Enron Mail

Subject:THE LIGHTHOUSE: October 29, 2001
Date:Mon, 29 Oct 2001 17:26:37 -0800 (PST)

"Enlightening Ideas for Public Policy..."
Vol. 3, Issue 43
October 29, 2001

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1. Anthrax Panic Hijacks Pharmaceutical Industry
2. If Environmentalists Owned the Alaskan Oil Fields...
3. Growing Recognition of a Growing Government



The Bush administration's recent "success" in securing low prices
from Bayer AG, the German drug manufacturer, for Cipro, its
anti-anthrax antibiotic, will ultimately reduce rather than protect
the health of Americans, according to a new op-ed by economists
Michael Reksulak and William F. Shughart, a research fellow at The
Independent Institute.

Bayer agreed to slash its prices to the U.S. only because of strong
intimidation by the federal government. Some in Congress have called
for the U.S. government to override Bayer's patent protection for
Cipro, which expires in 2003, unless Bayer reduces the price of Cipro.

Patent protection is especially important in the pharmaceutical
industry, because it helps ensure that a company can recover its
massive outlays for research and development, as well as make up for
the delays and uncertainties associated with the FDA approval process.

But "letting the 'anthrax scare'... break this link between up-front
investments and future profits reduces the expected returns to R&D
and greatly increases the uncertainty of the whole drug development
system," Reksulak and Shughart write.

"An increase in the number of companies permitted to produce Cipro
now -- or forced reductions in the antibiotics' price -- means that
fewer new drugs will be produced in the next 10 to 20 years than
would have otherwise been the case. Already willing to sell drugs to
governments at steep discounts, drug makers now have to worry that
they may be bullied into accepting even lower returns or face the
loss of patent protection altogether."

By threatening private property rights and undermining the rule of
law, the U.S. government's shakedown of Bayer, Reksulak and Shughart
conclude, "are far more damaging than any single terrorist attack has
ever been."

See "Political Panic Trumps Terrorist Tragedy," by Michael Reksulak
and William F. Shughart II, at

For more on drug prices, see "Drug Price Controls: A 'Cure' Worse
Than the Disease," by Alex Tabarrok, at



Legislation that would permit oil exploration in Alaska's Arctic
National Wildlife Refuge (ANWR) may soon reach the president's desk.
(U.S. Senate Majority Leader, Tom Daschle, says he will allow the
bill to go to a floor vote when there are 60 senators who support it.)

In response, many environmental groups, most notably the Audubon
Society, have renewed their strong opposition to drilling in the
ANWR. Ironically, however, if environmentalists owned ANWR, they
would probably allow drilling, using the proceeds to help promote
their conservation elsewhere, according to Dwight R. Lee, writing in
the fall 2001 issue of THE INDEPENDENT REVIEW.

"Consider what an environmental group would do if it owned ANWR and
therefore bore the costs as well as enjoyed the benefits of
preventing drilling," writes Lee.

In fact, the Audubon Society does allow oil drilling on an oil field
it owns, the 26,000-acre Rainey Wildlife Sanctuary in Louisiana.

"The willingness of environmental groups such as the Audubon Society
to allow drilling for oil on environmentally sensitive land they own
suggests strongly that their adamant verbal opposition to drilling in
ANWR is a poor reflection of what they would do if they owned even a
small fraction of the ANWR territory containing oil."

If environmentalists owned ANWR, "they might easily conclude that
although ANWR is an 'environmental treasure,' other environmental
treasures in other parts of the country (or the world) are more
valuable. Moreover, with just a portion of the petroleum value of the
ANWR, efforts might be made to reduce the risk to other natural
habitats, more than compensating for the risks to the Arctic
wilderness associated with recovering that value."

This is not, Lee emphasizes, a recommendation to give ANWR to
environmental groups. Rather, it is a call to recognize that economic
incentives matter -- even to environmental groups. An environmental
group that refuses to put its money where its mouth is, is free to
clamor for locking up resources -- it bears no direct cost for
prohibition. One that owns resources, however, faces the reality that
wise resource ownership entails the balancing of priorities.
Unfortunately, it is the former type of environmental group has
tended to prevail.

See "To Drill or not to Drill? Let the Environmentalists Decide," by
Dwight R. Lee (THE INDEPENDENT REVIEW, Fall 2001), at

Also see, "The Commons: Tragedy or Triumph?" by Bruce Yandle (THE
FREEMAN, April 1999), at



The irony that an administration that had trumpeted small government
and reliance on market forces now backs numerous significant
government interventions -- including huge subsidies to businesses,
IMF and World Bank funding to new allies, and far-reaching
"anti-terrorism" legislation that has civil libertarians up in arms
-- has not been lost on the national press.

In a recent article in the NEW YORK TIMES, reporter Richard W.
Stevenson reports that after years of wrangling between Republicans
and Democrats over the size and scope of the federal government, "the
two parties are more or less united now in the view that a strong
federal government with expansive powers is vital for the time being."

"Scholars say the expansion in the size and powers of the federal
government in response to the terrorist attacks is similar to what
has happened in past wars and crises," the article continues.

"'We are rushing very quickly to throw overboard announced positions
about government assistance to private enterprise, about
surveillance, about security measures of various kinds that intrude
on our liberties,' said Robert Higgs, the author of CRISIS AND
LEVIATHAN: Critical Episodes in the Growth of American Government.
'In that respect, this episode mirrors the great national emergencies
of our past,' Mr. Higgs said."

If, as President Bush implored the country, we must not let the
September 11 terrorist attacks change our way of life, we must resist
the impulses that have enlarged the federal government -- thus
reducing American's political and economic liberties -- every time
the nation has seen a national crisis.

Fortunately, as pop psychologists tell us, recognizing a problem is
half the challenge in correcting it. Unfortunately, special interest
groups will work to keep Americans in denial.

See "Reconciling the Demands of War and the Market," by Richard W.
Stevenson (NEW YORK TIMES, 10/28/01), at

For an excellent case study in the growth of government, see "War and
Leviathan in Twentieth-Century America: Conscription as the
Keystone," by Robert Higgs, at


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