No, New York Times, The FDA Should Not ‘Have The Power’ To Mandate National Recalls of Shampoo

After a bad batch of shampoo made some customers hair fall out, the New York Times ran a front page story on Tuesday asking whether Congress should give the Food and Drug Administration more regulatory authority over hair and skin products.

The entire piece is an exercise in “do-somethingism,” since there are already better ways for the market—and yes, even the government—to deal with the problems created by Wen Hair Care, the shampoo product at the center of a $26 million class action lawsuit. It appears that the article was prompted by ongoing congressional efforts to apply more regulations to the cosmetics industry and give the FDA authority to issue recalls of skin and hair products.

More on that in a moment. First, the facts.

The piece starts off wanting you to know that Los Angeles hairstylist Chaz Dean made “millions” by selling a variety of scented hair care products. Those same products ended up prompting more than 21,000 complaints from consumers who experienced unwanted itching, rashes and even widespread hair loss after using Dean’s Wen Hair Care products.

Without even pausing to consider whether those people have another sort of recourse besides an expensive expansion of federal regulatory power (spoiler alert: they do), the Times turns to U.S. Sens. Dianne Feinstein, D-California, and Susan Collins, R-Maine, who are pitching new legislation to require the FDA to do additional testing of cosmetic products and give the FDA authority to issue mandatory recalls for “products found to be unsafe.”

There’s good reason to feel sympathy for the victims here—no one expects to end up temporarily bald because they purchased a bottle of supposedly “revolutionary” shampoo and they are right to be upset about it—but the lack of federal regulations on cosmetics didn’t cause this problem and isn’t the best way to fix it.

Let’s start by looking at what happened to those “millions” that Chaz Dean made by apparently swindling unsuspecting consumers.

A class action lawsuit against Wen Hair Care and its manufacturer, Guthy-Renker LLC, resulted in a $26 million settlement for the plaintiffs. The settlement awards $25 to any person who bought a bottle of Wen and up to $20,000 to anyone who experienced bodily harm or hair loss after using the product.

That’s how the government should be involved in a situation like this: in a judiciary role to work out a settlement between the aggrieved parties and the business responsible for misleading them. The system works!

The Times article suggests this application of government is not enough; that the federal authorities must be more active to prevent this sort of thing from happening at all or at least to respond more quickly when it does. The FDA must be able to force companies to recall potentially problematic products, Feinstein and Collins argue.

When trying to decide whether the government should have the authority to force businesses to recall products, it’s important to know how recalls work. In almost all cases, recalls are voluntary actions taken by manufacturers. That’s true whether we’re talking about cosmetic products regulated by the FDA or whether you’re looking how the National Highway Traffic Safety Administration oversees recalls of defective automotive parts.

Even when comes to issues of food safety—certainly an area where there is a greater potential threat to public health and safety than what is created by bad shampoo—the FDA can only request a recall. The final decision rests with the food supplier, and oftentimes businesses will initiate their own recalls without being asked by the FDA because it’s generally accepted that lying to your customers or making them sick isn’t good for business.

The same is true here. Good cosmetic businesses will issue recalls of faulty products as a way to maintain consumer trust (and to avoid the kinds of class action lawsuits like the one brought against Wen in this instance). Businesses that provide bad products and then don’t come clean about the problems—no matter what industry they are a part of—won’t stay in business for long.

At the risk of sounding facetious: shampoo that causes baldness is already pretty bad for business, even before the $25 million lawsuits start rolling in.

To recap: the people who were negatively affected by Wen Hair Care were compensated for their losses and the FDA has the same authority over recalls for cosmetic products as it does over recalls related to food safety or anything else.

What more could you want the government to do in this situation?

Feinstein and Collins want to pile more regulations onto the cosmetic industry. In addition to letting the FDA issue mandatory recalls, their bill would require the FDA to test all cosmetic products that contain at least one of five common ingredients. That’s going to cost an estimated $20 billion annually, with the funds being extracted from the cosmetic industry in the form of new “fees.”

This legislation is important, we’re told by U.S. Rep. Frank Pallone Jr., D-New Jersey, because “there is effectively no regulation of cosmetics.

Except there is. The FDA’s website explains that it “monitors the safety of cosmetic products that are being marketed and acts on products that are established to be harmful to consumers when used as intended.” It does that by conducting inspections of manufacturing facilities and by surveying products on the market “especially if aware of a potential problem.” That information is used to alert consumers, support regulatory actions or issue guidance for industry, the FDA says.

The Times touts the fact that the bill has “won the endorsement of heavyweights” in the cosmetic industry, including Clinique, Johnson & Johnson, MAC and Procter and Gamble.

Opposition comes from the Independent Cosmetic Manufacturers and Distributors, a trade group that represents portions of the industry generally not large enough to be household names and not wealthy enough to hire their own lobbyists.

This is the same story that often plays out when government tries to increase regulations. Larger companies—like those “heavyweights” of the industry rattled off by the Times—are better able to absorb the added cost of regulations and will support the expansion of regulations as a way to hurt smaller competitors. This is the same dynamic driving the FDA’s expensive, destrutive and unnecessary regulations of electronic cigarettes, by the way.

In a statement to Reason, the Independent Cosmetic Manufacturers and Distributors said it did not support the Feinstein-Collins bill because “it placed too large a burden on small business, did not provide reasonable national uniformity, and would, if passed, stifle innovation in the cosmetics and personal care industry.”

There’s no way to know whether more testing and regulations would have caught the problems with Wen Hair Care shampoo before it hit store shelves, but the people injured have been compensated and the company paid the price for making a bad product.

One business’ mistake should not be a reason to add to the regulatory burden faced by all others in the same field.

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Could Gary Johnson Grab LGBT Voters from Clinton, Trump?

Gay Pride Clinton BannerIt may seem as though the Democrats will own a dominant chunk of the gay vote this election (again), regardless of the small—but symbolically significant—pushes by the Republican Party to be more friendly and supportive of the community, even if policy goals don’t align.

Mark Lee is an opinion columnist at the Washington Blade, an LGBT-targeted publication in the nation’s capital. He has been writing about the growing discontent with the two major parties and is questioning whether Hillary Clinton will get the same level of the gay vote as previous Democratic candidates have received. Lee doesn’t really have facts at the moment to back him up, but given that Clinton has such high unfavorable ratings, it is worth wondering how many gay voters might be looking elsewhere:

Similar to all Americans, one-quarter of LGBT voters indicate they don’t support either major party nominee. The high degree of dissatisfaction with both of these notorious grifters has the net effect of lowering Clinton’s tally of LGBT votes.

An astounding 41 percent of Americans have recently said they are having difficulty choosing between Clinton and Trump because they believe neither would make a good president. LGBT voters are undoubtedly among them.

When given the option, 13 percent told a polling firm aligned with Democrats they’d prefer a giant meteor hitting earth than being forced to chose either Clinton or Trump. The disaffected among those under 30 represents a plurality. With the largest bloc of voters now self-identifying as independents, more than a quarter of the unaffiliated would chose annihilation.

A poll of LGBT likely voters back in May showed overwhelming support of Clinton compared to Trump: 84 percent to 16 percent. Right now those numbers show Clinton performing better than Barack Obama did in 2012 with the LGBT vote. Exit polls from 2012 showed Obama getting 77 percent of the LGBT vote and Mitt Romney getting 23 percent.

But also of interest in the Clinton-Trump poll: Those polled were not presented any third-party options, and 22 percent of the LGBT voters polled identify as “independent” (outnumbering the 15 percent that identify as Republican).

Given Gov. Gary Johnson’s pro-gay positions (some of which are subject to libertarian criticism for not really making strong arguments for further government intrusion on religious liberty and freedom of association), there’s certainly opportunity for him to land some of the LGBT vote.

Clinton’s still deeply disliked—a new poll by YouGov puts her unfavorable ratings at 55 percent. She’s still less detested than Trump—his unfavorables are at 66 percent.

But what’s also different about this race is that Clinton has jumped aboard and declared support for every single political goal put forward by the most powerful of LGBT activist groups. This is not an election where there’s been any equivocation or attempts to walk some line to appeal to more conservative, religious Democrats in Southern states. Clinton has publicized a pro-LGBT federal policy agenda that supports passage of a whole host of new laws.

So to the extent that she loses LGBT votes, it seems as though the likely candidates are: Those who put other priorities ahead of LGBT issues and find the Dems wanting (essentially, likely the same pool of gay voters who have already been turning away from the Democrats); those who have concluded that we’ve reached the point where don’t actually need additional federal regulations on LGBT issues in order to lead happy, free lives (that’s guys like me, but I admittedly may be overestimating how many of us fit in this category); and those who really, really don’t trust Clinton based on her background of, well, not being very trustworthy.

When I look at those categories, I suspect we may not see a significant difference in numbers for Clinton come November compared to previous elections, but given the nature of the race this year, I’m truly hoping exit polls ask gay and transgender voters about third-party candidates, at least Johnson and the Green Party’s Jill Stein.

I do suspect what might be likely is that we may see a big drop in turnout, and that’s probably not going to be accurately reflected in the exit polls, for obvious reasons. Both candidates may receive fewer votes than the presidential candidates in previous elections, but that won’t necessarily change the percentages. The Republican base resisted the opportunity to update its party platform to be more gay friendly, and while there was some significant outreach to gay voters at the convention, it was really heavily focused on making LGBT folks feel included in the push for stronger interventions to protect against Islamic terrorism within the United States. Trump’s rather erratic campaign and the unclear future of the GOP has left gay conservatives somewhat divided.

There is a huge opportunity here for Johnson among LGBT citizens who don’t see themselves as fellow travelers in the progressive movement just because of their sexual orientations or gender identity. It may also be an election where a chunk of LGBT voters just throw up their hands and walk away from the two parties.

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Former L.P. Candidate John McAfee Still Can’t Abide Gary Johnson

John McAfee, who sought but failed to win the Libertarian Party’s presidential nod this year, in a video interview with “Jeff4Justice” from a couple of weeks back that just came to my attention, still wants to support the Libertarian Party downticket and grassroots, and still can’t abide Gary Johnson. “I’m definitely interested in helping move past the two-party system,” McAfee says.

“What I’m doing is supporting the grassroots in the Libertarian Party. I have abandoned the Libertarian Party leadership and instead I’m working with people running for mayor, state legislator, for dogcatcher, for sheriff. Why? Because we can do something there.”

“I’m not endorsing Gary Johnson,” McAfee insists, “and let me tell you why. I predicted what would happen with Gary Johnson: we would compromise. They asked Gary Johnson in [the CNN] Town Hall, what about gun control? He said ‘I think the system we have is sufficient.’ Please!”

That sort of compromise is “what happens when we get in the political process…the people who backed you with money say you have to have a chance of winning. We’re not going to win! We’re Libertarians! Not this year.”

McAfee is referring to this, from the first CNN Johnson/Weld Town Hall back in June:

Q: …how would making it easier to buy guns with minimum requirements, especially unnecessary military rifles, how is that making it easier for us?

JOHNSON: I don’t think our position would be making it easier. We’re not looking to roll back anything. But with regard to keeping guns out of the hands of the mentally ill, with regard to keeping guns out of the hands of potential terrorists – Bill talked about establishing a thousand-person taskforce to potentially address that, a hot line. Look, we should be open to these discussions.

The antivirus software pioneer also hits vice presidential candidate William Weld for his desire to “limit the number of rounds we can put in a magazine, he does not think assault rifles should be available.”

(I reported earlier this month on Weld’s gun heresies with link to the relevant video interview with the former Massachusetts governor.)

The video of McAfee from which the above is derived:

Weekly Standard this week issued a long Matt Labash profile of McAfee, calling him “The Libertarian Trump,” mostly reported from May’s Libertarian Party convention.

Some interesting bits, contextualized in a larger mini-bio of McAfee’s colorful life and career with of course a close focus on his troubles with authorities in Belize, who McAfee insists tried to frame him for the murder of another expat neighbor when he refused to pay bribes and learned too much about their corruption:

McAfee, meanwhile, clearly boasted the most outlaw street-cred of the field and reminded me that much of politics is about surface appearances, which can be deceiving. “Twice in my life,” McAfee said, “I have picked up the most beautiful woman in the world. Wined and dined her, taken her home. And then her dick pops out. All right? Now that’s a shock for a man. So I know that appearances mean nothing. .  .  . Once you have that experience, you look at life totally different. If that’s possible. .  .  . What else have I missed?”…

There was McAfee’s wife, 33-year-old Janice Dyson McAfee, who has steely campaign discipline, limiting McAfee to one tequila at the hotel bar before insisting he switch to beer whenever he has a speaking engagement. (Sometimes, he even listened to her.) Janice’s tasteful political-wife attire and gentle smile belie her past. For 10 years, she was a prostitute, and her vicious pimp, Suavé, regularly batted her around. “He was an extremely bad man, he hit me a lot,” said Janice, grateful, like a good Libertarian, to be surrounded by so many firearms. (In addition to [McAfee pal and bodyguard John] Pool, she and McAfee usually carry as well.)….

He had a blur of other stints: programmer for NASA’s Institute for Space Studies, consultant for Booz Allen Hamilton, selling drugs and jewelry out of a van in Mexico. After developing a bottle-of-scotch-a-day and cocaine habit, he hit bottom, went to AA, and swears he’s never taken drugs again. When I witnessed a delegate pass a joint his way on one of his frequent cigarette breaks by the hotel pool, McAfee didn’t seem remotely interested. He’d sworn off drinking for a time, too, something he’s made a great display of over the years to profilers. Yet he seemed to match me tequila (his) for bourbon (mine) whenever we hit the bar. When did he fall off the wagon? About two years ago, he says. “Why?” I asked him. “I was 68 years old,” he says. Figuring his biblically allotted threescore-and-ten were just about up, he decided “I want a drink.”

In one of the more colorful parts of the profile, Labash decides to press McAfee about the whole “suspected of killing his neighbor in Belize” thing. A supposed motive for McAfee’s alleged involvement was the possibility that the neighbor poisoned McAfee’s dogs.

McAfee loves to test the mettle of reporters, question their manhood, accuse them of being manipulative and dishonest, and keep himself amused. I can play that game, too. I’d asked him straightaway numerous times if he had anything to do with the death of Faull, which he repeatedly and categorically denied. So I came at it from a different angle this time. I told him how much I love dogs (true), and how I’d kill somebody who killed a dog faster than I’d kill a dog. “I kind of love dogs, too,” McAfee said. I then pushed my luck: “If you killed somebody because of that,” I said, “that’s a good reason to kill somebody.” His eyes widened. “What? That’s not a good reason to kill somebody,” he said. “Are you insane? .  .  . What’s wrong with you?” He then turned slightly menacing. “You don’t want to set me up, because it will motivate me to set you up, and it will be very unpleasant, and not for me, I promise you.”

I let it drop, and we talked about other things: fishing, sailing, life. But McAfee, who had made me feel like his deepest confidant for days, had grown uninterested, half-hearted, checking his phone. I asked what gives. He wasn’t happy about my “puppy dog” ploy, he said. I protested that it was just two guys, journalist and subject, slugging it out over drinks, that he shouldn’t be angry. “I’m not mad, just offended, big difference,” he said. “But now, it does put us on a level where I feel privileged to f— with you at the same level. Do you understand me?”

Later in the story, subject and object seem to bury the hatchet. McAfee is a fascinating character and Labash produced a fascinating profile.

I reported from time spent with McAfee in New York, Las Vegas, and Orlando, both before and after McAfee failed to cinch the L.P.’s presidential nomination.

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“It Will Be a Beautiful Day When the Air Force Bombs All the Schools Having Bake Sales”

One of the great constants in an otherwise uncertain 21st century is spending on the U.S. military. Despite increasing debt and reduced war operations, the Pentagon knows how to keep both sides of its bread slathered in butter.

“The total request for next year’s Pentagon budget is a robust $583 billion,” write Ryan Alexander and William Ruger in Stars & Stripes, “more than half the federal discretionary budget.” And if military hawks at places such as The Heritage Foundation and American Enterprise Institute get their way, we’d be shelling out a minimum of 4 percent of GDP for defense (“4% for Peace!”), which would goose spending by another $120 billion a year.

Here’s the amazing thing about the Pentagon: It manages to do fine regardless of which party is in power. “The United States,” write Alexander and Ruger, “has averaged higher levels of defense spending under President Barack Obama compared to the George W. Bush administration, even when adjusted for inflation. Indeed, defense spending in 2010 and 2011 exceeded any year since World War II.” It’s easy to see why. Conservatives love the military and though they will tell you that the government is incompetent and wasteful in whatever it does, they turn a blind eye to defense spending and accountability (David Stockman, Ronald Reagan’s first budget director, has suggested that his boss was the initiator of this dynamic). As can be seen by the way in which the GOP leadership fought to save the useless Export-Import Bank, conservatives also love cronyism as long as they’re favored vendors are getting taxpayer funding. On the liberal side, the calculus is a little bit different. There are plenty of Democratic hawks—Hillary Clinton certainly counts as one, despite recent attempts to cast her as something else—but as important, there are many Democratic Keynesians who believe government spending buoys the economy. Military contractors are smart, too, to site their various manufacturing contracts in as many congressional districts as possible.

Cronyism is so entrenched in the defense bureaucracy that even when the Pentagon tries to cut a wasteful program, parochial interests decry the potential loss of jobs. This is pure military Keynesian economics, often advanced by supposed conservative champions of free markets. Increased military expenditures, they argue, will be a cushion against economic downturn. But the military is not a jobs program.

Special interests have long treated the massive Pentagon budget as a dumping ground for programs that don’t make us safer. For instance, until last year, Congress required the Pentagon to ship coal from Pennsylvania to Germany to heat U.S. military installations. Why? Because in the 1960s, some Pennsylvania congressmen wanted to prop up the declining fortunes of the anthracite coal industry in their state. Last year, the House voted 252-179 to strip the requirement and it was stopped. But like a legislative zombie, it was resurrected this year. The House spoke again, rejecting the provision with an even bigger majority. Hopefully that was its death knell.

That’s a rare victory over stupid, wasteful spending, write Alexander and Ruger. When it comes to projects like the F-35 fighter, which will likely be obsolete by the time it is fully operational (really), there just seems to be no stopping the pork.

Read the whole piece here.

Does military spending increase overall economic activity? Those of us who took intro economics classes through the mid-1980s or so may remember being taught that America’s massive, government-financed buildup for World War II was what finally pulled the country out of The Great Depression. But a closer look at empirical results of deficit-financed military spending and, as important, cuts in military spending tell a very different story. This is from a 2013 Mercatus Center paper by Robert J. Barro and Veronique de Rugy, published when many people were freaking out over the impact of minimal spending cuts related to the sequester and the Budget Control Act:

The existing studies found that a dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit financed….

In 1943, Keynesian economist Paul Samuelson predicted the dramatic drop in federal defense spending and the reintegration of 10 million servicemen into the civilian labor force following the end of World War II would usher in “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” He recommended the government maintain wartime price controls, implement “income maintenance,” and engage in large-scale public works to avert this dire outcome. But the postwar bust Samuelson and many others expected never occurred.

Despite plunging war production and massive discharges of soldiers, the government offered no dismissal pay for soldiers, dismantled direct controls on the private economy, and did not implement any large-scale public works programs.

As Henderson (2010) points out, despite the massive drop in government spending—from 41.9 percent of GDP in FY 1945 to 14.7 percent in FY 1947—unemployment rose only modestly from 1.9 percent to 3.6 percent. Similarly, the economy grew a respectable 3.3 percent annually from 1978 through 2000, even as the share of defense spending dropped from 7.4 percent of GDP to 3.7 percent.

The entire paper is well worth reading, both in connection to military spending and to debt-financed stimulus spending more generally.

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Former L.P. Candidate John McAfee Still Can’t Abide Gary Johnson

John McAfee, who sought but failed to win the Libertarian Party’s presidential nod this year, in a video interview with “Jeff4Justice” from a couple of weeks back that just came to my attention, still wants to support the Libertarian Party downticket and grassroots, and still can’t abide Gary Johnson. “I’m definitely interested in helping move past the two-party system,” McAfee says.

“What I’m doing is supporting the grassroots in the Libertarian Party. I have abandoned the Libertarian Party leadership and instead I’m working with people running for mayor, state legislator, for dogcatcher, for sheriff. Why? Because we can do something there.”

“I’m not endorsing Gary Johnson,” McAfee insists, “and let me tell you why. I predicted what would happen with Gary Johnson: we would compromise. They asked Gary Johnson in [the CNN] Town Hall, what about gun control? He said ‘I think the system we have is sufficient.’ Please!”

That sort of compromise is “what happens when we get in the political process…the people who backed you with money say you have to have a chance of winning. We’re not going to win! We’re Libertarians! Not this year.”

McAfee is referring to this, from the first CNN Johnson/Weld Town Hall back in June:

Q: …how would making it easier to buy guns with minimum requirements, especially unnecessary military rifles, how is that making it easier for us?

JOHNSON: I don’t think our position would be making it easier. We’re not looking to roll back anything. But with regard to keeping guns out of the hands of the mentally ill, with regard to keeping guns out of the hands of potential terrorists – Bill talked about establishing a thousand-person taskforce to potentially address that, a hot line. Look, we should be open to these discussions.

The antivirus software pioneer also hits vice presidential candidate William Weld for his desire to “limit the number of rounds we can put in a magazine, he does not think assault rifles should be available.”

(I reported earlier this month on Weld’s gun heresies with link to the relevant video interview with the former Massachusetts governor.)

The video of McAfee from which the above is derived:

Weekly Standard this week issued a long Matt Labash profile of McAfee, calling him “The Libertarian Trump,” mostly reported from May’s Libertarian Party convention.

Some interesting bits, contextualized in a larger mini-bio of McAfee’s colorful life and career with of course a close focus on his troubles with authorities in Belize, who McAfee insists tried to frame him for the murder of another expat neighbor when he refused to pay bribes and learned too much about their corruption:

McAfee, meanwhile, clearly boasted the most outlaw street-cred of the field and reminded me that much of politics is about surface appearances, which can be deceiving. “Twice in my life,” McAfee said, “I have picked up the most beautiful woman in the world. Wined and dined her, taken her home. And then her dick pops out. All right? Now that’s a shock for a man. So I know that appearances mean nothing. .  .  . Once you have that experience, you look at life totally different. If that’s possible. .  .  . What else have I missed?”…

There was McAfee’s wife, 33-year-old Janice Dyson McAfee, who has steely campaign discipline, limiting McAfee to one tequila at the hotel bar before insisting he switch to beer whenever he has a speaking engagement. (Sometimes, he even listened to her.) Janice’s tasteful political-wife attire and gentle smile belie her past. For 10 years, she was a prostitute, and her vicious pimp, Suavé, regularly batted her around. “He was an extremely bad man, he hit me a lot,” said Janice, grateful, like a good Libertarian, to be surrounded by so many firearms. (In addition to [McAfee pal and bodyguard John] Pool, she and McAfee usually carry as well.)….

He had a blur of other stints: programmer for NASA’s Institute for Space Studies, consultant for Booz Allen Hamilton, selling drugs and jewelry out of a van in Mexico. After developing a bottle-of-scotch-a-day and cocaine habit, he hit bottom, went to AA, and swears he’s never taken drugs again. When I witnessed a delegate pass a joint his way on one of his frequent cigarette breaks by the hotel pool, McAfee didn’t seem remotely interested. He’d sworn off drinking for a time, too, something he’s made a great display of over the years to profilers. Yet he seemed to match me tequila (his) for bourbon (mine) whenever we hit the bar. When did he fall off the wagon? About two years ago, he says. “Why?” I asked him. “I was 68 years old,” he says. Figuring his biblically allotted threescore-and-ten were just about up, he decided “I want a drink.”

In one of the more colorful parts of the profile, Labash decides to press McAfee about the whole “suspected of killing his neighbor in Belize” thing. A supposed motive for McAfee’s alleged involvement was the possibility that the neighbor poisoned McAfee’s dogs.

McAfee loves to test the mettle of reporters, question their manhood, accuse them of being manipulative and dishonest, and keep himself amused. I can play that game, too. I’d asked him straightaway numerous times if he had anything to do with the death of Faull, which he repeatedly and categorically denied. So I came at it from a different angle this time. I told him how much I love dogs (true), and how I’d kill somebody who killed a dog faster than I’d kill a dog. “I kind of love dogs, too,” McAfee said. I then pushed my luck: “If you killed somebody because of that,” I said, “that’s a good reason to kill somebody.” His eyes widened. “What? That’s not a good reason to kill somebody,” he said. “Are you insane? .  .  . What’s wrong with you?” He then turned slightly menacing. “You don’t want to set me up, because it will motivate me to set you up, and it will be very unpleasant, and not for me, I promise you.”

I let it drop, and we talked about other things: fishing, sailing, life. But McAfee, who had made me feel like his deepest confidant for days, had grown uninterested, half-hearted, checking his phone. I asked what gives. He wasn’t happy about my “puppy dog” ploy, he said. I protested that it was just two guys, journalist and subject, slugging it out over drinks, that he shouldn’t be angry. “I’m not mad, just offended, big difference,” he said. “But now, it does put us on a level where I feel privileged to f— with you at the same level. Do you understand me?”

Later in the story, subject and object seem to bury the hatchet. McAfee is a fascinating character and Labash produced a fascinating profile.

I reported from time spent with McAfee in New York, Las Vegas, and Orlando, both before and after McAfee failed to cinch the L.P.’s presidential nomination.

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The Return of the Obamacare Death Spiral

Earlier this week, Aetna, which covers about 900,000 people through the health exchanges created under Obamacare, announced that it would dramatically reduce its presence those exchanges. Instead of expanding into five new states this year, as the insurer had previously planned, the company said that it would drop out of 11 of the 15 states in which it currently sells under the law.

Aetna’s decision follows similar moves from other insurers: UnitedHealth announced in April that it would cease selling plans on most exchanges. Shortly after, Humana pulled out of two states, Virginia and Alabama. More than a dozen of the nonprofit health insurance cooperatives set up under the law—health insurance carriers created using government-back loans in order to spur competition—have failed entirely. While some insurers are entering the exchanges, even more are leaving.

What this means is that in several states, and even more counties, there will be only one insurer available through Obamacare. In at least one county—Pinal County, Arizona—it is likely that there will be no insurer available on the exchange at all.

This slow exodus of insurers from the health law’s marketplaces represents a serious threat to the continued stability and existence of its exchanges. Obamacare is perched on the edge of a death spiral.

The fundamental problem is simple: Insurers are losing money. Earlier this year, Aetna said it expected to lose about $300 million on the plans. UnitedHealth estimated losses on exchange plans in the range of $650 million. This is not a problem that is limited to big, profit-seeking insurance companies: The majority of the non-profit co-op plans created under the law have failed, citing an inability to pay claims using premium revenues.

This is simple business math. For insurers to operate on the exchanges, they have to bring in sufficient revenue to cover their claims. Some of them might be willing to accept losses up front on the promise of returns over time. But the losses can’t go on forever.

And what the insurers who have left the program have made clear is that they believe that, absent changes, the losses will go on forever. “The vast majority of payers have experienced continued financial stress within their individual public exchange business,” Aetna CEO Mark Bertolini said about the decision. In a call with investors last year, a representative from UnitedHealth said the company “saw no indication of anything actually improving” inside the exchanges. “We cannot sustain these losses,” UnitedHealth CEO Stephen Hemsley said on that call. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”

Partisan defenders of the law have sometimes argued that Republicans in Congress crippled it by making it more difficult for the federal government to subsidize struggling insurers. At a minimum, they are overstating their case.

This is a reference to a provision inserted into a 2014 spending bill limiting the ability of the administration to dip into Treasury funds to pay out funds under the law’s risk corridors provision. The risk corridors provision was essentially a backstop built into the health law to help insurers balance out profits and losses during the first years of the program. Insurers whose claims came in lower than expected would make payments into the government-run program, while those whose claims came in higher than expected would receive payments.

In theory, the payments even out, with some insurers paying in and others being paid out. That was certainly the expectation when the bill was passed: The Congressional Budget Office (CBO) scored the provision as revenue neutral—costing taxpayers nothing.

But what would happen if claims from all the insurers came in higher than expected? The answer is that there was no plan for this possibility. In addition to the CBO’s score, which while imperfect set expectations for the law, the Department of Health and Human Services did not provide for any source of funding should outgoing payments exceed collections.

So what Republicans did was to require the law to work as projected and as expected—and limit the administration’s options to prop it up, at taxpayer expense, should things not go as planned.

As the cascade of insurance carriers exiting the Obamacare marketplaces makes clear, things are not going as planned.

In Aetna’s case specifically, there is an additional complication: The company has proposed a merger with competing health insurance company Humana, but the Obama administration has blocked the move, with Aetna and the Department of Justice set to hash out the details on court later this year. In July, before the DoJ announced plans to oppose the merger, Aetna CEO Mark Berscolini sent a letter to the Obama administration stating that if the administration decided to block the merger, Aetna would respond by reducing its exchange business.

“If the deal were challenged and/or blocked,” the letter, which was first published by The Huffington Post, says, “we would need to take immediate actions to mitigate public exchange and ACA small group losses,” specifically by reducing the company’s exchange presence to just 10 states. The letter suggests that a complete exit from the exchanges could be in the works if the merger is not allowed, saying that “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.”

It’s entirely reasonable to view Aetna’s move, then, as the execution of a threat in a business negotiation with federal regulators. (It’s also worth noting that the Department of Justice requested the letter from Aetna, which turned out to be a rather convenient document to have for making a public case against the insurer.)

At the same time, the core issue remains the same: Selling insurance on Obamacare’s exchanges is not a good business proposition in many instances. Aetna was losing money in a way that was not, by itself, sustainable. Aetna was willing to incur losses on the exchanges—but only if allowed to expand its business in other ways. If Aetna was not incurring losses on Obamacare’s exchanges, this would not be an issue.

And it is because of those losses that we are seeing what looks more than a little like the start of a health insurance death spiral in the exchanges. This is far from certain, and will depend in significant part on the results of the next open enrollment period, which starts later this year, as well as the decisions made by other health insurers under the law. But there are a number of warning signals to be watching.

We know what a health insurance death spiral looks like because we’ve seen them before, in states such as New York, New Jersey, and Washington. The experience in those states varied somewhat, but they all shared several essential qualities: The states put in place regulations requiring health insurers to sell to all comers (guaranteed issue), and strictly limiting the ways that insurance could be priced based on individual health history such as preexisting conditions (community rating). As a result, insurers ended up with large numbers of very sick customers who were very expensive to cover. Because they were subject to limits on how they could price health history, they responded by signficantly raising premiums for everyone. The new, higher premiums caused the healthiest, most price sensitive people to drop coverage entirely, which caused insurers to raise premiums further, resulting in yet more individuals dropping coverage, and so on and so forth, until all that remained was very small group of very sick, very expensive individuals.

Washington state’s experience in the 1990s is particularly instructive: After the state put in place guaranteed issue and community rating rules, carriers saw an influx of unusually sick and expensive beneficiaries, as well as individuals gaming the system by signing up for coverage in advance of an expensive medical event, then cancelling as soon as that event was over. Insurers simply couldn’t make money in the individual market, and so between 1993 and 1998, 17 of the state’s 19 plans stopped selling individual insurance plans. The next year, the final two carriers left the individual market. It was a total meltdown.

The lesson most observers took from this was that insurance market regulations would not work without a mandate: In 1994, a Republican-led legislature had killed an individual requirement to carry coverage but left guaranteed issue and community rating in place.

Obamacare, of course, has a mandate, but what’s happening in the health law’s exchanges is starting to echo what happened in Washington and other states that experienced death spirals.

Individual insurance premiums have spiked all over the country. Far fewer people have signed up for coverage than expected, with sign-ups undershooting Congressional Budget Office estimates by about 40 percent. The people who have signed up, meanwhile, have tended to be sicker and more expensive to cover, according to health insurers. “For every dollar we brought in last year, we paid out $1.26 for medical care,” Michael E. Frank, the president of Blue Cross and Blue Shield of Montana, told The New York Times this week. “In the first six months of this year, we have already paid $4.17 million in medical costs for the top 10 individuals. That’s $70,000 a month for those individuals.”

And even with the mandate in place, some people appear to be gaming the system. A top actuary for insurer Highmark told the Times that in Pennsylvania, roughly 250 of its beneficiaries on had already incurred more than $100,000 in expenses this year. “People use insurance benefits and then discontinue paying for coverage once their individual health care needs have been temporarily met,” he said, driving up the cost of coverage for everyone. Last year, UnitedHealth also indicated that individuals buying coverage and dropping it was driving losses.

As all this is happening, of course, insurers are bailing on the system, unable to make the numbers add up.

It’s not an exact replica of the Washington state experience, but there are certainly similarities. The underlying point of all of this is that if the law’s exchanges remain on their current wobbly trajectory, its dysfunction is nearly certain to grow. And the rough negotiations between Aetna and the administration may make insurers who are already losing money even more wary of further participation in the system.

That means that the prospect of significant further reforms may soon be on the table—which will likely include everything from poorly conceived state-based single-payer plans to poorly conceived federal health insurance systems to, ah, poorly conceived conservative reforms. If anything, reforming health reform will be even more difficult than the initial project.

In the meantime, Obamacare will likely continue to falter. The law, of course, has avoided multiple potential near-death expenses thus far, and it may still survive. But at the moment, at least, it looks like one sick patient.

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New York Times 2015 Op-Ed Issued a Dire Warning About Polling Accuracy

As I demonstrated in yesterday’s article, How Bloomberg Spun its Own Poll Data to Make Hillary Clinton Seem Inevitable, the media is intentionally spinning poll results at best, and completely fabricating them at worst.

While that’s bad enough, there are also some deep, fundamental problems which plague any attempts to conduct accurate polling in 2016. Cliff Zukin, professor of public policy and political science at Rutgers University and a past president of the American Association for Public Opinion Research, wrote about many of these issues in a 2015 New York Times opinion piece titled, What’s the Matter With Polling?

Here are a few excerpts:

Over the past two years, election polling has had some spectacular disasters. Several organizations tracking the 2014 midterm elections did not catch the Republican wave that led to strong majorities in both houses; polls in Israel badly underestimated Prime Minister Benjamin Netanyahu’s strength, and pollsters in Britain predicted a close election only to see the Conservatives win easily. What’s going on here? How much can we trust the polls as we head toward the 2016 elections?

continue reading

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These 2 Olympics Commercials Show Everything That’s Wrong With Democratic Economics

A couple of nights back, while watching the Olympics, I saw these two expensive-to-air commercials in rapid succession. The first is the brainchild of New York Gov. Andrew Cuomo, the second is a campaign ad for presidential nominee Hillary Clinton. This is your Democratic Party on economics:

Making our economy work for everyone starts by making sure those at the top pay their fair share in taxes.https://t.co/uDdkrzKL9O

I can think of no better snapshot of major-party economics as practiced in 2016. We need incentives to reward companies for moving in, and penalties to punish them for moving away! Let’s waive taxes for a decade on one politically acceptable category of businesses, while raising taxes permanently on a disfavored class right next door! And no matter what, it is government that will help your business grow, and create millions of new jobs.

At least Clinton’s intelligence-insulting ad was paid for by her own campaign. Cuomo, on the other hand, has poured more than $200 million of taxpayer money into promoting New York like this since 2012, including north of $50 million for Start-Up NY, a program that the governor promised would “supercharge” the Empire State economy.

So how many jobs has Start-Up NY produced, in exchange for all this advertising, and an estimated $100 million in waived taxes? Uh, 408. Cuomo, meanwhile, insists that the many critics of the ad campaign’s desultory return on investment are “wrong,” because

the advertising is generic. “Come to New York,” and “We will help your business grow if you come to New York,” and “New York is not the frightful place that you thought it was,” “We’re not a high-tax state — we’ll eliminate taxes.” So that’s what the advertising did. We had a very anti-business reputation, and if you asked any company, we actually did — you ask companies around the country, “Would you ever move to New York?” They’d say, “Oh no no no — New York is anti-business. It’s very high tax, it’s very high regulations.” So we had a bad reputation that we had to correct to even be considered.

And the quote-unquote Start-Up ads are really generic. Start-Up means, “Come to New York and we will help you start up your business—no taxes, but usually we’ll also give you a loan, we’ll give you an incentive, we’ll invest in your business and take an equity participation.” But if a state wants to be competitive now, it’s going to take more than just no taxes. That’s sort of the opening bid. But most often you’re going to have to put an additional investment package on the table to be competitive with what the other states are offering.

What a godawful mess.

And as for why New York has a bad enough business/regulatory reputation that it needs to spend eight figures counteracting that impression, look no further than Cuomo’s own speech at the recent Democratic National Convention:

[O]ur progressive government is working in New York. We raised the minimum wage to $15, the highest in the nation because we insist on economic justice! We enacted paid family leave because all workers deserve dignity! We are rebuilding our middle class and we’re working hand in hand with organized labor because the middle class is the backbone of this society! We are protecting the environment by banning fracking because this is the only planet we have.

There is a better way, one that both 19th century political parties have long since abandoned. And that is this: Make the rules—including tax levels—few, simple, and fair, and then please get the hell out of the way. That’s how “we make the economy work for everyone,” or to translate out of the Hillaryspeak, that’s how an economy can produce far more opportunity than would-be central planners could ever fathom, let alone conjure up with their incessant interventionism.

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Vice Presidential Prospects: New at Reason

We’ve heard nonstop criticism of both the Democrat and Republican presidential candidates—for good reasons. So are their running mates any better?

Yes, according to John Stossel, who writes that “overall, the major parties’ vice presidential candidates are less scary than than the presidential candidates.” But while Stossel respects Mike Pence and Tim Kaine, Libertarian Party candidate William Weld, running as Gary Johnson VP pick, would be better than either, he writes.

View this article.

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Only One Presidential Candidate Is Pumped about Driverless Cars, 3D Printing, and Gene Editing

One of the most appalling things about the 2016 election is how backward-looking virtually all of the candidates are.

Hillary Clinton and Donald Trump are early baby boomers and true to that generation’s solipsism, they can only envision American greatness in the terms of their youth (that they are obsessed with banal notions of national greatness is its own problem). Trump wants to make the country “great again,” by which he means returning to a whiter, less ethnically diverse country with markedly fewer Mexicans (the percentage of foreign-born residents in the United States reached its low ebb in 1970). Like Hillary Clinton, he’s against trade with foreign countries unless the deals are stacked against our partners. Both share a fixation on growing manufacturing jobs (factory jobs) here in the United States. I’d argue that’s because when they were young, America defined “good, middle-class jobs” as factory work (not that either of them would stoop so low as to pull shifts on an assembly line). What they don’t realize is that they grew up in a weird, short-lived moment. Thanks to protectionist trade policies, global rebuilding associated with World War II, and pent-up demand in the vast American market, the United States was indeed dominant for a few decades in terms of manufacturing and trade. But that couldn’t—and shouldn’t—last. Europe and Asia rebuilt, Africa decolonized, and South America developed their own markets and capabilities. The result is vastly wealther world in which overall inequality and extreme poverty is shrinking. American is still a manufacturing powerhouse but we use far fewer people to make more stuff than ever, just as we use fewer farmers to generate more food. There’s no going back to the 1950s, ’60s, or ’70s (when manufacturing employment peaked in the U.S.). More important, why would you want to, especially in terms of daily work conditions and social mores?

And yet Clinton and Trump look backwards while talking about the next four years. They are nostalgic and out of touch with the present, much less the future. Add to this Clinton’s hostility to the sharing economy, which recasts employees as independent contractors who often work part-time or juggle various gigs. Clinton wants to shut all that down by insisting that, say, Uber drivers, are employees just like rank-and-file steelworkers were back in the day. On top of that, Clinton (and to a lesser degree, Trump) want to create a uniform set of benefits that all employers must give to all employees. Mandated standardization in the great age of personalization and individualization! It boggles the mind.

You listen to Clinton and Trump talk and you’d have no idea that we’re in the goddamn 21st century. Trump doesn’t even use email and Clinton notoriously refuses to adhere to basic computer-security protocols. Then there’s Dr. Jill Stein, who as a doctrinaire Green Party member is against fracking and other bridge technologies that reduce greenhouse emissions as even lower-polluting alternatives come of age (she is of course categorically against nuclear energy too). She has tweeted that her attorney general would “prosecute Exxon for lying to the public about climate change,” and she worries about WIFI’s effect on kids’ brains. She’s said various things suggesting she thinks vaccines cause autism, a claim that has been thoroughly debunked (and note, there’s a difference between being for or against mandatory vaccination and thinking that vaccines cause autism).

Among the four leading presidential candidates, only the Libertarian Party’s Gary Johnson seems not just unafraid of the future but positively pumped up by the ways in which new technologies and innovations are changing how we work and thrive, and how long we might live.

Transhumanist Zoltan Istvan interviewed Johnson at the former governor’s New Mexico home and the conversation is forward-looking, to put it mildly. Given Johnson’s belief that Uber and Airbnb are models for generating extra value from cars and houses that are otherwise being unused (“We need Uber everything!” he’s known to say), it’s unsurprising that he looks forward to driverless cars as a way of reducing traffic accidents and congestion.

But Johnson goes way beyond that. Writes Istvan:

I asked Johnson what he thought of those that want to regulate AI [artificial intelligence], and he wrote, “I think it is important to not regulate the AI industry.” Johnson said the same thing about the internet industry. As a Libertarian, he wants to leave those industries to themselves. Not regulating AI development goes against some leading thinkers like Elon Musk, but it’s right in line with many AI engineers who argue there’s little reason to worry about its creation.

Johnson also believes in longevity research. He says he would “sign legislation promoting research and development” of cures for all diseases. In fact, he likes the Facebook’s Mark Zuckerberg recent statements that we should aim to cure every disease before this century is out. Johnson also said he would be “vetoing legislation that would restrict” science development.

In the profile, Johnson also backs gene editing and CRISPR technology and says that he’d install a 3D printer in the White House.

This sort of talk jazzes up Istvan, who is himself running for president on the Transhumanist Party ticket (the only party, I assume, where the president and vice president might be clones of one another). He concludes,

I hope Johnson will make it into the Presidential debates (and Bill Weld into the Vice Presidential debates), so along with his fiscal and social policies, he’ll be able to share with America a brave vision on the future. Gary Johnson is a top-notch presidential candidate for American science and technology for two reasons: He’s excited about it—and he’s willing to openly talk about the issues.

Read the whole piece here.

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