.

In regard to the oil industry, is there anyone who isn't concerned with the energy problem? Government caused that problem while we all stood by unaware that we were involved. Unnecessary regulations and prices and imposed price limits back in the '50's are the direct cause of today's crisis. Our crisis isn't because of a shortage of fuel; it's a surplus of government. Now we have a new agency of enormous power, with 20,000 employees and a $10.5 billion budget. That's more than the gross earnings of the top seven oil companies in the United States. The creation of the Department of Energy is nothing more than a first step towards nationalization of the oil industry.

While I believe no one should waste a natural resource, the conservationists act as if we have found all the oil and gas there is to be found in this continent, if not the world. Do you know that 57 years ago our government told us we only had enough for 15 years? Nineteen years went by and they told us we only had enough left for 13 more years, and we've done a lot of driving since then and we'll do a lot more if government will do one simple thing: get out of the way and let the incentives of the marketplace urge the industry out to find the sources of energy this country needs.

We've had enough of sideline kibitzers telling us the system they themselves have disrupted with their social tinkering can be improved or saved if we'll only have more of that tinkering or even government planning and management. They play fast and loose with a system that for 200 years made us the light of the world. The refuge for people all over the world who just yearn to breathe free. It's time we recognized that the system, no matter what our problems are, has never failed us once. Every time we have failed the system, usually by lacking faith in it, usually by saying we have to change and do something else. A Supreme Court Justice has said the time has come, is indeed long overdue, for the wisdom, ingenuity, and resources of American business to be marshalled against those who would destroy it.

What specifically should be done? The first essential for the businessman is to confront the problem as a primary responsibility of corporate management. It has been said that history is the patter of silken slippers descending the stairs and the thunder of hobnail boots coming up. Back through the years we have seen people fleeing the thunder of those boots to seek refuge in this land. Now too many of them have seen the signs, signs that were ignored in their homeland before the end came, appearing here. They wonder if they'll have to flee again, but they know there is no place to run to. Will we, before it is too late, use the vitality and the magic of the marketplace to save this way of life, or will we one day face our children, and our children's children when they ask us where we were and what we were doing on the day that freedom was lost?