Later On

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Families Affected By Mississippi ICE Raids Scramble To Find Support

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What the Trump administration is doing to families, and the traumas it is causing in children, is terrible, and yet it seems that little is being done to stop it. The US has turned a very bad corner. Debbie Elliott reports for NPR:

The Mississippi ICE raids swept up nearly 700 undocumented workers from several food processing plants last week. Among those stripped away from their jobs and arrested was Angel Lopez’s father.

“These past few days have just been hard because I’ve had to stay strong for my family,” Angel Lopez says.

The 15-year-old and his two younger brothers were all born in the U.S. Their parents entered the country illegally from Guatemala 18 years ago and settled in Mississippi.

Since their father’s arrest, the Lopez family has not been able to get in contact with him. The only information received are vague whereabouts, such as he’s in Louisiana.

“I’ve just been mad about the whole thing really,” Lopez says. “Cause the El Paso shooting had just happened a week ago and then why would you give an order like that for the raids that just happened like that? When people are still grieving?”

Federal authorities say these arrests shouldn’t come as a surprise. The Department of Homeland Security says the operation had been anticipated for months; the timing is just unfortunate.

Mike Hurst, the U.S. attorney for the Southern District of Mississippi., says the raids are meant to enforce law and order.

“While we do welcome folks from other countries, they have to follow our laws,” he says. “They have to abide by our rules. They have to come here legally or they shouldn’t come here at all.”

He warns that employers who “use illegal aliens for a competitive advantage or to make a quick buck — if we find that you have violated federal criminal law, we are coming after you.”

In light of the number of families affected by the raids, St. Anne Catholic Church in Carthage has opened its doors to people in need of legal advice, hot meals or counseling led by a social worker or child psychologist. Lopez’s family, fearing their father’s deportation, has looked to the church for guidance and support.

“My mom doesn’t know what to do at this point because my dad was the one bringing in everything for us,” Lopez says. “And seeing the way things are now, she’s confused of what to do. Because she has to take care of her autistic son. And she has to provide for me and my brother.”

Inside, the church is noticeably emptier than usual.

The Rev. Odel Medina estimates that at least 100 families from the 800-person parish are being affected. Some members are back after being released; others, however, still have not been heard from. . .

Continue reading.

Written by LeisureGuy

13 August 2019 at 10:32 am

How Monopolies Broke the Federal Reserve

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Another excellent column by Matt Stoller in BIG:

Former Fed Chair Janet Yellen, just before the 2016 election, gave an important speech about how economists don’t really know much about how finance and the economy intersect. Here’s what she said.

Extreme economic events have often challenged existing views of how the economy works and exposed shortcomings in the collective knowledge of economists. To give two well-known examples, both the Great Depression and the stagflation of the 1970s motivated new ways of thinking about economic phenomena. More recently, the financial crisis and its aftermath might well prove to be a similar sort of turning point.

Her thesis is that the crisis revealed an intellectual gap at the heart of economic thinking. Yellen was correct in her observation. And there’s a signal that the blind central banking establishment has failed to to maintain any semblance of productive finance. All over the world, we’re starting to see negative interest rates.

Negative interest rates are a signal something is very wrong with finance, and the broader economy. Normally when you put money into a bank account, you get paid some interest on your savings. This is because a bank account is essentially a bank borrowing your money and using it to finance other loans that go into productive purposes like building factories. In return for your deposit, the bank gives you a cut of the action, usually a minimal interest rate. A government bond works the same way as a bank account, but it finances government spending and mostly bonds help finance savings for really large corporations and funds. Like a bank account, buying government bonds is a safe way to store assets, and get a little bit of a return.

But today, many bonds are paying negative or near-negative interest rates, which means that when you put money into government bonds, you lose money over time. Joe Weisenthal wrote up what is happening, using an agricultural metaphor of too much grain seeking too little storage.

In other words, to store money at a bank requires the existence of some other borrower who will pay the bank.  As such, just as you’ll pay more to store grain when grain is abundant and warehouse space is scarce, you have to pay more to hold money when savings are abundant but demand for borrowing is scarce.

This is the world we have today. Thanks to ever-increasing wealth concentration and meager growth across the developed world, you have some people sitting on incredible piles of cash and a shortage of people with robust opportunities to borrow and use that cash.

I’ll continue this metaphor to describe the job of the Federal Reserve. Let’s say we are an economy with only corn. Every year we eat 95% of the corn we grow and keep 5% of it as seed to plant. The Fed’s job is to make sure that the seed corn gets planted in a fairly reasonable manner. Zoom out to a more complex economy. That 95% is all the stuff we make and use, and that 5% is all the factories and whatnot we build so we can have more the next year. The Fed oversees getting our savings put into productive investment, and it uses the banking system/capital markets to do the planting (aka financing).

The Fed works through interest rates, which is to say, the price of money in markets where lenders and borrowers meet each other. Often you hear that the Fed raised or lowered ‘interest rates,’ but that’s not precisely accurate. There are many markets for interest rates, everything from credit cards to mortgages to junk bonds to an endless variety of swaps. The Fed changes interest rates in one particular market for money wholesalers (aka big banks). Most other money markets, like mortgages, credit cards, business lending, and so forth, are supposed to be referenced to the market in which the Fed operates, which is why the shorthand on the news is the Fed raised/lowered rates.

That’s the theory anyway. But the Fed’s tools, and those of most central banks, aren’t working like they should.

Very low or negative interest rates mean that investors can’t find any place to place their savings. Investors perceive there are no more factories to build, no distribution centers to create, no new energy systems to research, no more products to create. You can only stuff money under a mattress, and the price of mattresses is going up. Our financial system, in other words, is acting like we have no more social problems to profitably solve.

In a world with a looming climate crisis and endless poverty, it is extraordinarily weird to act like there is no way to profitably use capital. There is in fact an entire ideology behind this bizarre view; Democratic Presidential candidate Andrew Yang wants to cut every American a thousand dollar automatic monthly dividend, because automation has solved everything, created too much production. When asked about climate change in a debate, he actually said it’s too late and we must move to higher ground. Yet he also seems to believe that all problems he can identify have been solved by automation. Yang is a fringe candidate, but negative interest rates are the entire financial system agreeing with Yang’s view.

This problem, what economists sometimes call a ‘savings glut,’ has been with us in one form or another for decades. After the financial crisis, the problem of a lack of productive outlets for capital investment got so bad that important academics like Robert Gordon began arguing that we’ve simply invented everything important. His argument caught on in important circles. . .

Other thinkers, led by former Obama officials Jason Furman and Peter Orszag, argued that a small group of superstar firms have detached from the rest of the economy. Orszag and Furman do not conclude whether those firms have either managed to capture market power or figured out a special sauce whereby they are just more productive than everyone else in the economy. Perhaps Google is a monopolist, or perhaps Google search really was that much better than AltaVista, Yahoo!, Bing and so forth. In this framework, Orszag and Furman essentially agree with the Thomas Friedman-esque argument that globalization and technology has driven more productive companies to capture more power, and erode the share of output going to labor. McKinsey is even selling superstar firm gibberish to its clients.

So maybe that’s the problem. There’s nowhere to put money because either everything’s been invented, or because some firms are just better than everyone else.

Sorry, but I don’t buy it. If you give three billion people supercomputers in their pockets and connect those supercomputers into a massive real-time information grid, a few of them are going to think of useful things to do. Combined with advances in material sciences, biotechnology, genetics, optics, and just, well, more educated people than ever before, there are still amazing businesses to create. The argument against human capacity to innovate doesn’t make any sense, unless the people debating want to avoid discussing the key problem, which is power.

What is actually going on?

The most likely explanation for negative interest rates is far simpler. The economy has become a giant kill zone. In venture capital circles, the term “kill zone” has become quite popular to describe the phenomenon of having no places to profitably invest.

O’Reilly Media founder Tim O’Reilly talks of big tech companies “eating the ecosystem.” Others are talking about a “kill zone,” where new and innovative upstarts are throttled. For some startup founders, acquisition by a big company is the dream — they’re happy to walk away with a small fortune and move on to the next stage of their careers. But there’s a danger that big companies, being less emotionally invested in the companies they acquire, will leave them to wither on the vine.

And even more importantly, a kill zone can result not from acquisition, but from the threat of overwhelming competition. If founders believe that big companies will copy their innovations cheaply and compete them out of the market, they’ll never spend the time and effort to create those innovations in the first place.

Maybe what’s happening is that we can’t invest profitably, because there are monopolies everywhere you try to put money to work in the real economy.

Economists Simcha Barkai got to this dynamic in a paper he wrote in 2017. Barkai was interested in the decline in the amount of corporate output going to labor. He concluded this decline is not occurring because capital is getting a large share of income. Capital investment is going down even faster than labor share. There’s less spent on workers, and less than that spent on robots. So if labor share is down and capital share is down, what is up? Profits. The driver, Barkai found, is firm concentration is up across the American economy since 1985. This trend is more pronounced in higher concentration sectors, and less pronounced in lower concentration sectors.

Barkai doesn’t conclude that this change is policy driven, and doesn’t argue it’s a result of lax antitrust enforcement. But what his argument does imply is that large profits that cannot go into productive capital investment or to workers will instead go into government bonds, pushing interest rates for ‘safe assets’ down quite low, or even into negative territory. There’s just nothing to invest in, because you can’t put money into monopolistic markets and expect a return. The kill zone, in other words, is everywhere.

Investment in a Low Interest World

But this works from the other side as well. . . .

Continue reading.

Written by LeisureGuy

13 August 2019 at 10:27 am

Jeffrey Epstein’s Death Adds to the JPMorgan Body Count

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Pam Martens and Russ Martens report in Wall Street on Parade:

Jeffrey Epstein, the accused pedophile and sex trafficker of underage women to powerful men around the world according to allegations in court documents, was found dead in his jail cell at the Metropolitan Correctional Center in Manhattan on Saturday morning. The Justice Department is reporting the death as a suicide, despite the fact that Epstein should have been monitored by police around the clock because of an earlier attack or attempted suicide just weeks before in his jail cell.

Epstein had close ties to JPMorgan Chase. He now joins a dizzying roster of suspicious deaths connected to JPMorgan Chase – particularly among its technology executives, who allegedly jumped to their death from JPMorgan buildings; died in two separate cases of murder-suicides in seven months; died of alcohol poisoning or, in the most recent case of Doug Carucci in March of this year, simply died “tragically” and “suddenly” with all efforts to obtain the tiniest shred of information about what happened hitting a brick wall.

In the case of Carucci, who lived in Manhattan, even the New York City Medical Examiner’s Office stated that it had no information at all on any such individual, despite the requirement in New York City that any sudden or accidental death must be examined by that office. Raising more suspicions, mainstream media would not touch the story of Carucci’s death despite the fact that he was a high-ranking employee of JPMorgan Chase as Global Head of Currencies, Emerging Markets, and Commodities Technology and Global Head of FICC Electronic Trading Technology.

Suspicions surrounding Epstein’s death have come from members of Congress and former high-ranking law enforcement officials. The U.S. Attorney General, William Barr, has asked the Justice Department’s Inspector General to open an investigation into Epstein’s death. The FBI is also investigating.

Epstein’s ties to JPMorgan Chase date back to at least 2001 when Epstein presided as Chairman over an offshore company incorporated in Bermuda, Liquid Funding Ltd. As Wall Street On Parade previously reported, the company grew to at least $6.7 billion in outstanding liabilities. The company appeared to be propping up dodgy subprime mortgage dealers by giving them loans. Bear Stearns, where Epstein had worked from 1976 to 1981, owned 40 percent of the equity in the company. JPMorgan Chase was one of three banks providing a $250 million liquidity facility to Liquid Funding Ltd. JPMorgan Chase was also listed as its “Security Trustee.”

JPMorgan Chase is the largest bank in the U.S. and is itself a three-count felon. The bank has been compared to the Gambino crime family in a deeply researched book by two trial lawyers, Helen Davis Chaitman and Lance Gotthoffer. The lawyers write that “…like the Gambino crime family, JPMC recognizes that getting caught is just the cost of doing business illegally.” The lawyers then proceed to list a jaw-dropping chronology of illegal acts by the bank.

The Chairman and CEO of JPMorgan Chase is Jamie Dimon, who has remained at the helm of the bank despite those three felony counts that happened on his watch. Two felony counts came in 2014 as a result of JPMorgan Chase’s handling of the business bank account of Ponzi master Bernie Madoff where it ignored flagrant signs of money laundering while proceeding to tell U.K. regulators (but not U.S. regulators) that Madoff might be running a Ponzi scheme. In 2015 the bank was hit with another felony count along with other banks for rigging foreign exchange trading. The bank admitted to all three felony counts.

In 2013 the U.S. Senate’s Permanent Subcommittee on Investigations released a 300-page report on JPMorgan Chase’s high-risk derivatives trades in London that cost its depositors at least $6.2 billion in losses (London Whales trades). Since the financial crisis, the bank has  . . .

Continue reading. There’s much more, and it illustrates how corruption has spread and has established itself into the structure of American business and law.

Written by LeisureGuy

12 August 2019 at 9:45 am

The FBI Told Congress Domestic Terror Investigations Led to 90 Recent Arrests. It Wouldn’t Show Us Records of Even One.

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The FBI has proved unreliable if not deliberately misleading in the past when bragging about their accomplishments (cf. the FBI forensic laboratory). This looks to be another instance of big talk with no accomplishment. Fritz Zimmermann reports in ProPublica:

On July 23, FBI Director Christopher Wray told the Senate Judiciary Committee that federal investigations of domestic terrorism had led to some 100 arrests in the last nine months. While the FBI quickly announced that the number was 90, not 100, the basic message appeared unchanged: The FBI was actively investigating and prosecuting domestic terrorists.

The 90 arrests have been cited countless times since last weekend’s killing of 22 people in El Paso, Texas, by a man suspected of harboring racist views of immigrants. To find out more, we contacted the FBI on Monday, asking who had been arrested, as well as where and when, and what the allegations were in each case.

Four days later, we have been given next to no information about them.

Our first inquiry on Monday was straightforward: We asked for basic information about each of the 90 arrests, which we assumed had all been publicly announced.

An FBI spokeswoman wrote back: “We would not be able to provide you with a comprehensive list of these press releases. As there is no federal domestic terrorism statute so DT subjects are charged under other federal, state, and local charges.”

We understood that those arrested for committing or intending to commit violent acts on American soil are typically prosecuted for an assortment of crimes — murder, say, or illegal possession of firearms — not domestic terrorism, for which there’s no federal charge. The 90 people who were supposedly arrested might have been ultimately prosecuted by local authorities.

But it seemed clear from Wray’s statements that the FBI had done the work of determining which of the cases involving, as the spokeswoman put it, “other federal, state and local charges” involved elements of domestic terror. There had been a formal count. Wray had testified as much.

We wrote to the FBI again: “Thank you for getting back to me this fast and for your answer. I am a bit confused though: The number of DT arrests I was referring to originally comes from the FBI Director and was later clarified by a FBI spokesperson. So where would that number come from? I would be happy if you could clarify this point?”

The spokeswoman responded: “What do you mean? We clarified the number, it’s a comprehensive list of press releases that I’m saying we’re unable to provide.”

The spokeswoman, saying she was speaking “on background,” and thus not to be identified, later suggested that we go on the Department of Justice’s public affairs website and “see what pops up.”

So we did. When we typed in domestic terrorism arrests for the past nine months, five cases came up. But only one of the cases actually involved an American arrested for seeking to harm others in the U.S. — Cesar Sayoc, the man recently sentenced to 20 years for mailing 16 explosive devices to a variety of current and former government officials and the philanthropist George Soros.

Obviously, that was far short of the cases Wray had referenced. It also seemed odd that the FBI would suggest this approach to searching since it had to have done a more comprehensive compilation to equip its director with the numbers he gave the Senate Judiciary Committee.

We tried again: “Thanks for your reply! What I mean is: you clarified the number, so despite DT subjects being charged under ‘other federal, state, and local charges,’ as you wrote, the FBI obviously has information about all these cases. And this is what I’ve been originally asking for. So I would be glad if you could give me the following information about as many of the 90 arrests as possible: who was arrested, where, when and what the allegations were. If you are unable to provide this information or a comprehensive list of press releases I would like to know why.”

On the phone, she again cited the figure of 90 arrests, adding, “These are people that the FBI arrested as a result of a domestic terrorism investigation.”

But she also repeated that the bureau couldn’t give us any information, even press releases, about these arrests. “In their arrests they may not be characterized as domestic terrorists depending on how those arrests were made in the locality, in the state … so it’s just not something the FBI is able to publicly provide,” she said.

Yahoo News on Thursday published what it said was a document detailing the 2018 domestic terrorism arrests involving white supremacists, something the article said Democrats on the Senate Judiciary Committee had been unsuccessfully seeking from the Department of Justice.

“This map reflects 32 domestic terrorist attacks, disrupted plots, threats of violence, and weapons stockpiling by individuals with a radical political or social agenda who lack direction or influence from foreign terrorist organizations in 2018,” the document cited in the Yahoo article stated. The document, the article said, had been produced by New Jersey’s Office of Homeland Security Preparedness.

Late on Thursday, we tried to make things simpler with the FBI in hopes of getting some kind of firm answer: If the FBI could not quickly list the arrests stemming from domestic terrorism investigations, could it say how many such investigations had been carried out in 2019?

The spokeswoman did not respond to the request. . .

Continue reading.

Written by LeisureGuy

10 August 2019 at 1:13 pm

Republicans for the Rule of Law have a new commercial regarding Moscow Mitch

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Written by LeisureGuy

9 August 2019 at 4:36 pm

Congress is Accepting Price Gouging By Defense Contractors

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Congress now seems completely divorced from protecting the public and representing the interests of the public. Charles Tiefer writes in Forbes:

On May 15, the House of Representatives Committee on Oversight and Reform held a  hearing about contract pricing practices of Transdigm, a sole source supplier of parts to the Pentagon.  The Department of Defense (DOD) Inspector General (IG) found that Transdigm overcharged the government by as much as 4,451 percent for items purchased.  The hearing produced what passed for bipartisan outrage, and Transdigm eventually agreed to refund $16 million to DOD.

Left unstated was that Transdigm violated no laws, regulations or DOD policies.  Transdigm simply got overly aggressive at the wrong time, and was singled out for criticism when the prices DOD paid became public.  But what about all the companies that engage in the same type of perfectly legal pricing practices as Transdigm, but are more subtle about it?  This includes every major defense contractor, since virtually all of them are using the same type of pricing transparency disclosure exemptions employed by Transdigm.

Over the past two decades, government contractors, primarily those that supply to DOD have used their political clout to have traditional pricing laws changed – sort of the government contracting equivalent of repeal of the Glass-Steagall Act.  Instead of supplying cost or pricing data to the government for negotiation of contract prices, Congress has largely exempted contractors from these long standing pricing transparency requirements by a form of legal jiu-jitsu that labels goods and services as “commercial.”  But, what does “commercial” mean under this new paradigm?  For decades, it was goods and services sold to the general public at market prices.  Sounds reasonable.  But that was not good enough for  contractors who want to claim that everything the government buys, including specialized goods and services for military use on a sole source basis are “commercial” (and thus not have to justify their prices).

Contractors pushed through a willing Congress a government contracting definition that literally qualifies anything imaginable as “commercial” provided it is “of a type” relating to something that exists in the commercial world.  Under this Orwellian definition, military aircraft, combat vehicles, specialized electronics, even rockets, and virtually every other product or service potentially qualifies as “commercial” and contractors are relieved of the necessity to submit cost or pricing data to justify their prices – even in sole source situations.

For contractors, not submitting cost data makes perfect sense.  No one wants to empower a buyer with information that could make them drive a harder bargain.  For the buyer, the government in this instance, not getting the cost data has been a disaster, leading DOD and other agencies to pay inflated, but perfectly legal prices.  Transdigm is just the tip of the defense pricing iceberg.

Even when DOD does not recognize an item or service as “commercial,” other statutory changes made by Congress have effectively neutered much of the law that used to provide for pricing transparency, the “Truth in Negotiations Act.”  The effect is that government contract pricing has become a “Wild West” with much less meaningful disclosure to ensure that prices paid using taxpayer dollars are fair and reasonable.

Meanwhile, the Cost Accounting Standards (CAS) Board, a part of the Office of Management and Budget that sets accounting rules for cost-reimbursement contracts, and other contracts awarded without competition, is quietly, but actively trying to “deregulate,” i.e., allow contractors to use whatever accounting principles they feel like when pricing contracts and seeking payment.  The CAS Board, the brainchild of the legendary Admiral Hyman Rickover, father of the nuclear Navy, has been estimated to save the government from 5–10% on all contracts to which it is applied.  That’s a 5–10% margin that contractors would like to see pad their bottom line.

The situation has gotten so bad that the recently departed Director of the DOD Pricing and Contracting Office wrote to the DoD IG in late 2018 stating, “The reality is that the only true defense against companies that exhibit unconscionable greed is to avoid doing business with those companies whenever possible through competitive means, ensure that there are statutory provisions that address ‘war profiteering’ and price gouging, and ensure the existence of a legislative provision that compels companies to provide cost data …”  He added that current defense contractor “value based pricing” concepts “… are no more than an industrial code word for unfettered price gouging.” . . .

Continue reading.

Written by LeisureGuy

9 August 2019 at 10:48 am

How Big Pharma Was Captured by the One Percent

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Alexand Zaitchik writes in the New Republic:

Donald Trump’s plan to lower prescription drug prices, announced May 11 in the Rose Garden, is a wonky departure for the president. In his approach to other signature campaign pledges, Trump has selected blunt-force tools: concrete walls, trade wars, ICE raids. His turn to pharmaceuticals finds him wading into the outer weeds of the 340B Discount program. These reforms crack the door on an overdue debate, but they are so incremental that nobody could confuse them with the populist assault on the industry promised by Trump the candidate, who once said big pharma was “getting away with murder.”

With his May 11 plan, Trump is, in effect, leaving the current pharmaceutical system in place. Increasingly, its most powerful shareholders are the activist managers of the hedge funds and private equity groups that own major stakes in America’s drug companies. They hire doctors to scour the federal research landscape for promising inventions, invest in the companies that own the monopoly licenses to those inventions, squeeze every drop of profit out of them, and repeat. If they get a little carried away and a “price gouging” scandal erupts amid howls of public pain and outrage, they put a CEO on Capitol Hill to endure a day of public villainy and explain that high drug prices are the sometimes-unfortunate cost of innovation. As Martin Shkreli told critics in 2015 of his decision to raise the price of a lifesaving drug by 5,000 percent, “this is a capitalist society, a capitalist system and capitalist rules.” That narrative, that America’s drug economy represents a complicated but beneficent market system at work, is so ingrained it is usually stated as fact, even in the media. As a Vox reporter noted in a piece covering the May announcement of Trump’s plan, “Medicine is a business. That’s capitalism. And we have seen remarkable advances in science under the system we have.”

This is a convenient story for the pharmaceutical giants, who can claim that any assault on their profit margins is an assault on the free market system itself, the source, in their minds, of all innovation. But this story is largely false. It owes much to the rise of neoliberal ideas in the 1970s and to decades of concerted industry propaganda in the years since.

In truth, the pharmaceutical industry in the United States is largely socialized, especially upstream in the drug development process, when basic research cuts the first pathways to medical breakthroughs. Of the 210 medicines approved for market by the FDA between 2010 and 2016, every one originated in research conducted in government laboratories or in university labs funded in large part by the National Institutes of Health. Since 1938, the government has spent more than $1 trillion on biomedical research, and at least since the 1980s, a growing proportion of the primary beneficiaries have been industry executives and major shareholders. Between 2006 and 2015, these two groups received 99 percent of the profits, totaling more than $500 billion, generated by 18 of the largest drug companies. This is not a “business” functioning in some imaginary free market. It’s a system built by and for Wall Street, resting on a foundation of $33 billion in annual taxpayer-funded research.

Generations of lawmakers from both parties bear responsibility for allowing the drug economy to become a racket controlled by hedge funds and the Martin Shkrelis of the smaller firms. The current crisis in drug prices and access—as well as a quieter but no less serious crisis in drug innovation—is the result of decades of regulatory dereliction and corporate capture. History shows there is nothing inevitable or natural about these crises. Just as the current disaster was made in Washington, it can be unmade in Washington, and rather quickly, simply by enforcing the existing U.S. Code on patents, government science, and the public interest.


In 1846, a Boston dentist named William Morton discovered that sulfuric ether could safely suppress consciousness during surgery. The breakthrough revolutionized medicine, but when Morton filed a patent claim on the first general anesthesia, one doctor huffed to a Boston medical journal, “Why must I now purchase the right to use [ether] as a patent medicine? It would seem to me like patent sun-light.”

The response reflected a longstanding belief that individuals shouldn’t be able to claim monopolies on medical science. Breakthrough discoveries, unlike the technologies inventors would design to apply those discoveries, should remain open and free to a global community of doctors and researchers, with the backing of the government if necessary.

These norms persisted into the postwar era. In 1947, U.S. Attorney General Samuel Biddle argued that the government should maintain a default policy of “public control” over patents. This, he said, would not only advance science, public health, and marketplace competition, it would also avoid “undue concentration of economic power in the hands of a few large corporations.” When asked on national television in 1955 why he didn’t patent the polio vaccine, Jonas Salk famously borrowed the quip leveled a century earlier against the Boston dentist who invented ether. “Could you patent the sun?” he asked.

By then, though, the economics of medicine had begun to shift, and with them the medical ethics surrounding patents. The public university at that time had become a giant laboratory where government and industry scientists worked together designing missiles, inventing medicines, and engaging in basic-science futzing under the “Science of the Endless Frontier”—a concept promoted by New Deal science-guru Vannevar Bush, who believed that the government should fund the open-ended pursuits of the most gifted scientists. Out of this new world arose new interests and new questions: What happens to the inventions spinning out of government-funded labs? Who owns them, who can license them, and for how long?

Toward the end of the 1960s, new mechanisms hatched out of the National Institutes of Health would transform the industry and drastically expand the opportunities for private profit at the expense of the public interest, ushering in a post-Biddle age of virtually unrestricted industry access to taxpayer-funded science.

In 1968, the NIH’s general counsel, Norman Latker, spearheaded the revival and expansion of a program that had, in the years before the government spent much on science, permitted nonprofit organizations—universities, mainly—to claim monopolies on the licenses of medicines developed with funding from NIH. Called the Institutional Patent Agreement program, it effectively circumvented rules that had been in place since the 1940s, not only making monopolies possible, but also greatly expanding their terms and limits, giving birth to a generation of brokers whom universities relied on to negotiate newly lucrative exclusive licensing and royalty deals with pharmaceutical companies.

In an industry where active ingredients are often bulk-purchased for pennies and sold in milligrams for dollars, the patent is more than just the product. It is a license to print money. An awful lot of money.

Before 1968, inventors had been required to assign any inventions made with NIH funding back over to the federal government. Now, those inventions were being sold to the highest bidder. “Nineteen-sixty-eight was the year the NIH threw its support behind a drug development market based on patent monopolies,” says Gerald Barnett, an expert on public-private research who has held senior licensing positions at the University of Washington and University of California. “It’s kept it there ever since.”

Watching these developments closely was the group of nominally libertarian economists, business professors, and legal scholars at the University of Chicago, known collectively as “The Chicago School.” The industry’s regulatory travails and the new opportunities to commercialize science that had emerged in the late 1960s were of particular interest to the economist George Stigler, a founding member of the Chicago School and its most celebrated theorist after Milton Friedman. Stigler is remembered today as the father of “capture theory,” which holds that because industries have a bigger stake in policy than individual citizens, they will exert greater control over shaping that policy. Industry, he argued, will seek to use their power to hamper competition and shore up their position in the market. Regulation never benefits the public, he believed; instead, it benefits the very industry being regulated. There is a lot of merit in this theory. But instead of arguing for more democratic control over regulation, Stigler argued for its elimination.

Though members of the Chicago School opposed monopolies, Stigler and his colleagues hated the government, not to mention the burgeoning “consumer-rights” pro-regulation movement of the 1970s, even more. If forced to choose between private and public power, there was no contest. Stigler developed his openly un-democratic ideas as chair of the Business School’s Governmental Control Project, whose name reflected a double meaning at the core of the project it served: Advancing the “free market” against government control of the economy can be achieved not only by rolling back the state and eliminating its agencies (the approach Milton Friedman favored—and promoted in the Newsweek column he wrote between 1966 and 1984), but by the invasion and colonization of politics on multiple fronts, especially patent law, regulation, and antitrust and competition policy.

“Pharma was the perfect test case for a neoliberal project that celebrates markets, but is fine with large concentrations of power and monopoly,” says Edward Nik-Khah, a historian of economics who studies the pharmaceutical industry at Roanoke College.  “Stigler and those influenced by his work had very sophisticated ideas about how to audit and slowly take over the agencies by getting them to internalize [their] positions and critiques. You target public conceptions of medical science. You target the agencies’ understanding of what they’re supposed to do. You target the very thing inputted into the regulatory bodies—you commercialize science.”

In 1972, Stigler organized a two-day event, “The Conference on the Regulation 
of the Introduction of New Pharmaceuticals.” Major drug makers like Pfizer and Upjohn pledged funds and sent delegates to the conference—a first and fateful point of contact between Pharma and the organized movement to undo the New Deal and radically remake the U.S. economy to serve an ideology of unfettered corporate power.

Born of this meeting was the echo chamber of ideas, studies, and surveys that the pharmaceutical industry has used to buffer an increasingly indefensible system against regular episodes of public outrage and political challenge. Organized and initially staffed by alumni of the Chicago conference, its hubs are the American Enterprise Institute’s Center for Health Policy Research, founded 1974, and the Center for the Study of Drug Development, founded in 1976 at the University of Rochester and later moved to Tufts. Their research has succeeded in producing and policing the boundaries of the drug pricing debate, most successfully propagating the myth that high drug prices are simply the “price of progress”—carrots that drug manufacturers need to entice them to sink hundreds of millions into research and development, because drugs cannot be developed or tested any other way. In the early 2000s, these think tanks gave us the deceptive meme of the “$800 Million Pill,” a dubious claim about the “real” cost of developing a single drug, which has provided cover for, among other things, George W. Bush to sign away the government’s right to negotiate drug prices in 2004. (The same think tanks now talk about the “$2.6 Billion Pill.”)

“The point of pharma’s echo chamber was never to get the public to support monopolistic pricing,” says Nik-Khah. “As with global warming denialism, which involves many of the same institutions, the goal is to forestall regulation, in this case by sowing confusion and casting doubt about the relationship among prices, profits, innovation and patents.”


While Stigler was marshaling researchers in the think tank world, the market was evolving to include more opportunities for speculative investments and bigger IPOs. Venture capital firms in the 1970s began investing heavily in biotech; soon, young biotech firms, established drug makers and Wall Street were pushing for changes in licensing and patent law to make these investments more profitable. They were aided in this by Edward Kitch, a law professor, Chicago School protégé of Richard Posner, and veteran of the ’72 conference, who worked with AEI’s Center for Health Policy Research. In 1977, he published “The Nature and Function of the Patent System” in The Journal of Law and Economics. It enumerated the many advantages of patents and IP rights, not least their role as bulwarks against the “wasteful duplication” of competition. Patents create the conditions for increased profits that, in turn, increase private sector R&D and spur innovation. (If this sounds familiar, it’s because the paper helped press the record for what has since become the industry’s favorite tune, “Price of Progress,” sung over the years in a thousand variations, including the strained aria of Michael Novak’s Pfizer-funded essay on the moral and Godly bases of monopoly patents, The Fire of Invention, The Fuel of Interest.)

These efforts contributed to a revolution in biomedical IP law during  . . .

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Written by LeisureGuy

9 August 2019 at 10:44 am

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