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Waiting Until the Cyber Damage Is Done

Alan Daley - April 18, 2014

The cyber intrusions we face are serious. Civilian cyber-criminals inflict problems ranging from nuisances to theft, as happened at Target and Adobe. Now the curious Heartbleed vulnerability inconveniences consumers, requiring extensive password replacements. Less known but more serious are cyber-attacks by nation states, which threaten our economic vigor and the functioning of our infrastructure.

China's military-sponsored hackers appear to focus on harvesting U.S. corporate data, especially technical designs and secrets. It is hinted that computers in China attempted to take advantage of Heartbleed as well, but, while knowledge of such a flaw would be of value to a nation-state seeking to undermine foreign business and military competition, using that vulnerability to collect a few hundred consumers' identities and personal data is an act more typical of run-of-the-mill thieves.

Iranian hackers appear to focus on reconnaissance of government and infrastructure networks. The Syrian Electronic Army (SEA), meanwhile, seems to launch public attacks in retaliation for attacks against President Assad. We can expect aggressive use of Iranian hackers' intrusions to coincide with increased financial sanctions or military actions related to Iran's nuclear weapon development.

Ouroboros ("Snake") is a Russian cyber-weapon that monitors communications networks and can destroy connected computer systems. Snake was deployed into Ukraine's government networks at the beginning of 2013. It is unlikely that Ukraine can plan or coordinate military activities without Russia hearing of those plans and moves. If NATO tries to reinforce Ukraine's sovereignty, it will be important to withhold collaborative plans from compromised Ukrainian networks.

Unfortunately, nation-state attacks are both persistent and increasing in sophistication. Stern verbal warnings from our diplomats are nothing but press-release fodder. Calls for other nations to respect civil rights (as we frame them) are a pointless exercise. Foreign leaders are quick to remind us that due to NSA behaviors and Snowden's treachery, the public knows that we have lost the moral high ground.

Law enforcement seems baffled by how to stop cyber-criminals. Juniper Networks has suggested that corporations need to aggressively fight back against criminal hackers, removing the profit from attacking corporate networks. Solutions as simple as chip and PIN credit-card security will certainly help here in the U.S., as it has dramatically reduced credit-card fraud in parts of Europe.

In the end, taking the profit out of attacking corporate networks will reduce the incidence of attacks, but it will not address nation-state attacks. For these types of attacks, there is no cheap fix, and our political willingness to pay the price will develop only in the wake of painful cyber warfare.

Longer-term, preventing nation-state attacks and restoring security to our communications networks and computer systems may mean altering the Internet as we know it. It may take networks and associated hardware that are far less open, as well as limiting access and geographic coverage, using multi-layered authentication and encryption techniques, and making networks require some minimal clearance. Whatever the solution, it will probably cost a lot more.

Alan Daley writes for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.

Texas's 'Impossible' $10K Degree Marches On

Thomas K. Lindsay - April 18, 2014

When Bill Ayers observed that "every revolution is impossible until it happens, and then, looking backwards, every revolution appears inevitable," it is safe to say that he did not have in mind any endeavors of conservative Texas governor Rick Perry. But with his 2011 state of the state address, Perry may have launched a revolution of his own. Perry challenged Texas's public universities to craft four-year degrees costing no more than $10,000 in tuition, fees, and books, and to achieve the necessary cost reductions by teaching students online and awarding degrees based on competency.

The idea met with skepticism. Andy Brown, who was then chairman of the Travis County Democrats, labeled Perry's "scheme to serve up $10,000 college degrees ... preposterous," adding that "nobody in higher education believes that is even possible." Peter Hugill, a Texas A&M professor who at the time was president of the Texas Conference of the American Association of University Professors, posed the rhetorical question: "Do you really want a stripped-down, bare-bones degree?" Hugill went on to declare that "$10,000 seems to me a number someone pulled out of the air."

If these reactions suggested Perry was out of step with the higher-education establishment, the public's reaction suggested that defenders of the status quo had fallen out of step with students, their parents, and taxpayers. Baselice and Associates conducted a public-opinion survey commissioned by the Texas Public Policy Foundation, finding that 81 percent of Texas voters believed public universities could be run more efficiently. Nationally, a 2011 Pew study found that 57 percent of prospective students believed a college degree no longer carries a value worth the cost. Seventy-five percent of respondents declared college simply unaffordable.

But would Perry's plan meet the public's need? One year after the governor's challenge, Texas A&M-San Antonio became the first school to answer the call, announcing a bachelor's degree in information technology costing students just under $10,000 in tuition and fees. Today, eleven other Texas schools have announced $10,000 degree initiatives.

The burgeoning revolution has not been confined to the Lone Star State. Apparently, when it comes to higher-education reform, as Texas goes, so goes the country. Florida governor Rick Scott recently asked his state's public universities to craft $10,000 degrees of their own. In May of 2013, Georgia Tech announced an online master's degree in computer science for $7,000, a reduction of 80 percent from the $40,000 price tag charged for its on-campus program. Additionally, in the last year, legislators in Oklahoma and Oregon have begun work to introduce $10,000 degrees in their states.

The rapid expansion of $10,000 degree offerings has not satisfied the "It's impossible" critics. They note that the fledgling programs are limited to a few subject areas, mostly the applied sciences, and argue that the same model cannot work in other fields. Moreover, they point out, a number of the new offerings charge students $10,000 but do not actually reduce their schools' cost of instruction and materials.

These otherwise valid critiques ignore the fact that Perry requested only that 10 percent of public undergraduate degrees meet the $10,000 standard, a quota echoed by Rick Scott. More important, the $10,000 degree programs that reduced the price charged to the student but not the cost incurred by the school did not employ the means Perry specified -- online learning and competency-based exams.

That's changing. Three higher-education partners -- Texas A&M University-Commerce, South Texas College, and the Texas Higher Education Coordinating Board (THECB) -- just launched the "Affordable Baccalaureate Program," the state's first public university bachelor's degree combining online learning and competency-based standards. Developed by community-college and university faculty, with an eye to meeting the needs identified by community and business leaders, a new degree in organizational leadership can cost as little as $750 per term and allows students to receive credit for as many competencies and courses as they can master each term. According to THECB's website, students arriving "with no prior college credits should be able to complete the degree program in three years at a total cost of $13,000 to $15,000." Students who enter having already satisfied their general-education requirements can complete the degree in two years, while those entering with "90 credit hours and no credential" can complete the degree "in one year for $4,500 to $6,000."

Will this latest salvo strike the decisive blow in the revolution? It is too early to tell. But a few facts we know too well. One study finds that average tuition and fees nationwide have risen 440 percent over the past 25 years, roughly four times the rate of inflation and nearly twice the rate of health-care cost growth. Attempting to pay for these historic price increases, students and their parents have taken on historic student-loan debt. Total student-loan debt has risen to $1.2 trillion, for the first time ever exceeding total national credit-card debt.

In the past, the debate over the college tuition and debt crisis has produced calls to action on two fronts, both fiscally unsustainable: First, federal taxpayers have been asked to pay more through subsidizing student loans so that students can borrow more to pay inflated tuitions. Second, state taxpayers have been asked to pay more in order to increase state subsidies for education. But today, with the $10,000 degree, universities themselves are beginning to lower the tuition and fees they charge students, parents, and taxpayers.

Finally, the ground is beginning to shift. The impossible may be starting to look inevitable.

Thomas K. Lindsay directs the Center for Higher Education at the Texas Public Policy Foundation and is editor of SeeThruEdu.com. He was deputy chairman of the National Endowment for the Humanities under George W. Bush. He recently published Investigating American Democracy with Gary D. Glenn (Oxford University Press).

Matthew M. Chingos, Brookings Institution - April 17, 2014

We are at the beginning of a revolution in the quantity of information available to prospective college students and their families about their postsecondary options. Until recently, little information was available on how each college's graduates fare in the labor market, forcing prospective students to instead base their decision on reputation and anecdotes. This has finally begun to change, with data from both public and private sources.

This revolution could not have come at a better time, as the dysfunction of the market for higher education coupled with declining taxpayer subsidies has driven prices up to a point where many families are questioning whether college is worth it at all. Contributing to these concerns are media reports of students who borrow too much to earn degrees that do not pay off, at least right away, or who never complete a degree at all.

Students go to college for reasons other than increasing their earning potential, but knowing roughly what to expect can help them make better decisions about how much to borrow, and decrease the risk that they will earn degrees that leave them unemployed and unable to repay their debts. A student may have good reasons to choose a degree program where graduates earn an average of $45,000 over one with average earnings of $50,000, but it is hard to imagine someone choosing a program where students seldom graduate and most of those who do struggle to find jobs.

There are two leading organizations working to provide this kind of information: PayScale and College Measures. PayScale is a private company that gathers self-reported salary and education data from visitors to its website, and produces estimates of the "return on investment" for a large group of colleges. College Measures  is also a private organization, but works mostly with state governments to produce estimates of average earnings (and other outcomes) for college graduates by linking administrative records on education and earnings, with the latter usually drawn from the state's unemployment insurance reporting system.

Which source is better? Both have advantages and disadvantages. College Measures has much more comprehensive data for recent graduates in participating states, in that they capture the earnings of most workers who remain in those states. Obtaining accurate data on a large sample of graduates is a huge advantage over relying on self-reported information from a self-selected group of visitors to a particular website. This is especially the case for providing data down to the degree program level (e.g., a particular major at a particular college), where the number of potential data points is often small.

But College Measures data are currently only available for a handful of states, and do not capture the earnings of earlier graduates over a longer period of time. PayScale is thus an important source of information, especially for colleges for which no other information on earnings is available. For example, even if PayScale's estimates of absolute earnings levels are inaccurate, the data may provide useful information on the relative earnings of graduates of different colleges.

I provide some empirical evidence on this question by comparing the reported average earnings at 76 colleges and universities for which data on the salaries of recent graduates are available from both PayScale and College Measures.* These colleges are located in six states that have partnered with College Measures: Arkansas, Colorado, Florida, Tennessee, Texas, and Virginia.

The figure below shows that the two measures of early-career earnings are clearly correlated but often diverge significantly. The dashed line indicates where a college's data point would fall if the two measures were equal. The fact that all but six colleges fall below the line indicates that the PayScale earnings measure is higher than the College Measures estimate at 92 percent of these colleges. On average, reported earnings are 14 percent lower using the College Measures data than using the PayScale estimates.

Over-reporting is not the only issue. Both measures show considerable variation in the average earnings of recent graduates, but often lead to divergent conclusions about individual institutions. For example, among colleges with an average income of around $40,000 in the PayScale data, the College Measures data show average salaries ranging from about $30,000 to about $40,000.


Two Measures of Recent Graduates' Earnings: PayScale and College Measures

 

Does this mean that we should discard the PayScale data as inflated and misleading? No, at least not yet. The PayScale data are clearly better than no data at all, as shown by their correlation with the College Measures data (r=0.59). In the 44 states where PayScale is the only game in town, that's an especially important contribution. PayScale is not able to be comprehensive given their data sources; it lacks salary data for 34 percent of the colleges that College Measures reports on. But PayScale can also help make up for the fact that College Measures does not include private colleges in many of its partner states, including 40 private colleges in the six states discussed here.

The half of the glass that is full here is the rapidly expanding availability of this kind of information. The half that remains empty includes the many colleges for which no data are available, and the limitations of the data that have become available. Even the College Measures data exclude many students, such as the unemployed and those who leave the state where they attended college after graduation.

The solution here is clear given that the federal government already has most of the information needed to provide a comprehensive look at the labor market outcomes of students at every college in the country. The next reauthorization of the Higher Education Act should end the ban on a federal unit-record database that links administrative data on education and earnings, while keeping in place appropriate privacy protections for individual students.

The politics of higher education reform make this much easier said than done, but perhaps opposition will soften in the face of this inevitable data revolution. Data from sources like PayScale and College Measures are not going away, and stakeholders afraid of transparency will likely be best served by a federal solution that maximizes the accuracy and comprehensiveness of the available data.

Matthew M. Chingos is a fellow in the Brookings Institution's Brown Center on Education Policy. This piece originally appeared on the Brown Center's Chalkboard blog.


* I thank Bridget Galassini for assistance with data collection. I use the "typical starting salary" from PayScale’s 2014 College ROI Report and the "average [or median] first-year earnings" from six College Measures ESM reports. I exclude one college (Colorado School of Mines) because it was an outlier in terms of its earnings as reported by PayScale (and, to a lesser degree, as reported by College Measures).

Congress Takes a Step on 'Micro-Unions'

Fred Wszolek - April 17, 2014

Congress took a crucial step last week to protect the rights and freedoms of American workers and employers. Despite efforts by Big Labor bosses to block progress, the U.S. House Committee on Education and the Workforce approved the Workforce Democracy and Fairness Act (H.R. 4320) and the Employee Privacy Protection Act (H.R. 4321).

If enacted, these bills would provide an important check on the latest overreach attempted by President Obama's National Labor Relations Board (NLRB). The board, run by appointed bureaucrats with close ties to Big Labor, has proposed a rule to shorten the timeframe in which union elections can be held. These "ambush" elections would unnecessarily speed up the unionization process, preventing employers from making their case to workers and depriving employees of the time and information they need to make an informed decision about unionization. In addition, the board would like to expand the information businesses are required to give to union organizers -- which already includes workers' names and home addresses - to include telephone numbers and e-mail addresses.

With dysfunction so often the order of the day in Washington, it's gratifying to see Congress performing its oversight duties with such vigor. The Education and the Workforce Committee and its chairman, John Kline of Minnesota, are attempting to hold the NLRB to its own stated purpose of ensuring "robust debate" over the issue of workplace unionization. "Ambush" elections would stifle discussion, and opening access to workers' information would expose them to the all-too-common intimidation tactics employed by union organizers. How exactly does that advance "robust debate"? It's clear that President Obama's NLRB has no qualms about contradicting its mission and overstepping its bounds, as long as it's advancing the interests of Big Labor.

The committee took its oversight role one step further by adding an amendment to the Workforce Democracy and Fairness Act that combats the establishment of "micro-unions," in which a few employees or a certain department within a business unionize separately from other workers. President Obama's NLRB ruled micro-unions legal in 2011, allowing union bosses to cherry-pick workers to organize. Micro-unionization can even lead to multiple unions in a single workplace, pitting worker against worker and disrupting the work environment. Micro-unions fly in the face of decades of labor law and practice, and Congress is right to take action against them.

It's up to Congress to keep the NLRB in check. The Workforce Democracy and Fairness Act (H.R. 4320) and the Employee Privacy Protection Act (H.R. 4321) could go a long way toward achieving that goal.

Fred Wszolek is a spokesperson for the Workforce Fairness Institute.

A Better Way to Pay Federal Pensions

Rich Tucker - April 16, 2014

The federal government has a long tail. But to find it, you need to look underground.

There are about 2.5 million people getting federal retirement benefits. Some 2 million of them have pensions, the rest (those hired since 1984) have annuities. Each year, another 100,000 or so people retire from the federal workforce. That's when the old-fashioned paper chase begins.

Each retiree's paperwork is sent to a former mine in Pennsylvania, where it is put into storage. The mine contains 28,000 file cabinets and is staffed by 600 people. It takes roughly two months for the mine's employees to track down all the necessary paperwork, stick it in a folder, and file it away.

Decades into the digital age, the paperwork is still actually on paper. "We do print them out, right now. But we won't in the future," Doug Berger told the Washington Post. He's in charge of creating the paper records. But don't bet on the system changing. It takes exactly as long to process a claim today as it did in 1977.

And that's only because there are now more people toiling in the mine. "The Obama administration has now made the mine run faster, but mainly by paying for more fingers and feet," the paper writes. This adds to the long-term problem; all of those additional hires will eventually retire into the federal system, adding to the expense and the paperwork. USA Today has estimated that the federal retirement program is already almost as costly as Social Security.

There's an obvious solution: Computerize the records and the system. Some states have already done this -- Texas's system, for example, takes two days instead of two months. But the federal government can't seem to make it happen. The Post reports the feds have spent more than $100 million on modernization projects through the years, and haven't made any progress.

A better approach would be to contract the job out. Here's how it could work: Have the Office of Personnel Management put up a pot of money, perhaps $50 million. (That's a small part of the $80 billion the federal government spends on IT projects.) Make the bulk payable only when a contractor delivers a system that works, and make the contractor eligible to split the savings 50-50 with the government if the project comes in under budget. This would create an incentive for contractors to save taxpayers money, and ensure that taxpayers weren't on the hook for any overruns. That's a win-win.

There other benefits to this approach as well. For example, in the event of a HealthCare.gov-style disaster, the contractor would simply not be paid until it had fixed its mistakes. And the project would not involve hiring more federal workers, who eventually become federal retirees.

"Privatization" has become a dirty word in Washington, so that might make this plan harder to sell. Maybe all we need is a better term. Let's call it "job sharing," and get the work out of the hands of bureaucrats. We can save money and unbury the federal retirement process.

Rich Tucker is a senior writer in the B. Kenneth Simon Center for Principles and Politics at the Heritage Foundation.

NRA vs. Michael Bloomberg Smackdown!

Robert VerBruggen - April 16, 2014

The former New York City mayor is dedicating himself to a new group that will organize voters who support gun control; called Everytown for Gun Safety, it will subsume his existing groups (Mayors Against Illegal Guns and Moms Demand Action for Gun Sense), and it will focus specifically on expanding background checks. His previous approach was to fund ad campaigns in races where gun control was an issue.

Here's how he matches up with his arch-rival.


Money

Bloomberg says he'll be putting at least $50 million into the project this year -- and according to the New York Times, he said this "as if he were describing the tip he left on a restaurant check." He continued: "Certainly a number like that, $50 million. Let's see what happens."

According to the NRA's 2011 990 form, it pulled in more than $240 million that year, but it's difficult to say how much of that money Bloomberg will be fighting against, because the NRA isn't solely dedicated to political activism and not all of its political activism is dedicated to gun rights. (It also involves itself in hunting rights, free speech, etc.)

Only $17 million was spent through the Institute for Legislative Action, the arm of the organization dedicated exclusively to politics, and another $33.5 million was spent on publications, which include legislation-related articles but also hunting tips and whatnot. (Members choose one of three magazine subcriptions; about half a million go with America's 1st Freedom, which focuses on gun rights, while 2 million go with the more general guns-and-shooting magazine American Rifleman. The group's hunting magazine claims a million readers as well.)

Looking specifically at political donations and lobbying, the NRA ranks a mere 53rd among interest groups -- its total since 1989 is a modest $20 million, and recently it has typically spent less than $3 million a year. The list, provided by OpenSecrets, does not include individuals, and it's possible for a very wealthy individual to match the efforts of entire organizations. As OpenSecrets notes, casino mogul Sheldon Adelson and his wife spent enough in 2012 alone to put them at No. 2: almost $93 million.


Public Opinion and Clout

Gun-rights supporters have chalked up some real victories in recent years. Not only did the Supreme Court rule that broad gun bans are unconstitutional, but the percentage of the population that supports banning handguns has reached record lows.

And the NRA's clout tends to far exceed its spending. It boasts millions of members, and the common perception is that gun owners are far more likely to base votes on the issue than are gun-control supporters. One study found that an NRA endorsement can boost a candidate's vote share by 3 percent for every 10,000 members in the district. Bloomberg's most recent push for background checks lost to a filibuster in the Senate.

But none of that means Bloomberg is wasting his money, especially since he won't be aiming for gun bans. Numerous gun-control measures still command majority support, most notably the universal background checks Bloomberg wants, but also, at least in some polls, assault weapon bans and limits on magazine size. And Bloomberg's groups already claim 1.5 million supporters of their own, though that just means people signed an online pledge.

Further, the political dedication of gun owners might be overstated. In one poll, gun-owning and non-gun-owning households were equally likely to say they couldn't vote for someone who disagreed with them on the issue.


The NRA is regarded, quite correctly, as a powerful political force. But it's not unthinkable that a well-orchestrated campaign for a popular position could make some real gains. For his part, Bloomberg is confident in his ability to connect with voters outside of New York. From the Times:

"I don’t know what your perception is of our reputation, and mine, the name Bloomberg around the country," he said, explaining that everyplace he goes, he hears, "You’re a rock star. People yelling out of cabs, 'Hey, way to go!'" They're not booing, they're saying, "Blooo-mberg."

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

The U.S. Government: Paying to Undermine Internet Security, Not to Fix It

Julia Angwin, ProPublica - April 16, 2014

The Heartbleed computer security bug is many things: a catastrophic tech failure, an open invitation to criminal hackers and yet another reason to upgrade our passwords on dozens of websites. But more than anything else, Heartbleed reveals our neglect of Internet security.

The United States spends more than $50 billion a year on spying and intelligence, while the folks who build important defense software -- in this case a program called OpenSSL that ensures that your connection to a website is encrypted -- are four core programmers, only one of whom calls it a full-time job.

In a typical year, the foundation that supports OpenSSL receives just $2,000 in donations. The programmers have to rely on consulting gigs to pay for their work. "There should be at least a half dozen full time OpenSSL team members, not just one, able to concentrate on the care and feeding of OpenSSL without having to hustle commercial work," says Steve Marquess, who raises money for the project.

Is it any wonder that this Heartbleed bug slipped through the cracks?

Dan Kaminsky, a security researcher who saved the Internet from a similarly fundamental flaw back in 2008, says that Heartbleed shows that it's time to get "serious about figuring out what software has become Critical Infrastructure to the global economy, and dedicating genuine resources to supporting that code."

The Obama Administration has said it is doing just that with its national cybersecurity initiative, which establishes guidelines for strengthening the defense of our technological infrastructure -- but it does not provide funding for the implementation of those guidelines.

Instead, the National Security Agency, which has responsibility to protect U.S. infrastructure, has worked to weaken encryption standards. And so private websites -- such as Facebook and Google, which were affected by Heartbleed -- often use open-source tools such as OpenSSL, where the code is publicly available and can be verified to be free of NSA backdoors.

The federal government spent at least $65 billion between 2006 and 2012 to secure its own networks, according to a February report from the Senate Homeland Security and Government Affairs Committee. And many critical parts of the private sector -- such as nuclear reactors and banking -- follow sector-specific cybersecurity regulations.

But private industry has also failed to fund its critical tools. As cryptographer Matthew Green says, "Maybe in the midst of patching their servers, some of the big companies that use OpenSSL will think of tossing them some real no-strings-attached funding so they can keep doing their job."

In the meantime, the rest of us are left with the unfortunate job of changing all our passwords, which may have been stolen from websites that were using the broken encryption standard. It's unclear whether the bug was exploited by criminals or intelligence agencies. (The NSA says it didn't know about it.)

It's worth noting, however, that the risk of your passwords being stolen is still lower than the risk of your passwords being hacked from a website that failed to protect them properly. Criminals have so many ways to obtain your information these days -- by sending you a fake email from your bank or hacking into a retailer's unguarded database -- that it's unclear how many would have gone through the trouble of exploiting this encryption flaw.

The problem is that if your passwords were hacked by the Heartbleed bug, the hack would leave no trace. And so, unfortunately, it's still a good idea to assume that your passwords might have been stolen.

So, you need to change them. If you're like me, you have way too many passwords. So I suggest starting with the most important ones -- your email passwords. Anyone who gains control of your email can click "forgot password" on your other accounts and get a new password emailed to them. As a result, email passwords are the key to the rest of your accounts. After email, I'd suggest changing banking and social media account passwords.

But before you change your passwords, you need to check if the website has patched their site. You can test whether a site has been patched by typing the URL here. (Look for the green highlighted "Now Safe" result.)

If the site has been patched, then change your password. If the site has not been patched, wait until it has been patched before you change your password.

A reminder about how to make passwords: Forget all the password advice you've been given about using symbols and not writing down your passwords. There are only two things that matter: Don't reuse passwords across websites and the longer the password, the better.

I suggest using password management software, such as 1Password or LastPass, to generate the vast majority of your passwords. And for email, banking and your password to your password manager, I suggest a method of picking random words from the Dictionary called Diceware. If that seems too hard, just make your password super long -- at least 30 or 40 characters long, if possible.

This piece originally appeared at ProPublica, where Julia Angwin is a senior reporter.

Robert VerBruggen - April 15, 2014

Here is some data from the White House on total tax receipts as a percentage of GDP. Numbers from 2014 forward are projections:

Here's a chart that includes outlays too, in case you needed a reminder that your tax bill isn't high enough to cover spending:

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Uncluttering State Tax Systems

Will Marshall & Paul Weinstein Jr. - April 15, 2014

Over the last week, as you've raced to file your taxes by the deadline today, you've no doubt been bombarded on talk radio, cable TV, and the opinion pages about how complex and anti-growth the federal income tax system has become. Tax reform is indeed long overdue, but it's not just the federal code that needs fixing: Many state tax systems are regressive, economically distorting, and mind-numbingly complex.

This month, the Progressive Policy Institute unveiled a unique study ranking the tax systems of all 50 states plus the District of Columbia -- the State Tax Complexity Index. The index measures complexity in terms of the number of loopholes lurking in the code. What we discovered surprised us.

First, it doesn't matter whether states rely on income or sales taxes, or whether they have a single rate or multiple rates -- all of these systems can be honeycombed with complicated tax breaks, despite what you may have heard from advocates of a national sales tax or "flat tax." For example, Hawaii and California, two states with very progressive income-tax systems (Hawaii has more marginal rates than the federal code) ranked among the least complex tax systems in terms of special tax preferences. Meanwhile, states with no individual income tax ranged all over the spectrum; for example, Washington ranked near the top of our complexity scale, Texas finished in the middle, and Alaska was toward the bottom. And states that have a flat tax clustered in the middle of our survey, with the exception of Utah, which tied for 37th.

Second, reducing complexity by eliminating tax breaks can finance lower tax rates and also increase progressivity, because such preferences mostly benefit higher-income individuals and businesses.

Choosing how to measure tax complexity across all types of tax systems was a challenge. The only feature that all systems shared was tax expenditures -- tax provisions that provide a targeted benefit to specific individuals and groups, and thereby reduce government revenue. Common tax expenditures include deductions, credits, exclusions, deferrals, and rebates.

Some progressive analysts view tax expenditures as an indirect and more politically palatable form of government spending that obviates the need for new programs and administrative bureaucracies. Conservatives usually see them as a way of chipping away at tax burdens on affluent families and businesses. Either way, the growth of tax expenditures greatly increases tax complexity, because they spawn a special set of regulations that multiply over time and often lead to growing inconsistencies and inequities.

How do we know tax expenditures add to complexity? According to the IRS, the average person filing a 1040 form (which includes those taxpayers who chose to itemize their deductions) devotes 16 hours, the equivalent of two full work days, to the task. The 1040EZ form (which limits the number of deductions, credits, and other tax expenditures), by contrast, takes just four hours.

Tax expenditures don't just clutter up the tax code; they also leak revenues and usually bestow their benefits upon the least needy among us. Federal tax expenditures cost the government over $1 trillion a year. Because you have to itemize to take advantage of deductions and credits, and because the value of deductions is tied to one's tax bracket, upscale taxpayers reap the lion's share of the benefits, whether we're talking about deductions for charity, for home mortgages, or for health care. One big exception to this general rule is the Earned Income Tax Credit, which is specifically targeted to minimum- and low-wage workers as an incentive and reward for work.

Whether at the state or federal level, the lesson is clear: If simplicity is your goal, you have to reduce the number of tax breaks. Switching to a flat or sales tax isn't the answer. Closing loopholes will also help governments pay their bills the old-fashioned way, by raising revenue instead of piling up public debt. Plugging revenue leaks will ease pressure for raising tax rates, which should be kept as low as possible. And eliminating tax breaks will reduce economic distortions and help channel capital investment to its most productive uses, rather than those favored by politicians.

That's just as true on the state level as it is in Washington, D.C. So if federal lawmakers ever do get around to serious tax reform, they should invite the nation's governors to the table, too.

Will Marshall is president of the Progressive Policy Institute. Paul Weinstein Jr. is a senior fellow at the Progressive Policy Institute and the director of the Public Management Graduate Program at the Johns Hopkins University.

Is There a Way Out of Taxifornia?

Joseph Fleming - April 14, 2014

Considering that James V. Lacy titled his critique of California's fiscal policies "Taxifornia: Liberals' Laboratory to Bankrupt America," it's no mystery what he thinks of the state's economic situation and whom he blames for it. Lacy doesn't mince words in targeting California's liberal officials and special-interest groups, or in painting a bleak picture of the state's affairs.

Lacy, a former California delegate to the Republican National Convention and member of the Reagan administration, is nothing if not detailed as he reveals the various flaws in California's approach to governance. Although there are many issues, each with its own distinct qualities, they all have something in common, as he sees it: liberal dysfunction.

According to Lacy, overregulation, overtaxation, mismanagement of state funds, favoritism, and perversion of democratic functions have left California with high rates of poverty, high unemployment, an exodus of both small businesses and the television and movie industries, a floundering public-education system, and a stifled energy industry. Businesses find it too difficult and too expensive to operate within California, which is bad news for a state grappling with an 8 percent unemployment rate (trumped only by Nevada, Illinois, and Rhode Island) and facing uninspiring job-growth figures.

The book's first chapter is a powerful condemnation of the state's tax policies; Lacy goes so far as to say that heavy taxation is destroying California's economy. Relative to other states, California has high income-tax rates, corporate tax rates, and state and local tax rates. (Lacy writes that California's sales-tax rate is the highest in the country, but that's before adjusting for local rates; after adjusting, it's the eighth-highest.)

Lacy characterizes California's liberalism as "kooky," radical, and out of touch -- the state is a place where liberals react reflexively to perceived problems without allowing for markets to self-regulate or impressing upon individuals the importance of personal responsibility. Though he gets a little too aggressive at times -- he refers to the "obvious" job-killing effects of minimum-wage hikes, but the evidence is certainly not cut-and-dried -- Lacy makes a broader point about how California has gotten itself into economic trouble.

The most pressing and important problem facing California, Lacy argues, is the state's underfunded and overly generous public-pension system. The fact that Lacy sees this is as an urgent issue is no surprise, given the widespread attention public pensions have received in the media and local government (in fact, I covered a forum on this issue back in October). Most notable, of course, is San Jose mayor Chuck Reed's Pension Reform Act, which happened to lose a major court battle last month. The author points to the bankruptcy of Stockton as proof of the failure of liberalism in California, with the city's gradual decline caused by "liberal spending policies and catering to public employee unions."

That, though, brings up an even bigger problem -- the power of public-sector unions -- and the California Teachers Association is the major player, according to Lacy. The CTA is a dominant force in political spending, and the biggest-spending interest group in California: According to Lacy's calculations, the group spent $290,000,000 between 2000 and 2013 on "influencing California elections and legislation," which is more than double the total of the next highest special interest spender, the California State Council of Service Employees.

The money goes, of course, overwhelmingly to Democrats, who wield immense power in California. The CTA uses its influence to push the state's compensation policies far to the left, often under the guise of education spending. Liberals and their "teachers' union allies," Lacy writes, push for more money by pointing to the state's troubling student-teacher ratios, lack of computers in classrooms, etc. But these problems occur, he says, because the money California is already spending never reaches the classrooms, but rather goes toward lining the pockets of California's well-compensated teachers. Even as spending rises, Lacy writes, test scores continue to spiral downward.

But union money isn't the only thing that works to the Democrats' advantage; in addition, the party's political dominance seems to be self-sustaining. Lacy quotes Howard Jarvis Taxpayers Association president Jon Coupal, who wrote that, because Democrats control the government, they can press "politically vulnerable industries for campaign contributions." Lacy says the Democratic party is so entrenched "that today a Republican has practically no chance at winning any statewide elective office."

As a result, California Democrats' resistance to reform extends beyond pensions and education; the energy sector, for example, experiences complex, duplicative, and anti-growth regulations. Lacy argues that the most important step that California can take to improve its economy is to "throw off [the] liberal clock of inaction" and allow for more oil and natural-gas extraction.

That kind of suggestion is typical of Lacy's approach: He provides much more detail when describing problems than when offering solutions. He does encourage certain relatively direct courses of action, such as implementing Common Core, but otherwise he keeps to general recommendations such as lowering taxes, bringing spending under control, and encouraging Democratic officeholders to embrace more moderate positions.

So, then, what does the path to improving California's economic situation look like? The state is in the unenviable position of needing a number of different answers to a number of different problems, and it's going to have to start with a top-down approach targeting its systemic issues. Given how Lacy portrays California's governmental machinations, that seems unlikely without greater political competition.

Joseph Fleming is a RealClearPolicy intern.

Robert VerBruggen - April 9, 2014

This new video from Slate explores the question:

Using some back-of-the-envelope math with data from various sources, the video claims that if Walmart raised its prices just 1.4 percent -- one cent on a 68-cent box of mac and cheese! -- it could pay all its employees enough ($13.63) that they wouldn't qualify for food stamps, without touching its bottom line. When all was said and done, Walmart customers would be out $4.8 billion a year, employees would be paid more, and taxpayers would save $300 million a year on food stamps.

Would this be a good outcome? We can't really say until we take a closer look at the three affected parties -- customers, workers, and taxpayers.

Last fall I pointed out an analysis from the University of California at Berkeley (whose work the video also cites) finding that, if Walmart hiked prices to fund a higher minimum wage for employees, "28.1 percent of the total price increase would be borne by consumers in families below 200 percent [of the federal poverty level]. In comparison, 41.4 percent of the benefits would go to Walmart workers in families below 200 percent FPL."

As a definition of "poor," 200 percent of poverty might be a little broad -- it describes about 40 percent of the population. (Walmart shoppers tend to be middle- and low-income, but richer shoppers spend more, so only 28 percent of its revenues come from the poor.) But let's put these numbers differently: Transferring $100 from Walmart customers to the lowest-paid Walmart employees is like taking $28 from some poor people and giving it to other poor people, taking $59 from some nonpoor people and giving it to other nonpoor people, and taking $13 from nonpoor people and giving it to poor people. Or, in the form of a crude illustration:

Further, we're not just transferring money from customers to employees, because taxpayers are taking a cut, too, in the form of slashing benefits for poor employees and collecting more taxes from richer ones. As I've also previously noted, a poor single mother with one kid -- like the mother who appears in the video -- can lose a big chunk of her gains as her income rises; Jeffrey Dorfman calculated last week that she'll lose about half of her raise if she goes from minimum wage to $10.10, and that more than a third of the damage is from programs other than food stamps.

Pairing Dorfman's numbers with Slate's own estimate for food stamps ($300 million out of $4.8 billion) allows us to do some rough math: If every dollar in food-stamp cuts is paired with 50 cents in other benefit cuts, 9 percent of the total transfer ($450 million) will go to taxpayers this way. And if the loss is concentrated among the 41 percent of employees Berkeley classifies as low-income, as it presumably is, our calculation above changes: Instead of taking $28 from poor customers and giving $41 to poor workers (in addition to transfers involving the nonpoor), we're taking $28 from poor customers and giving $32 to poor workers. Taxpayers save $9 (and collect some extra taxes from Walmart workers in richer households).

And let's not forget that taxpayers are a pretty rich bunch; if you cut $100 in federal taxes, and do so proportionately to the taxes that are paid, $71 will go to the top 10 percent, and only $2 will go to the entire bottom 50 percent. Or you can apply the savings to the deficit, but that just saves future groups of taxpayers, whose incomes will presumably be similarly skewed. Certainly, the typical tax dollar comes from a richer person than the typical Walmart dollar comes from.

Finally, if Walmart did this unilaterally (as opposed to the government forcing Walmart and all its competitors to do it), it would raise competitive concerns. The Berkeley study said Walmart could increase prices while maintaining an advantage over other retailers, but that might no longer be true.

So, Slate's scheme is a lot more complicated than it looks.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Rocky Mountain High or Reefer Madness?

Marshall Allen, ProPublica - April 8, 2014

I walked through clouds of marijuana smoke Friday night to get to the Denver Nuggets basketball game. The sweet smell lingering in the air reminded me less of a family event and more of the time I saw AC/DC on "The Razor's Edge" tour at the old McNichols Sports Arena.

I grew up in Colorado, but it's been a while since I lived in the state. When I returned for a recent conference, I found that a place settled by the Gold Rush is now mad about reefer. In 2012, Colorado voters became the first in the nation to approve recreational pot use. The good times rolled out Jan. 1, when stores started selling it.

I've never tried pot, but I graduated from the University of Colorado-Boulder, which is famous for its annual "4/20" public pot parties. At CU, you can practically get a contact high walking to class. But I saw more public pot use in my two-day visit to Lower Downtown Denver than in years spent at Boulder.

It's supposed to be illegal to smoke or consume pot in public. But then the day after the game, while jogging down the Speer Boulevard bike path, I passed a guy lounging under a tree lavishing his affections on a joint.

Anyone over 21 can walk into a dispensary and load up on bud, marijuana baked goods and candy.

The presence of legal pot right outside our hotel made people giddy at the conference I attended -- a meeting of the Association of Health Care Journalists. At a reception, one woman passed a friend gummy bears infused with THC, or tetrahydrocannabinol, the main psychoactive ingredient in pot.

And then there was a friend of mine at the conference -- I'll call him "Dude" because he shared his story on condition I didn't name him. He had a bad reaction after eating too many marijuana gummy bears.

There's a running debate about whether pot should be legal for recreational use, but the Colorado experiment is rapidly unfolding, and it could help determine whether other states follow or shy away. (Washington voters also have approved recreational marijuana, and the state expects to begin licensing retailers in July.)

Two things stand out after my visit.

First, legal pot is attracting new and possibly naïve users -- creating risks that some don't bargain for. Second, the public health system's desire to protect people may be well-intentioned, but regulation and efforts to track the health effects have a ways to go.

Dude had only smoked pot twice in his life, about 25 years ago, but he got curious and tried some pot gummy bears from a shop called the LoDo Wellness Center. Other than being infused with THC they looked and tasted like ordinary candy. Dude and his buddy paid $20 for a pack of 10.

Dude ate a bear before dinner but felt nothing. So he popped another during the meal. Nada. Ripoff, he assumed. So he ate a few more -- five total, he said -- but still felt nothing. He fell asleep in his hotel room at 11 p.m.

Two hours later, Dude awoke feeling like he was on a roller coaster. His entire body tingled, and he was light headed. He tried to stand, but his left leg was so numb he couldn't walk to the bathroom. His pounding heart strained his rib cage as waves of euphoria and anxiety washed over him.

He was terrified.

Was this the high? An overdose? A heart attack? A stroke?

Totally debilitated, Dude thought about calling an ambulance but feared ending up in the E.R. or a police station. So he stayed put, guzzled water, pulled a blanket over his head and clutched a pillow. The symptoms lasted two hours, but it took a full day to feel normal again.

Dude's experience and the open pot use I saw made me wonder about public health aspect of legalization. I called some experts to find out if there have been safety problems, how pot and gummy bears are being regulated and whether consumers are being educated about the risks.

The foods with pot -- typically baked goods but also sodas, candies and even lasagna and pizza -- cause the most unpredictable highs because the effects aren't immediate and potency varies, I learned.

In the case of gummy bears, one is considered a single serving. But Dude kept eating them because he didn't feel anything.

Haley Andrews, manager of the LoDo Wellness Center, said about half the shop's customers are marijuana novices, so the staff takes time to educate everyone who buys. Users should start with one 10 mg gummy bear, she said, and never consume more than 20 mg at a time.

Andrews said the gummy bear bottle's label listed the number of 10 mg servings inside and advises users to consume with caution because the product had not been tested for contaminants or potency. There is no mention of a delayed response, she said.

The Denver Post recently tested edibles and found that potency labeling was often inaccurate.

Accurate or not, labels are often ignored.

Dude said his buddy held onto the package so he never looked at it. He claims no one at the shop gave him any warnings about the gummy bears.

There were signs in the shop about how the different strains of pot would make users feel -- "calm" or "excited" -- but Dude said he saw no displays with advice for novice users, how many gummy bears are too many, or warnings about a delayed response.

Andrews said the staff makes every effort to ensure people use the products safely, but that it's possible Dude somehow slipped through the cracks.

Generally, using too much pot isn't life-threatening. But a reaction like Dude's could contribute to a heart attack or stroke for someone who has health problems, said Dr. Tista Ghosh of the Colorado Department of Public Health. She said recreational pot has been unexpectedly popular with the older crowd.

"There's a lot we don't know," Ghosh said. "I feel like in some ways we're like tobacco 50 years ago. More research needs to be done on this from the public health and individual health perspective."

Looking back on it, Dude said he was glad to be in his hotel room when the reaction hit him and not in a place where he could endanger others. According to reports in the Denver Post, pot use has contributed to car crashes and the recent death of a Wyoming college student, who on a spring break visit to Denver, began acting strangely and jumped from a fourth-floor hotel balcony.

Though ruled an accident, a coroner's report said "marijuana intoxication" from eating several pot cookies was a significant contributor to the 19-year-old's death, the Post reported.

Children are especially at risk. It's illegal to make candy or fruit-flavored cigarettes in the United States, but pot candies and cookies in Colorado have been some of the best-selling products. Although the packaging is child-proof, it doesn't stop kids once it's open.

Dr. Andrew Monte, a medical toxicologist at the University of Colorado Medical School and Rocky Mountain Poison and Drug Center, didn't have hard numbers but estimated that there is a poison control call every few days about a child accidentally eating marijuana products.

There also are reports from emergency room doctors, though no official numbers yet, of children showing up to hospitals in extreme states of drowsiness after accidentally consuming THC products, Monte said. Some end up getting expensive diagnostic work-ups like CT scans and spinal taps, he said.

"What kid doesn't want a brownie or a gummy bear?" Monte said.

So far there are no mandatory tests of the potency or purity of recreational pot or THC food products, but they are scheduled to roll out in the coming months under the rules to implement the new law.

The process is more complicated than it would be in other cases because state regulators have not been able to rely on the federal health agencies. The federal government deems marijuana an illegal substance, so it's not participating in the oversight, Ghosh said.

Ghosh said the Colorado regulators have had to start some things from scratch, including finding labs that can be certified to test pot products.

Michael Elliott, executive director of the Marijuana Industry Group, which represents marijuana centers, growers, and infused products manufacturers in Colorado, said there are clean kitchen standards in place now, and licensing of facilities, financial disclosures, security and more.

He said the industry is committed to robust regulation.

Elliott, Ghosh and Monte agree that more needs to be done to educate consumers.

The state has put up a website with information about the law and advice for parents and is running a "Drive High, Get a DUI" campaign, efforts that Elliott says are supported by the marijuana industry.

Included on the website is a page titled "Using Too Much?" aimed at people like Dude.

Public health also depends on people using common sense. My friend Dude is a smart guy, but he knows he was a dumb consumer when he gobbled the pot gummy bears. Now, he regrets assuming that because marijuana was legal nothing could go wrong.

"I was ignorant about the whole thing," he told me later. "I am embarrassed to admit that I just ate the gummy bears because it seemed like fun.

"It was not."

Marshall Allen is a reporter at ProPublica, where this piece originally appeared. It was co-published with The Cannabist.

Robert VerBruggen - April 7, 2014

... after steady increases over the past five years. The rate is now at its lowest point since 2008.

From Gallup:

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

NLRB Wants to Stop Businesses From Moving

Peter Schaumber - April 7, 2014

Richard Griffin, the new general counsel of the National Labor Relations Board, wants to give unions a veto over a unionized employer's decision to relocate. If Griffin has his way, and he most assuredly will, some unionized businesses will be pinned in place at the discretion of their unions.

The change Griffin is contemplating is unnecessary and inconsistent with both the law and the dynamics of our free-enterprise system. It will upset the balance mandated by the Supreme Court and should send a chill up the spine of unionized companies contemplating relocating an operation.

Griffin's intent was disclosed in a memorandum he sent the agency's regional directors ordering them not to act on cases presenting issues "of concern" to him -- and there were many such issues -- without receiving guidance from his office. Griffin's guidance will be to order an employer to be prosecuted not on the basis of what the law is but on the law as Griffin would like it to be. This will give the board an opportunity to change the law (though the change will be prospective -- the employer who is prosecuted will not be punished for violating the new rule).

Under current law, it is perfectly legal for a unionized employer to relocate some or all of its facilities and eliminate bargaining-unit work if the move is motivated by economic gain -- not by a desire to retaliate against employees for their union activities and support. A desire to escape the consequences of unionization, particularly high labor costs, is considered an independent, innocent motivation, not an unlawful one. Big Labor loathes this law; Griffin intends to help unions nullify it.

Under longstanding NLRB law, a unionized employer is not required to bargain with the union over a relocation decision that is motivated by labor-cost savings if the employer determines that bargaining would be futile -- that the union could not offer labor-cost savings that could change its decision. Unions can contest the employer's decision, but they have no right to participate in it or otherwise delay it absent a court order enjoining it.

Griffin intends to change this law by making bargaining mandatory. He will argue, as did a former board member whose views he cites, that mandatory bargaining is a modest change in the law that fulfills the National Labor Relations Act's central purpose of promoting collective bargaining. Why deprive the union of the opportunity to explore or influence an employer's relocation decision when labor costs, an area over which the union exercises some authority, are a motivating factor?

The question begets its answer: Because the goal of collective bargaining is labor peace. The board promotes collective bargaining not in the abstract but only when the subject of the proposed discussion is "amenable to resolution through the bargaining process" (as the board and the courts have put it). Requiring bargaining with the union over a work-relocation decision that will eliminate the union when one party to the bargaining process -- the party that has done the math -- knows that it will be futile, invites delay and conflict, not labor peace. One would have to be living on another planet not to know that the union will be tempted to abuse the bargaining process with endless requests for information, and even take the opportunity to foment workplace discord, to convince the employer to remain in place or simply to exact a price for its move.

Further, the Supreme Court has already established a fair way of balancing a union's desire to negotiate against a business's desire to run its operations free of interference. Decades ago, the court made it very clear that the board must respect "management's [need] to be free from the constraints of the bargaining process to the extent essential for the running of a profitable business." It admonished the board:

Bargaining over management decisions that have a substantial impact on the continued availability of employment should be required only if the benefit, for labor-management relations and the collective-bargaining process, outweighs the burden placed on the conduct of business.

Current board law involving work relocations achieves the proper balance and protects unions from unfounded claims of bargaining futility. If the union contests the employer's failure to bargain, the employer must show that the union could not have made concessions that could have changed the employer's decision. A 2002 study conducted by Northern Illinois University of more than 100 contested work relocations that occurred from 1992 through 2002 concluded that this test "overwhelmingly" favors a union outcome.

Employers are further deterred from avoiding a bargaining obligation by the severity of the remedies the board can impose if it finds against the employer: back pay from the date of termination until the date the displaced employees find substantially equivalent work, reinstatement at the employer's new location with reimbursement of moving and other relocation expenses, and an order requiring the employer to move back.

Current law was thoughtfully constructed decades ago by a unanimous board composed of Democratic as well as Republican members. It protects the interests of workers and their unions while allowing employers the freedom necessary to compete and prosper. Griffin's decision to seek a change in this law and construct a Berlin Wall of bargaining obligations around unionized businesses will hasten those companies' demise and harm the economy. It will undoubtedly be approved by the board's majority, however, which is made up of committed members of the labor movement whose passionate desire to hold the line on the loss of union jobs in the private sector matches Griffin's.

Such a change in the law is in the short-term interest of Big Labor but ignores the interests of the nation as a whole. It is the price we pay when control of a small but important federal agency is turned over to political appointees who are unable to fairly balance the interests of those it is charged with regulating and protecting.

Peter Schaumber is a former chairman of the NLRB, appointed by President George W. Bush.

FDA Suppresses Concerns About Indian Generics

Roger Bate - April 7, 2014

Are American patients taking unsafe medicines from Asia? Even posing that question is leading to unusually public confrontations between scientists and physicians on one side and the Food and Drug Administration on the other.

Six weeks ago I chaired a congressional briefing about the possibility that low-quality drugs are being sold here. There were several topics under discussion that day: corruption at India's drug regulator and the quality problems it ignores; the felonies admitted to by Ranbaxy, one of India's largest exporters to America; and increasing anecdotal evidence that American patients are taking inferior heart medications. But perhaps the most interesting points were covered by Preston Mason, a specialist in cardiological science at Harvard Medical School's Brigham and Women's Hospital. When Mason sampled atorvastatin (generic Lipitor) -- the world's most valuable drug -- from Europe, the U.S., and Asia, he found 36 different versions with impurities that would undermine their clinical efficacy.

Last week, Janet Woodcock -- the FDA's lead drug reviewer -- inexplicably told Bloomberg that Mason's team "didn't use the proper method to extract the active ingredient" from samples "and therefore contaminated it themselves." This is a major charge to level at a senior scientist with decades of research experience at a stellar institution -- and she is wrong. Mason's methods were perfectly sound according to credible independent scientists with whom I've spoken, such as Tadeusz Malinski, a professor of biochemistry at Ohio University in Athens who has been published extensively in the academic literature. Moreover, Mason followed the US Pharmacopeia method, the method any scientist, including those at the FDA, would normally follow.

More bizarrely still, in the Bloomberg piece linked above the FDA effectively defended the entirety of the U.S. supply of atorvastatin by saying samples from one pharmacy it surveyed -- yes, a single pharmacy -- were all fine and hence there is nothing to worry about. A detailed analysis of one pharmacy's atorvastatin is no doubt informative, but to draw policy conclusions we need a bigger sample size.

Had FDA officials bothered to speak to Mason prior to so publicly criticizing his methodology, they would have learned that most of the suspect samples came from Asia, and that all the drugs approved by the FDA for legal sale in the U.S. passed his testing. In fact he stressed many times at the briefing that the U.S.-manufactured samples he tested did not have the impurity in any meaningful volume -- but some foreign versions with impurities, notably from India, did make their way into the U.S. through unauthorized routes. No doubt this fact makes the FDA uncomfortable.

Perhaps even more insulting is the FDA's assertion to Bloomberg that physician concern over poor patient reactions to some generic medicines is all in the minds of the patients and doctors. Harry Lever, a cardiologist at the Cleveland Clinic in Ohio who has raised concerns about medicines made by several Indian producers, has rebuffed the FDA's dismissiveness: "My patient reactions are not all in the mind." After switching from U.S. brand name and generic products to Indian generics, his patients have had dangerous physiological reactions including major elevations of cholesterol levels, rapid weight gain, and blood pressure and heart-rhythm problems. One physician, like one pharmacy, can't provide enough information to drive policy decisions, but it should drive further study.

This isn't the first time the FDA has dismissed physician complaints about underperforming medicines. For five years it ignored increasing evidence that some generic versions of GSK's Wellbutrin, an antidepressant, didn't work. It eventually conducted its own studies and found that, indeed, some generic copies didn't work properly. A year and a half ago the agency issued a recall.

Cavalier and aggressive responses from the FDA are unusual and unexpected. Is the FDA both worried about drug quality, and at the same time trying to shut up any independent voices raising concerns about quality? Is dealing with repeated press inquiries about drug quality getting to the FDA?

Even for those who have considerable faith in the FDA, it should be stressed that it was not the FDA that found out about failing generic Wellbutrin -- and that, while the FDA finds plenty of problems with manufacturing sites, it is independent individuals who provide the evidence to catch the major frauds. FDA investigations did not unearth GSK's problems in Puerto Rico, or Ranbaxy's decade-long string of lies about quality; it was whistleblowers in the companies.

The FDA is ratcheting up its inspection activities overseas, notably in India, because of safety concerns. But knee-jerk attacks by the FDA on independent American researchers provide cover to India's entrenched industry and its incompetent and corrupt regulator. The market certainly interpreted the FDA's remarks as a complete vindication of companies like Ranbaxy.

The FDA is a very important agency, but it is not omniscient or infallible, and it needs all the external help it can get. It is doubtful that independent academics and critics will continue to voice their concerns so willingly if FDA persists in belittling their efforts in public. And while that may be good for the egos of power brokers at the FDA, it is surely not good for American patients, who increasingly depend on India's drug supply.

Roger Bate is the author of Phake: The Deadly World of Falsified and Substandard Medicines and a scholar at the American Enterprise Institute. 

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