Archives for November 2015

Creating Monopolies That Control Us (from the “Cliff Notes” version of “Healing Our World”)

The last few posts showed how the number of service providers was diminished by licensing laws.  Sometimes, licensing laws are deliberately made exclusive, meaning that only one company is allowed to provide us a service.  We must use that service provider or do without.

Bell Telephone initially had a monopoly on telephone service, created by its patents, which were awarded to Bell rather than his two competitors.  When the patents ran out in 1894, smaller companies with more limited service and lower prices started to erode Bell’s monopoly. In the next 15 years, the rate of telephone installations more than doubled; half of these belonged to the independents. Bell lost 80% of its profits.

Instead of giving customers better service than the independents to regain their business, Bell decided to ask the government to reinstate its monopoly. The government decreed that only one telephone company could operate in each region, and Bell, being the largest company, was in a better position to lobby local legislatures for that privilege. Phone installation rates plunged as customers refused to pay the higher prices that Bell telephone charged.

Bell Telephone eventually morphed into AT&T and was guaranteed a fixed profit. Consequently, AT&T could pay top dollar for its research staff, who then developed patented products in radio, television, movies and electronics. AT&T had little incentive to innovate on the telephone market, because technology that would lower costs to consumers generated no new profit for the company. Customers were overcharged so that AT&T stock paid handsome dividends.

In 1984 an antitrust suit eliminated AT&T’s 75 year monopoly in long distance service. I remember well how rates plummeted. The average customer saved 30% over the next five years. Local service actually went up as AT&T was allowed to charge extra fees for losing its long distance monopoly! In 1996, Congress finally allowed competition in local phone service as well.

Most monopolies are created by government. Marketplace monopolies are unusual, because service providers cannot overcharge customers, like AT&T did, without losing their business to competition.

For example, John D Rockefeller and Standard Oil are often used as examples of free market monopolies. Rockefeller, however, was thwarted in his ambitions because the marketplace ecosystem protected the consumer.

Initially, Rockefeller developed new techniques for refining oil which caused price of kerosene to plunge over 90%. Nighttime lighting finally became affordable for the average worker.

Rockefeller was a shrewd businessman who paid his workers more than other employers did. Consequently, he was able to get the very best innovators who continued to optimize the refining techniques. Consequently, consumers vote with their dollars to make Standard Oil their kerosene provider; by 1879, Rockefeller had 90% of the world’s refining business.

Rockefeller, however, wanted more. He tried to organize independent refiners into a cartel which would charge high prices to consumers. However, profits from underselling the cartel were so tempting that at least one refiner always broke the monopoly by lowering prices.

In frustration, Rockefeller tried to buy out those who undersold him. However, he still couldn’t get a total monopoly. Some refiners went into business in the sole hope that Rockefeller would buy them out.

While the marketplace thwarted Rockefeller’s quest for monopoly, aggression-through-government worked in his favor. Most railroads were government-subsidized. They helped Rockefeller maintain market dominance with large volume discounts and drawbacks.

When the public discovered these practices, they demonstrated against Standard Oil and refused to buy its products. Boycotts are time-honored way for consumers to control unsavory business practices. Rockefeller actually had to stop putting Standard’s logo on new acquisitions in order to avoid losing customers.

Nearly 4 years after attaining 90% of the market, Standard Oil’s competitors had doubled their volume. In 1884, almost 100 refineries were processing crude oil. By 1911, Standard Oil refined only 64% of the domestic petroleum. The antitrust conviction against Standard that same year, paid for with our tax dollars, was obviously redundant. The natural balance of the marketplace ecosystem had already diminished Standard Oil’s market share.

Indeed, Rockefeller’s empire had dwindled even more than the above numbers show. In 1882, Standard refined 85% of the world’s oil; by 1888, Russian oil had cut Standard’s world market to 53%.

In addition, kerosene, which had replaced whale oil for lamp lighting, was itself displaced by natural gas and electricity in the early 1900s. Innovative new products ultimately keep the most determined monopolist in check, just as e-mail has made first class postal service almost obsolete.

Monopolies are rare in a free market. Only firms that can serve customers best for long periods of time can maintain market dominance. If firms raise prices, competition quickly sets in. Only aggression-through-government can maintain exploitive monopolies for any length of time.

Unfortunately, cable TV service and other utilities are still quasi-monopolies, in locales that limit the number of service providers. Consequently, we pay more for the service than we otherwise would.

With utility monopolies, we either pay inflated costs for the service or do without. However, in the next post, we’ll see how we are forced to subsidize monopolies that destroy the environment whether we use them or not.

 

These posts are part of a “Cliff Notes” version of Dr. Ruwart’s award-winning international best-selling libertarian primer, Healing Our World. The next post in this series will be “Destroying the Environment.” If you’d like to learn more about how we create monopolies that control us before the next post, check out Chapter 7 of the 1993 edition of Healing Our World, in Dr. Ruwart’s Free Library.  
If you want more up-to-date detail, you can purchase the 2015 edition of Healing, with a $5 Christmas discount, here.  Give the gift of liberty this season and show your family and friends how to create peace on earth with goodwill to all! 

Happy Thanksgiving!

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Protecting Ourselves to Death (from the “Cliff Notes” version of “Healing Our World”)

If you were terminally ill, you might wish to try a drug that hadn’t yet been fully tested, but might save your life. In the United States, however, that would make you a criminal.

In 1962, Amendments to the Food and Drug Act gave the US Food and Drug Administration (FDA) unprecedented power to regulate the pharmaceutical industry. As a result, an additional 8-10 years was added to the time it takes to get a drug from the lab bench to the marketplace.

AIDS patients couldn’t wait that long. They hired black market chemists to make the drugs that industry scientists were working on and distributed them throughout the AIDS community. Although this action was illegal, the FDA left some of the Buyers Clubs alone, while prosecuting others (e.g., Ron Woodroof, who has been immortalized in the award-winning 2013 movie, Dallas Buyers Club).

Cancer patients took the FDA to court to legalize their ability to use drugs that had undergone human safety testing but had not yet been shown to be effective. The courts ruled that US citizens did not have the right to try to save their lives with drugs not yet approved by the FDA. Consequently, some patients are now going to the black market or overseas to get drugs that might help them survive.

The extra testing that the FDA now requires means that pharmaceutical firms must spend time and money pleasing the FDA instead of inventing new cures for diseases. Consequently, innovation has dropped at least 50% from 1962 levels.

When I was working at the Upjohn Company in the 1980s, the FDA called to congratulate me on a patent that I had filed for prostaglandin treatment of liver disease. They wanted to help Upjohn bring a prostaglandin drug to market because there was no treatment for this deadly problem. However, as with all new drugs, we didn’t know what dose would be best, how often the drug needed to be given, how many patients we would need to treat, how long we needed to treat, etc., in order to get the “statistical significance” that the FDA required. Since these studies would take years, if we didn’t guess right the first time, we would have to start over. By the time our drug got to market it would no longer be covered by a patent. Consequently, we could never recover our costs. The Upjohn Company decided not to develop this drug, and patients today are still dying of a disease for which there might have been hope.

The studies demanded by the FDA are responsible for about 80% of the cost of new drugs today. If these studies actually made drugs safer, they might be worth the extra time and money. However, all the evidence points in the other direction. The biggest drug disaster of all time, Vioxx, was an FDA approved drug.

No drug is perfectly safe, nor can animal studies or the limited clinical trials that are performed for marketing, predict every side effect. People differ in their genetics, environment, diet and other factors, so drug toxicity cannot always be easily predicted. Consequently, most of the additional testing required by the FDA since 1962 adds little to our knowledge of drug safety, while keeping life-saving drugs out of the hands of very sick people.  The death toll from excessive regulation is in the tens of millions.

In addition, inexpensive nutritional therapies cannot be marketed as a cure for a disease without going through this intensive FDA-mandated testing. Since these therapies are usually not patentable, drug companies cannot recover the costs of this testing and would bankrupt themselves as a result.

An example of the devastating impact of these regulations is what I call the “American thalidomide.” In the early 1980s, we knew that spina bifida and other birth defects could be prevented by the B vitamin, folic acid. However, the FDA told the folic acid manufacturers that if they shared this information with the public, they would be prosecuted because they hadn’t jumped all of the regulatory hurdles to make a therapeutic claim. In the early 1990s, the Center for Disease Control (CDC), another government agency, recommended that women of childbearing potential take folic acid routinely, because it was needed in the early stages of pregnancy. The FDA forbade the folic acid manufacturers to even refer to the CDC’s recommendation. Consequently, most women and their doctors were unaware of this critical information for over a decade.  In the meantime, as many as 25,000 U.S. babies were either aborted or suffered these severe birth defects, most of which require institutionalization.

If the FDA couldn’t stop a drug from being marketed or couldn’t stop manufacturers from telling people about the benefits of inexpensive nutritional supplements, how would we know that these products are safe and effective? Before the FDA gained so much of its power, brand names were important determinants of which drugs doctors would recommend. Companies advertised their track record in giving the public beneficial and life-saving medicines, with minimal side effects and were rewarded with brand-name loyalty.

In addition, third-party testing was more common. The American Medical Association, for example, gave it Seal of Approval to drugs that it found acceptable. Consumers’ Research also evaluated new medicines and shared its results with the public. Today, the Medical Letter on Drugs and Therapeutics reviews new therapies and pays for it by subscription to its newsletter. ConsumerLab.com performs independent testing on nutritional products to help guide buyers. Today, with the Internet, a great deal of information can be made available both to physicians and to consumers at minimal cost.

Most people don’t realize that drug companies do all of the testing required by the FDA, which simply reviews their findings. Third-party evaluation and certification (see the previous blog, “Harming Our Health,” for more details on certification), as opposed to regulation, gives a less biased viewpoint. Certification puts us back in control. Each of us, in consultation with our trusted medical professionals, can decide which products to use.

In Europe, medical device manufacturers pay a private certifying body to oversee their studies and recommend them to regulators for a rapid approval. As a result, in the early 1990s, medical device approval in Europe took an average of 250 days after the testing was complete compared with 820 days in the United States. If certifying bodies can help regulators evaluate products, certainly they can be a reliable source for individuals and medical professionals as well.

 

GOG new therapies new

These posts are part of a “Cliff Notes” version of Dr. Ruwart’s award-winning international best-selling libertarian primer, Healing Our World. The next post in this series will be “Creating Monopolies That Control Us.” If you’d like to learn more about how FDA regulations keep life-saving medicines and nutrients from us before the next post, check out Chapter 6 of the 1993 edition of Healing Our World, in Dr. Ruwart’s Free Library.  
If you want more up-to-date detail, you can purchase the 2015 edition of Healing, with a $5 Christmas discount, here.  Give the gift of liberty this season and show your family and friends how to create peace on earth with goodwill to all! 

Harming Our Health (from the “Cliff Notes” version of “Healing Our World”)

We expect licensing laws to protect us from shoddy service providers whose mistakes could kill. However, studies show that the licensing laws themselves are often even more deadly.

For example, licensing laws lower the number of electricians in a given area by imposing extra requirements. Fewer electricians mean higher prices. To save money, people attempt to do their own wiring or go without needed repairs.  As a consequence, accidental electrocutions go up in states that have the most stringent licensing requirements for electricians. Licensing laws intended to protect us can and do kill.

 The observation that licensing laws lower the overall quantity of quality service takes on a very personal meaning when we realize that one of the most highly regulated (licensed) sectors of our economy is health care. Dental hygiene is poorer in states with the most restrictive licensing requirements for dentists because fewer people can afford regular checkups. For the same reason, the incidence of blindness increases in areas with the most stringent licensing for optometrists.

Currently, licensing laws for physicians are even more restrictive than those for dental and eye care. Consequently, physician licensing might be expected to cause even greater harm. Medical licensing increases prices, lowers the quantity of quality service, and puts a great deal of stress on our medical providers. As a consequence, physicians have one of the highest suicide rates in the United States.

Licensing of doctors was common in the early years of the United States, but was abandoned in the mid-1800s. Licensing excluded competent healers, hindered the development of alternative therapies (e.g., herbal medicine), created a monopoly of established practices (e.g., bleeding), and retarded innovative research.

Why, if licensing of physicians was so harmful, was it re-instated in the twentieth century?  The American Medical Association (AMA) wanted to practice “professional birth control,” limiting the number of physicians to increase doctors’ income. This motivation is not at all unusual: licensing laws are usually demanded, not by consumers, but by the professionals themselves! Legislators ask the established practitioners to determine the requirements for new entrants.

Not surprisingly, the established physicians grandfathered themselves in, set high standards for newcomers, and outlawed entire specialties. Most doctors supported such measures in the belief that the quality of health care would be improved.

Because AMA members controlled the licensing boards, they influenced the behavior of practicing physicians by threatening to revoke their licenses if, for example, they advertised discounts. When acupuncture was introduced into the United States, the AMA tried to outlaw its practice by anyone other than licensed medical doctors. Other specialties that are adequately, and more economically, performed by paraprofessionals (e.g., midwives, nutritionists) faced similar sanctions.

As usual, the poor suffer most from the aggression of licensing laws. Indeed, opponents of such laws feared that the poor would be deprived of medical care altogether as costs increased. Rural areas, which could no longer support a full-time physician, had to do without.

Medical licensing radically cut the number of black and female doctors too. In 1910, seven medical schools specialized in training black physicians. By 1944, only two had survived the scrutiny of the AMA-influenced state licensing boards; half of the total medical schools were unable to get accreditation and closed.  The number of women medical students was cut almost in half as schools reserved the limited medical school placements for men.

The poor were excluded from becoming physicians as well. Students of medical schools that catered to the working class by providing flexible training regimens, such as night school and apprenticeship, were no longer given accreditation by the licensing boards. Without the ability to work while they trained, only the affluent could become physicians.

Studies have shown that nurses and other non-physicians are able to diagnose and treat common conditions as competently as licensed medical doctors. In the United States, however, they were forbidden to do so legally for decades.

What a shame that so much wealth creation was sacrificed to establish, enforce, and fight such wasteful regulations! As an undergraduate, I met a military veteran who had served in Vietnam and who hoped to go to medical school after he graduated from college. Because the U.S. Army never had enough physicians available for the large numbers of wounded, he often found himself performing emergency surgery in an attempt to save soldiers who were otherwise doomed to bleed to death. This man was obviously quite capable of creating wealth by assisting in a hospital operating or emergency room, or by suturing superficial wounds. However, until he completed many years of medical school, he was unable to use his skills. Even in peacetime, medical personnel in the military are permitted to do procedures that would land them a prison sentence in the civilian world.

You are probably asking yourself how we’d find competent electricians or surgeons without licensing laws. One time-honored way to find competent service providers is by referral. However, we might not know someone who can recommend a qualified practitioner.

Does this mean that we would have to spend hours of research to find a competent doctor? Thankfully, the answer is a resounding, “No!” Independent rating services, both on the Internet and elsewhere, already provide a wealth of information.

Certification services, which give a Seal of Approval to a product or service sometimes operate invisibly in the background. For example, we don’t worry that electrical equipment will be faulty, yet our appliances and electrical hardware are not usually licensed or regulated by government. Instead, a private certifying company, Underwriters Laboratories Inc. (UL), tests more than six billion individual products and grants its UL Seal to those that meet its exacting standards. Manufacturers pay an evaluation fee to fund the testing.

The entire process is voluntary in most countries, including the United States. If you or I wish to purchase an uncertified electrical appliance, we can.  However, most retailers won’t stock an appliance or electrical component without the UL assurance of quality. As a consequence, manufacturers routinely apply for UL certification.

What keeps certifiers like UL honest? Why wouldn’t it simply give its Seal of Approval to any manufacturer that could pay the testing fee? Because the UL mark is voluntary, product makers will seek it out only as long as it represents quality. If UL certifies defective products, its mark will become worthless; manufacturers will turn to other certifying agencies, which already compete with UL. The dominance that UL now enjoys in the electrical certification market results from its excellent service to the public.

Why would you want certification instead of licensing of health care providers? If you were seriously ill and a doctor was treating people in an unorthodox way, he or she might find it difficult to become certified by their professional organization.  However, if you were terminally ill, you might want to take a chance on a novel therapy.  If the doctor’s treatment proves to work, it could save your life. With certification, you have the final say; with licensing, medical boards decide for you and usually delay introduction of new modalities.

In addition, certification is preferable to licensing because the number of practitioners increases in areas with certification compared to locations that have licensing or nothing at all.  More practitioners mean lower prices and a larger quantity of quality service delivered, especially to the poor.  More freedom from government aggression helps us all!

 

These posts are part of a “Cliff Notes” version of Dr. Ruwart’s award-winning international best-selling libertarian primer, Healing Our World. The next post in this series will be “Protecting Ourselves to Death.” If you’d like to learn more about how regulations harm our health before the next post, check out Chapter 5 of the 1993 edition of Healing Our World, in Dr. Ruwart’s Free Library.  
If you want more up-to-date detail, you can purchase the 2015 edition of Healing, with a $5 Christmas discount, here.  Give the gift of liberty this season and show your family and friends how to create peace on earth with goodwill to all! 

 

How Small Businesses Are Destroyed (from the “Cliff Notes” version of “Healing Our World”)

The last post described how jobs, the vehicle of modern day wealth creation, were destroyed through minimum wage laws.  Historically, many people chose to create their own jobs by becoming entrepreneurs.  The United States was once considered “the land of opportunity” because there were few restrictions on those who wanted to start their own business.

Today, licensing laws prevent many people, especially the disadvantaged, from creating their own jobs, especially in their homes.  I rented apartments to a couple of women who were supporting themselves and forced on to welfare by these laws.

One was sewing curtains in her apartment for businesses.  Another watched children who lived in adjacent apartments. Neither business created extra traffic.

The city government hounded these women because they didn’t have a business license and their apartments weren’t zoned for commercial activities.  They even called me and asked me to evict them, which I refused to do.  When I asked them how they thought these women would get by without an income, they simply said, “They should be on welfare anyway.” Eventually, the women, terrified by the threats from the city, ended up on the dole.

The disadvantaged can’t win.  The minimum wage laws keep them from being paid to train. Licensing laws that have nothing to do with safety keep them from being entrepreneurs.  Luckily, the libertarian Institute for Justice is coming to the rescue by representing small entrepreneurs pro bono when they run up against these discriminatory laws.

When a homeless man, Ronnie Forston, tried to start a shoe shine business in Atlanta, he was arrested seven times in 18 months. His crime was shining shoes without a license! The license itself was $175, and he needed a vendor’s permit and a home address to get it. Ronnie was homeless, so he didn’t have an address. In addition, the city had frozen the issuance of vendors’ permits. Consequently, Ronnie couldn’t get a permit even if he had applied! Ronnie’s plight clearly illustrates how licensing laws keep the poor from creating any wealth at all.

Minimum wage and licensing laws destroy the lower rungs on the Ladder of Affluence, condemning the disadvantaged to a lifetime of poverty. Instead of being paid while getting training and experience, the disadvantaged must pay for schooling or an expensive license. Instead of having the opportunity to work their way up the Ladder of Affluence, they are not allowed to even attempt the climb!

In the United States, 80% of millionaires acquire their wealth in a single generation. Half of them climb up the Ladder without any inheritance, college tuition from their parents, or even substantial financial assistance.  The  poor can aspire to affluence if they can just get a start.

If licensing laws create poverty, poor countries might be expected to have more of them. Indeed they do.  As an experiment, ABC reporter John Stossel tried to open a store selling Frisbees that met all regulatory requirements. In Hong Kong, the entire process took hours. In New York City, the multitude of form took weeks; in India, years of paperwork were required and there was no guarantee that a license would even be issued! Consequently, countries with the most licensing laws also have the largest black markets.

Fortunately, the damage done by licensing laws (regulations) can be reversed. For example, between 1980 and 1985, the number of federal regulators in the United States decreased. More than 150 private sector jobs were created for every regulator who left (Figure 4.3 from Healing Our World).

 

fed-regulators

 

During the period of job increases, the number of black-owned businesses nearly doubled.  We can create more jobs (and wealth) for the disadvantaged by simply ending the aggression of licensing laws and regulations!

In spite of the destruction caused by the aggression of licensing laws, we sometimes hesitate to abandon them. We believe that they protect us when a mistake by a service provider, such as a doctor or electrician, can be life-threatening. In the next installment, we’ll see that aggression, as usual, harms the very people it is supposed to help.

 

The next post will be “Harming Our Health.” If you’d like to learn more about how licensing laws hurt the disadvantaged before the next post, check out Chapter 4 of the 1993 edition of Dr. Ruwart’s book, “Healing Our World,” in her Free Library at http://www.ruwart.com/product/healing-our-world. You can also buy the updated 2015 edition there.

How Jobs Are Destroyed (from the “Cliff Notes” version of “Healing Our World”)

Sometimes, in our eagerness to help the disadvantaged, we violate the non-aggression principle. Since means and ends are related, we end up keeping the disadvantaged from taking their first step up the economic ladder.

In the past, immigrants, the unskilled, blacks, and women got on-the-job training by working for a pittance. For example, when I started out in biomedical research in the late 1960s, I was able to work for less than the current minimum wage, because the student lab assistant jobs weren’t yet covered. I had to be trained, which required expensive lab supplies as well as extensive supervision, so I wasn’t much help—at first.

My fellow college students thought I was crazy working for “slave wages.” However, I wasn’t just working for money.  I was working for the experience and the references.  This allowed me to jump start my laboratory thesis when it came time to begin my graduate work.  Consequently, I had publications by the time I received my Ph.D., which made me much more marketable than my predominantly male competition.

My anti-discrimination program (most people back then thought women went to graduate school to get their “Mrs.”) was to make prospective employers salivate when they saw how much I could accomplish for them.  This strategy worked admirably, but only because I was able to get a foothold on the economic ladder through a job not covered yet by the minimum wage laws. Indeed, by the time I received my B.S., the option of getting on-the-job training this way had been closed by the regulators.

Blacks and immigrants tried to get their foot in the economic door by working for a training wage as well. However, many of them weren’t as lucky as I was.  As the number of job covered by minimum wages increased, black teenage employment, which was comparable to that of whites in 1955, declined in parallel (Figure 3.1 from the 2015 edition of Healing Our World).

Our intention wasn’t to hurt the disadvantaged; indeed, minimum wages were supposed to help them by giving them a higher wage.  Instead, employers figured if they were going to have to pay blacks the same wage as whites, they’d hire whites instead. Young blacks were priced out of the job market.  Instead of having a low-paying job that would give them experience, references and a foothold on the economic ladder that would allow them to work their way up, they often found themselves with no job, no references, and no position at all on the economic ladder.

Since 90-95% of all U.S. employees are paid more than the minimum wage, getting any job that provides training, experience and/or references generally results in greater pay down the road.  Studies show that poverty isn’t caused by low wages; instead, it’s caused by no wages at all. That’s why getting that first job, even if it initially pays poorly, is so important.

We’d never go to our neighbor, put a gun to his head, and insist that she pay her babysitter more.  We are Good Neighbors (libertarians) when we relate one-on-one. Somehow, we feel perfectly comfortable telling our government to punish employers—at gunpoint, if necessary—if they don’t pay new employees more than they are worth. Instead of helping the disadvantaged, minimum wage laws compromise them further. When we violate the Good Neighbor Policy in an attempt to help people, it backfires.

Blacks, immigrants, and other disadvantaged individuals, for a short time, had another way to climb on the starting rung of the economic ladder.  Many already knew a craft, because of Old World experience (immigrants) or because such work was part of their duties as slaves (blacks).  Unfortunately, as we’ll see in the next post, their ability to start their own business was often thwarted—sometimes deliberately—by the aggression of licensing laws.

 

The next post will be “How Small Businesses Are Destroyed.” If you’d like to learn more about how minimum wage laws hurt the very people they are meant to help before the next post, check out Chapter 3 of the 1993 edition of Dr. Ruwart’s book, Healing Our World, in her Free Library at http://www.ruwart.com/product/healing-our-world. You can also buy the updated