Saturday, September 18, 2010

Govt. Must Spur Demand to End Recession says Chorus of Progressive Economists

by Roger Bybee - Friday, September 17, 2010 by In These Times

Largely oblivious to the reality among working families grappling with unemployment, wage cuts, and trying to avoid foreclosures, conservative politicians (mostly GOP, but also a considerable number of Democrats) are building momentum for an assault on federal budget deficits by slashing government spending.

But more than 300 economists have countered with a strong statement calling calling instead for the opposite solution: a vigorous expansion of federal stimulus efforts—and the deficit—to lift the economy out of the persisting Great Recession.

"The deficit focus risks repeating the mistakes of 1937, when FDR pulled back on public spending and plunged us back into the depths of a very deep recession," former Labor Secretary Robert Reich told reporters Thursday on a national conference call with several of the country's most prominent progressive economic experts. "We're in danger of deflation, continued recession, and not getting out of this recession."

The economic recovery is anything but vigorous, as shown by a weak 1.6% level of growth during the second quarter and a rise in poverty, which now afflicts 43 million people, the highest level in a half-century. Other fundamental problems remain, the economists point out:

"The basic problem is a lack of demand," argued economist Dean Baker of the Center on Economic and Policy Research, and author most recently of Plunder and Blunder. "Yet it is striking that we've had a dominant narrative that's 180 degrees at odds with reality." As the economists wrote:
Today, the economy is growing only weakly. 7.8 million jobs have been lost in the recession. Consumers, having suffered losses in home values and retirement savings, are tightening their belts. The business sector, uncertain about consumer spending, is reluctant to invest in expansion or job creation, leaving the economy trapped on a path of slow growth or stagnation. Over 20 million American workers are now unemployed, underemployed or simply have given up looking for a job.
The increase in deficits and long-term federal debt is hardly due to anti-recessionary spending, explained Baker.


The largest portion of the federal debt is due to unfunded tax cuts and two wars enacted during the George W. Bush administration, Baker noted. President Obama's $787 billion stimulus plan and other initiatives comprise only a fraction of the red ink, but they weren't sufficient to generate enough consumer demand to escape the recession.

"Emergency stimulus policies here and around the world broke the fall, but brought us only part way to full recovery," the economists' statement declared.

The push for drastic deficit-cutting flies in the face of logic and the hard-learned lessons of the 1930's, the statement read:
History suggests that a tenuous recovery is no time to practice austerity. In the Great Depression, Franklin Roosevelt’s New Deal generated growth and reduced the unemployment rate from 25 percent in 1932 to less than 10 percent in 1937.
However, the deficit hawks of that era persuaded President Roosevelt to reverse course prematurely and move toward budget balance. The result was a severe recession that caused the economy to contract sharply and sent the unemployment rate soaring. Only the much larger wartime spending of the early 1940s produced a full recovery.
"Austerity economics" will not provide the level of consumer demand needed to rekindle the economy and bring down unemployment, the economists argue.

"There are four sources of demand for business," explained Reich. "The first are consumers, who are buried in debt. Second, there is business, which is sitting on more than a trillion dollars in profits but not plowing it back into new machinery and not hiring because they don't see the customers." Exports, another demand source, offer limited hope, as other advanced nations are also in a slump...


"Finally, there is government as a consumer, when all else fails," Reich said.

President Obama has taken some steps in the right direction recently to prevent layoffs and service cuts in the public sector and to aid small businesses, but needs to act much more boldly, said Robert Borosage, president of the Institute for America's Future. Borosage urged a vast expansion of stimulus and public sector job-creation programs, especially for young people coupled with tax cuts for all but the richest 3%.

Democratic "deficit hawks" should recognize that deferring the problems of prolonged high unemployment and weak consumer demand will play directly into the Republicans' hands. "The Democrats who are worried about the deficit need to remember that the Republicans are not averse to seeing a bad economy going into the next election, because it's not in their political self-interest," Reich stated.

Not only is a choice of trimming the deficit over stimulating the economy bad politics, but it is bad policy, argued Reich. "Democrats must understand that government has responsibility but opportunity, with low interest rates, to rebuild the nation's infrastructure. ... If we wait to rebuild the infrastructure, we will face much a higher bill to repair it later on."

Robert Kuttner, co-founder of The American Prospect and author of A Presidency in Peril, said that the nation faced a choice between "a high road to recovery or a low road to fiscal balance."


"We need the proper sequencing: first, recovery via adequate stimulus and job creation programs. And then we can go to work on the deficit with much lower unemployment and much less need for the government to spend. The idea that we can belt-tighten our way to recovery defies every proven theory in economics," Kuttner stressed.

Even the most valuable forms of government spending are coming into the gun sights of conservatives, the expertss noted. Teresa Ghilarducci, author of When I'm 64: The Plot Against Pensions, outlined how Social Security—once under attack from the Right, as in Rep. Paul Ryan's (R-Wis.) "Roadmap for America"—is preventing the current downturn from growing much worse.

"Social Security benefit increases are more necessary than ever because of the collapse of the private pension system," as the shrinkage of union strength has allowed employers to switch, with federal subsidies, to less-expensive 401K plans that provide a smaller and much more unreliable source of retirement income.

With the pension system weakened for workers, Social Security's role has been critical during the present crisis. The program's existence has held down unemployment by allowing older workers to retire rather than continue in the job market. It has also bolstered consumer demand, she said.

But because of the Right's longstanding ideological hostility to all forms of "social insurance," as Kuttner put it, Social Security is under attack again, including recent barbs by the former Sen. Alan Simpson, co-chair of the presidential commission on debt.

Meanwhile, the Republicans are eagerly yanking on the cords on their chainsaws, hoping that the Nov. 2 mid-term elections will allow them to start lopping off $100 billion in domestic spending, which Minority Leader John Boehner recently declared as the GOP's goal.

The Republican approach to deficit cutting is certain to extinguish any hope of economic recovery, bluntly declared Dean Baker.

Alcohol Lobby Now Openly Spending Against CA's Legal Pot Initiative

Big Alcohol's decision to squash marijuana law reform to protect its bottom line is simply politics as usual.
By Paul Armentano, AlterNet
Posted on September 17, 2010

It is said that politics makes strange bedfellows, but there are arguably few stranger than the emerging alliance between two of California's most powerful political players: the police-industrial complex and Big Alcohol. Campaign finance reports from the Golden State disclose that the California Beer and Beverage Distributors -- a trade organization that represents over 100 beer distributors statewide -- is one of the primary backers of the lobby group Public Safety First, sponsors of the No on Prop. 19 campaign.

According to the California Secretary of State's office, the beer lobby donated $10,000 to Public Safety First on September 7, 2010. The donation came just days before PSF issued an online mailing alleging that the passage of Prop. 19 -- which would legalize the private adult use and cultivation of limited amounts of cannabis, and allow local governments the option of regulating its commercial production and retail distribution -- would inevitably lead to stoned school bus drivers and crossing guards, and will cause California public schools to "lose as much as $9.4 billion in federal funding." (Needless to say, passage of the measure would do none of these things.)

While it's hardly astonishing that the corporate beer lobby would oppose efforts to legalize marijuana, a non-toxic, ostensibly safer alternative to alcohol, it is surprising to see how quickly the law enforcement lobby -- to date the largest supporters of PSF -- is willing to get into bed with big booze. So far, the Cal Beer and Beverage Distributors $10,000 appropriation is one of the largest monetary donations received by Public Safety First, third only to the $30,000 donated by the California Police Chief's Association and the $20,500 donated by the California Narcotics Officers Association. (Overall, PSF has had a notoriously difficult time raising money for its effort. Last month, the East Bay Express reported that total financial contributions to the Prop. 19 campaign were well ahead of those reported for Public Safety First, which at that time had only raised $61,000, with just one citizen donor.)

There's no doubt that police officers know firsthand the social toll caused by alcohol. Federal government estimates indicate that alcohol consumption costs the nation some $200 billion annually in hospitalizations, criminal expenditures and lost productivity. (Ironically, the nation's top drug cop, Drug Czar Gil Kerlikowske, has specifically highlighted the staggering social costs of alcohol abuse in his rhetoric against Prop. 19.) Government figures further indicate that alcohol is a contributing factor in at least 25 to 30 percent of all violent crime in America, including between 30 to 60 percent of homicides and perhaps as many as half of all sexual assaults.

On college campuses alone, an estimated 700,000 students between the ages of 18 and 24 are assaulted by peers who have been drinking, and close to 100,000 students are reported victims of alcohol-related sexual assault or date rape. Nationally, some 41,000 people per year die as a result of drunk driving or other alcohol-related accidents. Conversely, cannabis use is associated with decreased aggression, reduced risk of injury, and is assumed to play, at best, only a nominal role in traffic accidents. (In fact, the total national number of marijuana-related auto accidents is so small the federal government doesn't even compile the statistic.)

Locally in California, the Marin Institute, a self-proclaimed "alcohol industry watchdog" group, claims that alcohol abuse costs taxpayers some $38 billion per year in social costs, which includes more than 109,000 alcohol-related injuries, and over 70,000 alcohol-related hospitalizations annually. By contrast, a 2010 report released by the Rand Corporation concluded that fewer than 200 Californians sought emergency-room treatment for marijuana-related events, despite more than 400,000 Californians using it daily.

Nevertheless, it appears that many in law enforcement are willing to set aside their own firsthand experience with the horrors of alcohol for the sake of the drug war's "political correctness." For the higher-ups at the California Police Chief's Association and the California Narcotics Officers Association, the old adage, "The enemy of my enemy is my friend," rings true.

Of course, Big Alcohol's decision to squash marijuana law reform to protect its bottom line is simply politics as usual. Its recent union with Public Safety First isn't the first time the California Beer and Beverage Distributors has opposed drug law reform in the Golden State. In 2008, the booze lobby donated a much larger amount -- $100,000 -- to defeat Proposition 5, the Nonviolent Offender Rehabilitation Act, which among other things would have reduced criminal marijuana possession penalties from a misdemeanor to a non-criminal infraction. (The measure failed 40 percent to 60 percent.) Given that the alcohol industry now has influence groups in all 50 states and that its federal lobbying arm, the National Beer Wholesalers Association, ranks among the top financial donators on Capitol Hill, it's clear that this latest political salvo won't be the last either.

The Next Economic Era Offers Us a Chance to Control It

We Just Went Through 200 Years of Radical Economic Upheaval
Proposing a 'design economy' -- the more we participate in it and share it, the better we all live and the more sustainable and stable it can become.
By Joe Costello, Archein
Posted on September 17, 2010

Editor's Note: The following essay is a deep-think attempt to re-imagine the fundamental concepts of how modern societies can restructure their economies and how citizens can reorder their lives in a more democratic fashion. The author considers the emerging technologies of the future and the huge problems posed by industrial economics.

Proposing a Design Economy

In contemporary economic discussion, the idea of the Industrial Revolution is frequently presented as something bland, neutral and inevitable. Instead of conveying a sense of historical turmoil, disruption and the overthrowing of established cultural, political and economic institutions dating back millenia, we simply throw off the term, “Industrial Revolution” with little regard that it represented a fundamental reordering of human life. In many ways this is understandable, as the Industrial Revolution triumphed, becoming industrial rule, industrial economy, industrial bureaucracy, and industrial life -- the industrial status quo. In large swaths of the world, industrial economy is so dominant, it leaves the sense the world has always been that way and only a fool could imagine it being any different. Most amazingly, this has all been accomplished in less than two centuries -- an historical blink of the eye.

Today, we confront an era of equal historical change. Further understandings of the natural world and resulting new technologies are beginning to impact industrial society to a degree as fantastic as industrial knowledge and technology transformed agrarian society. While agrarian civilization lasted over 10,000 years, the reign of industrial society has been relatively brief; nonetheless, it is being usurped. This transformation is rapidly intruding on our lives, yet still not quite recognized beyond a general trepidation that things don't seem to quite work like they did before. The great collective social anxiety of the Industrial era, never satiated, now confronts a new transition for which the tools, skills, thinking and institutions are little developed, if they exist at all.

Maybe the most essential understanding we can have in such a time is the simple recognition of change. The Industrial era, for many reasons, is transitory. It is inherently unstable, and incapable of truly meeting the challenges and problems it created. For in the end, industrialism tries conforming or forcefully overwhelming life's great diversity into a few narrow homogenous environments, which are unhealthy and unsustainable for both the individual and the system as a whole.

The Industrial era's greatest strength, an uncompromising faith in technology, is also one of its greatest weaknesses. The simplistic adoption of any given technology, without an understanding or systemic feedback mechanisms to track its impact on society, is the ethos of a child, an immature civic morality. To paraphrase the technology thinker Marshall McLuhan, first we shape technology, then technology shapes us. We still grasp to understand how technology shapes us, yet we rapidly transform from industrial technologies to a new era, for lack of a better term, of information technologies.

These new electronic information technologies are transforming industrial economies. Technology has been the fundamental shaping force of the modern era; developing an understanding of the power of this shaping will enable us to meet some of challenges we face as new technologies now reshape industrial society. It is the understanding of this shaping process, call it design, that will be a fundamental force and positive potential of the next economic era. We are leaving the era of industry and embarking on great new experiments of design. To succeed, we will need the active participation of each of us helping shape our individual and collective lives. We must all be active participants in creating the thinking, tools, institutions, politics, and culture of the design economy.

- - -

The cycle of the machine is now coming to an end. Man has learned much in the hard discipline and the shrewd, unflinching grasp of practical possibilities that the machine has provided in the last three centuries: but we can no more continue to live in the world of the machine than we could live successfully on the barren surface of the moon. – Lewis Mumford
There are many components of the Industrial era that differentiate it from the Agrarian era. Among the most important were the great developments in the sciences of physics and chemistry. The thinking in these two areas led to the great technological advances that were the foundations of industrialization; the mass forging of iron/steel and the harnessing of energy gained from the burning of fossil fuels – coal, oil and natural gas.

In just 150 years, these industrial forces transformed the United States. In that time, a matter of just five generations, over three-quarters of the population went from working in agriculture to just one percent today. We went from mostly rural living to urban, and mid-way, with the infrastructure of the automobile in place, to extensively suburban. A republic, founded mainly of small farm landowners and merchants at the end of the Agrarian era, was transformed into a population of mostly wage earners. Economic power initially quite diffuse, gradually became ever more concentrated into fewer and fewer mega-corporations – the great institutional inventions of the Industrial era.

Over the entire era, political economy became increasingly centralized. Industrial production, its implementation with the machine and the assembly line, enabled mass production and mass consumption, fostering centralization of production and distribution. Local diversity and knowledge was overwhelmed by the homogeneity of industrial technology. The distributed political economy of a small farm agrarian society was transformed into centralized government in Washington and centralized control in the industrial mega-corporation. Not only did government power become increasingly centralized, but, with the introduction and eventual domination of broadcast media, the processes of politics did as well. This centralization led to the techniques of mass manipulation as politics and the growth of bureaucracy for mass control in governance.

Over time, the politics, culture, and institutions of the industrial era took on the appearance of the machines and technologies of industry itself, and this machine has become increasingly unsustainable.

- - -

Unfortunately, once an economy is geared to expansion, the means rapidly turn into an end and "the going becomes the goal." Even more unfortunately, the industries that are favored by such expansion must, to maintain their output, be devoted to goods that are readily consumable either by their nature, or because they are so shoddily fabricated that they must soon be replaced. By fashion and build-in obsolescence the economies of machine production, instead of producing leisure and durable wealth, are duly canceled out by the mandatory consumption on an even larger scale. -- Lewis Mumford
As various industrial philosophies and schools of thought were developed, the most important to emerge was the idea of industrial capital and its unquenchable need for growth. Unlimited production and unlimited consumption facilitated infinite growth, becoming the raison d'etre of the entire system. Coupled with the notion of any technology capable of being developed should be utilized, growth and technological innovation became their own necessary ends, dominating all others.

The industrial era's great perpetual machine's fundamental product was infinite growth. It created a society divided into two components; production and consumption, in which a person needed a job in the production aspect to gain the benefits of consumption. The system is only considered healthy if it produces more every year. It is only considered beneficial if consumption increases each year. It is a system that values quantitatively, and scarcity is confused with qualitative value.

Just as the end of the Agrarian era did not end agriculture, the end of the Industrial era will see neither the end of industry or its fundamental importance; however it will require increasingly less labor and will rapidly be less defining of the economy, politics, and culture of human society. There are two main reasons for this: First, the knowledge and the technologies of the sciences of quantum physics and biology are adding to, replacing and surpassing the impact of earlier technologies developed with the understandings of Newtonian physics and chemistry. Second, the doctrine of unlimited growth, necessitating unlimited production and unlimited consumption is meeting natural resource and ecological systems constraints. Fortunately, the first element can provide solutions for the second.

Knowledge of the planet's material limits, shown in part by growing environmental problems including decreasing biodiversity, collapse of ocean fisheries, and climate change, all instigated by industrial technologies, have in recent years raised important questions on the feasibility of unlimited industrial growth. At the same time, limits are being revealed in supplies of natural resources, particularly oil, the lifeblood of industrial modernity. However, as was recently described in the Financial Times, oil is certainly not the only resource limit:
The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.
As technology confronts various environmental constraints, the Newtonian physics and chemistry based paradigm is transforming to one of quantum physics and biology. It is the difference between fossil fuel power and solar energy, broadcast media and the Internet, and chemical farming and bio-knowledgeable sustainability, simply, a greater understanding of natural systems. These sciences and their technologies are rapidly changing industrial society, combined with ever growing environmental challenges, they create the need for a new understanding of political economy. It's a sensibility that rejects the idea of infinite growth and the tyranny of unlimited production rewarded by unlimited consumption, while embracing the transition from the industrial economy to the design economy.

- - -
Without constant enticement and inveiglement by advertising, production would slow down and level off to normal replacement demand. Otherwise many products could reach a plateau of efficient design which would call for only minimal changes from year to year. -- Lewis Mumford
The steam engine, comprised of steel and coal, both best symbolizes the industrial era and represents what might be considered its quintessential tool for shaping and defining the entire era. With the steam engine, the technology of Newtonian physics fundamentally reshaped the natural landscape in less than two centuries to a greater degree than agrarian technologies allowed humanity to reshape the planet in over 10,000 years.

In this new era of design, the tool that might both symbolize the era and become its greatest shaping instrument is the networked microprocessor. A technology of quantum physics, and while presently fired by fossil fuels, though soon to be powered by renewable energy sources, the networked microprocessor produces and then communicates the fundamental element of the design economy – information.

The term information is used quite informally, though the most general and widest definition might be the most accurate. The bits, numbers, words, sounds, images, and even touch sensations produced by humanity, our technology, and our systems are all information. We gain value from information using design. That is, information not utilized for some aspect of design, whether it is scientific, economic, political, or entertainment becomes noise, though some people's noise might be valued in others design, but without design – editing, communication and utilization – information basically remains noise.

The creation of information and its design have been fundamental aspects of civilization since its inception, in fact one could argue it is civilization. Power in civilization has always coincided with the control of the creation, editing, and communication of information, particularly that information essential to the society's core functioning. For example, the calendar, necessary for proper functioning of agrarian society was controlled by both government and religious ruling classes.

Five hundred years ago, with the dawn of the modern scientific revolution, the printing press was also birthed, revolutionizing the communication of information. In the 20th century, the invention of electronic broadcast media again saw a revolution in information creation and communication, having very dramatic impacts on society – economically, politically and culturally. The control of creation, editing, communication, that is the design of information is a fundamental aspect of political economic power in any society. The invention of the printing press helped loose control of the Catholic church and the established aristocracy across Europe, while the establishment of broadcast media helped Washington D.C. and the Fortune 500 gain control in the United States.

The networked microprocessor, again both as symbol and practical tool, brings a new information revolution to our society, allowing the creation, editing, and communication of information at rates exponentially higher than anytime in previous human history. Importantly, information plays an increasingly fundamental role in production processes and the product itself. Only several decades old, this information revolution has initially been co-opted by the industrial era as a means to “better” industrial processes. However, the true value of this information revolution will not be gained via industrial valuations, just as agrarian values and definitions could not give industry its true value. Increasingly, industrial constraints are hindering our ability to obtain the true value in utilizing information – the value of design – which is not gained simply quantitatively by increasing production and consumption, but qualitatively through design. The greatest value gained from design will be in using less resources, less labor, and in many cases less consumption, for these things, industrial society has limited value.

An example of this is the process of automation, removing human labor from the industrial machine, allowing less human labor for the production of the same amount of product. However, in taking the line-worker out of the production process, you are also taking away former and would be future workers from the labor that allows them to consume. While the American economy is much larger than it was 50 years ago, we still produce a similar amount of steel, but due to automation, the American steel industry today uses one-third or less of the labor to produce the same amount of steel. This process is going to continue and eventually, in the not too distant future, remove human labor from most industrial processes. Information is cheaper than labor.

Yet, just as designing fully robotic factories of the future will have a transformational impact on production, it will have an even more important, one could say transcendent, impact on consumption. In many ways, industrial economy's consumption components are primeval. They are based on elemental components of human existence, such as food, shelter, security, and reproduction. These primary elements of existence have deep roots in the human psyche. As the capitalist industrial economy grew, and thus the need for infinite growth, it combined with the 20th century information broadcast revolution to create a mass consumption economy and culture based on the exploitation of primal urges, creating in many senses a Neanderthal economy. One only need watch or listen to a few minutes of most advertising to experience its manipulation of hunger, fear and sex, most of it having little to do with the product.

It is this playing to primal urges that stokes the growth economy and stokes mass cultural anxiety. For primal urges can never be satisfied so much as only satiated, yet our growth economy disallows even this. In fact, it does just opposite, constantly and incessantly stoking primal urges for the ends of ever more consumption and thus endless growth. It is in fact only the rational mind that can soothe primal urges by understanding them and not allowing them to endlessly dictate behavior.

If we were to borrow from the ancient Greeks, and separate life into thoughtfulness and primal urges, the American economy would resemble a massive Bacchanalian orgy. We would be wise to remember the Greeks looked at these primal urges as essential and enjoyable aspects of existence, but they also walled off unmitigated enjoyment into a festival. The idea of the primal as a foundation for society, would be foreign to the Greeks, for civilization by its very definition is thoughtfulness, the smoothing of primal urges with rational thought.

Seventy percent of the American economy is consumer-based, and to thrive relies on hundreds of billions of dollars of advertising endlessly triggering deep primal urges – it is literally uncivilized. What we need to do is get more thoughtful about our consumption, that is, to better design our economy on available knowledge using information as a tool. Instead of reward exclusively through consumption, reward will be gained by participating in design. This will lead to less gross consumption, which is not only OK, but essential as we reach the limits of natural resources and the destruction of ecological systems. Paradoxically, the primeval ecological elements which birthed the human species, and on which our survival remains completely reliant, needs to be saved by the uniquely human concept of civilization.

We live in a time where Newtonian physics and industrial technologies need to be transformed by our 19th- and 20th-century knowledge of biology. Most revolutionary is the concept of evolution and natural selection. In nature, life changes continuously through constant reproduction and mutation. It is with natural selection – the choosing process of the greater environment – that new designs move forward or are rejected. We must adopt this thinking for our political economy, with an understanding that each of us our components of the greater human environment known as civilization. We are the selection process in creating the future, both individually and just as importantly collectively. As we continue to reshape our civilization and the planet itself using technologies derived from the processes of rational thought, decisions cannot be left to simply exploiting primal urges. We must use the same thought and deliberation to design the economy, politics and culture of our civilization. That is the design economy.

The greatest example of how design will become paramount is with energy. The Industrial age was built on the seemingly unlimited supply of cheap fossil fuels, combined with failure to assess the negative costs for the environment. What developed, particularly in the United States, was an economy dependent on massive energy waste. This now immoral waste is apparent in all aspects of energy use, for example lighting, heating, and cooling, however it is most easily exemplified with the U.S. automobile culture. It is the height of inefficiency to take a 150- to 200-pound person, encase him in a couple tons of steel powered by a highly inefficient internal-combustion engine, and use that as the main means of transportation, restructuring the entire infrastructure, much of the economy, and the culture itself.

The automobile represents the perfect product for the Industrial era. It is labor intensive, that was before increasing automation, resource intensive in metals and other materials, and requires massive amounts of energy. They also need to be relatively frequently replaced, they are certainly not built to last. Every aspect of the automobile added to the Gross National Product, the industrial era's ultimate barometer of economic fair weather, while its impacts on the greater ecological systems from extraction of resource material to its pollution of air and water systems were at first ignored and then socialized.

Now in direct contradiction to industrial economy, a design economy would look to design transportation using the least amount labor, resources, and energy. It would look at the uses of transportation, and then design processes which would be more efficient. For example, the centralizing of goods distribution in warehouse size grocery and department stores, requiring people drive two ton automobiles to pick up five pounds of foodstuffs or two pounds of clothing is crazily inefficient. Much better would be to design neighborhoods where people could walk and bike to pick up their day-to-day necessities, allowing most of the physical goods distribution to occur using larger more efficient vehicles.

Now the same inefficiencies, off-book environmental degradation, and resource exploitation occur throughout the industrial economy, in fact, distressingly, such things in many ways define a healthy and vibrant industrial economy. We need to redefine much of this value, understanding if we concentrate on design first, production and consumption second, instead of an economy based on ever greater growth, simply more and more stuff, we will have an economy of enough, providing a quality of life much more satisfying and substantial than that gained by quantitative value.

The ordinary person senses the greatness of the odds against him even without thought or analysis, and he adapts his attitudes unconsciously. A huge passivity has settled on industrial society. For people carried about in mechanical vehicles, earning their living by waiting on machines, listening much of the waking day to canned music, watching packaged movie entertainment and capsulated news, for such people it would require an exceptional degree of awareness and an especial heroism of effort to be anything but supine consumers of processed goods. -- Marshall McLuhan, The Mechanical Bride: Folklore of Industrial Man
Humanity's great agrarian era produced agrarian government systems, economies and cultures. Human life and human identity derived overwhelming from the processes of farming. The much shorter two-centuries-old industrial era redefined life. The processes of production and consumption became the overwhelming dual identities of individuals and our institutions that evolved to foster the processes of unlimited industrial growth. As we move into the design economy, increasingly the most imperative questions will be what are the roles, identities, institutions, and processes of design.

Design has been part of human history before the beginning of civilization. It has at times played an instrumental role with the designing of hunting tools, farming implements, and industrial technologies. However today, information, the raw material of design, is becoming not simply ubiquitous but fundamental to every aspect of human life. For example, with our knowledge of DNA comes the ability to manipulate the very information codes of life itself.

Presently, many of the processes of design – the creation of information, its editing communication, and finally decision making for its utilization – are in turns both centralized and insufficient. We need to evolve our institutions, organizations, and individual roles to understand that design is increasingly the primary value of political economy, ultimately creating a value shift from industrialization's quantitative value of infinite growth based on unlimited production and consumption to design's more qualitative values of participation, efficiency, elegance, and enough.

If we look at the processes of design today, we see rapid change. Companies, governments, NGOs, and individuals each year produce an exponentially greater amount of information. In the distribution and communication of information, paper is in great decline as electronic media explodes. Creation and communication of news and public affairs, once the exclusive domain of print, was supplanted by electronic broadcast media by the mid-20th century, and is now rapidly being replaced by the networked microprocessor, creating both a plethora of real and potentially valuable information, but also an unprecedented amount of noise, with little or no value. Noise grows as what could be useful information is communicated with no ability for the individual or organization to place it in meaningful context.

Yet, even the gaining of valuable information is hamstrung in utilization as the decision making for political economy remains tremendously centralized. Much of the wealth, and thus the economic decision making of the nation is concentrated in the Fortune 500. At the same time, over the past century as government power became more greatly centralized in Washington, political decision making became further and further removed from state, localities and the citizen. As previously noted, information both for consumer purposes and electoral decisions – the only direct role citizens have in political decision making – is overwhelmingly manipulative and based on primal motivations, not the rational decision making necessary for civilized design.

In an information environment overwhelmed with noise, the individual is increasingly at a disadvantage as it becomes ever more difficult to filter or more appropriately edit information so that it might be utilized. Individuals face a tsunami of information provided with little or no context, making it difficult to put any of it to use. In contrast, the industrial organization, be it the Fortune 500 or a federal bureaucracy has advantage in contextualizing much of the information they need to make decisions, not to mention the power to then implement. Thus, they can staff tremendous numbers for simply editing information flows. However, over time, this can also become a disadvantage in large organizations and bureaucracies as information channels become locked-in, leading to stagnation and inability of the organization or bureaucracy to utilize new information. And just as importantly, these large structures play a role in protecting the status quo, manipulating information flows to suit their self-interests.

We need to begin to evolve our institutions, organizations, and bureaucracies with an understanding that the creation, processing, and utilization of information is not simply an essential component, but the predominant one. This means both changing our institutions and creating new ones. It necessitates reviving the idea of associations, an essential part of the American republic's democratic history. As Tocqueville wrote of the vibrant agrarian American republic, “Americans of all ages, all stations in life, and all types of dispositions are forever forming associations.” Yet, this necessary distributed formation of associations has been lost or replaced by the centralized order instilled by the Fortune 500 and Washington.

A design economy needs to birth millions of design associations. They will be both local and geographically based and distributed electronically across global networks. They will stand alone and be distributively tied. These associations will create, edit, communicate, and utilize information, that is they will design. Most importantly, they will provide the individual, the citizen, the consumer a mean to be an active participant of the design economy.

In the end, the foundation of the design economy is not stuff, it's people. And for the design economy to transcend industrial life, people are going to need to be freed from industrial structures, most essentially the processes of unlimited production and consumption. People are going to need the time, and just importantly society is going to have to value the processes of design. Which means people as both individuals and collectively as associations are going to be valued as creators, editors, communicators and decision makers, in short we must revalue the citizen.

- - -

It would be curious... if an idea, the fugitive fermentation of an individual brain, could, of natural right, be claimed in exclusive and stable property. If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody." – Thomas Jefferson to Isaac McPherson, 1813
The great transformation from the Industrial era to an era of design will be pushed by the increasing knowledge of science and its technologies, but one of the great changes will be revaluing of political economy, from an overemphasis on product to a greater valuing of process. After all, life is not product, it is process, an understanding enabling us to greater value that which makes us human. Using knowledge from quantum physics and biology will allow us to create more organic systems, with people not technology, and design not product as the greatest mediators of value. Integral to the whole process will be information and how it is created, controlled and communicated, and in so doing we will revalue information.

Industrial markets pay little value to information, value is predominately gained on physical goods. While we can and must evolve markets to place more value on information content, in many ways what must be revived and placed prominent is the value modern democratic politics places on the free flow of information. This is part of the American system little valued in economic dogma, yet essential to not only the health of the American political system, but just as much to the vibrancy of the American economy. We need to add the political back to the economy.

In the American constitution, you will find certain foundational pillars on the control of information necessary to build the design economy. The ideas of free speech and freedom of the press remain just as important today as then. But they must be defined anew in an era of networked microprocessors, where each individual's speech can be amplified, every person owns a press, while the Fortune 500 and our own government fight to keep ever more information proprietary.

The constitutional questions of copyrights and patents are essential to this new era. As Jefferson pointed out these are not natural rights but societal creations based on fostering innovation. But again, in industrial America, the benefits of copyrights and patents gained through production become more problematic in an era of design, where information in an organic design political economy becomes something like DNA, necessary to build all the physical processes atop it. Limiting the free transference of this information can cause vast mutations in the entire design political economy. Today, the Fortune 500 spends millions on lobbying to strengthen patent and copyright law, not to help innovation, but to stifle and gain further control.

The Internet has given us a few hints on how to evolve design principles. Open distributed networks can create their own order based on an open architecture, that is, allowing all equal access and not discriminating transmission based on content. In the software area, principles such as open source have shown people can create dynamic stable systems where the information is left open to all to freely manipulate and evolve. These are issues of fundamental importance to the design economy, just as questions about labor and control of the railroads and utilities were to the industrial age.

One of the most interesting changes that might occur is to money itself. Money has an information component, a necessary question for much greater probing is if some of this information can be “socialized,” that is, extracted from money and claimed as part of a more robust political culture. An easier way to think about this is how industrial economy in many cases forces information to be turned into product so that it might be valued. However, if we create new associations and evolve our present organizations to understanding the societal value of information, we may gain value from much information without it being monetized. Yet, over years, industrial society and particularly the last few decades has trended in the exact opposite direction, monetizing all aspects of life.

In the end, we must revive and evolve the citizen, our politics, and our government. We need to create value for design, thus valuing the processes of design. Most importantly, we must give value to the citizen, and that means the work of the citizen must be valued. We need to redesign our economy so that production and technology are both second to people.

How Medical Supply Companies Are Getting Away with Rip-off Prices

How medical behemoths are making America’s health care system more dangerous and expensive.
By Mariah Blake, Washington Monthly
Posted on September 18, 2010

When Thomas Shaw gets worked up, he twists in his chair and kneads his hand. Or he paces about in his tube socks grumbling, "They're trying to destroy us," and "The whole thing is a giant scam." And Shaw, the founder of a medical device maker called Retractable Technologies, spends a lot of time being agitated.

One of the topics that gets him most riled up these days is bloodstream infections. And with good reason--while most people rarely think about them, these are the most dangerous of the hospital-acquired bugs that afflict one in ten patients in the United States. Their spread has helped to make contact with our health care system the fifth leading cause of death in this country.

A few years ago, Shaw, an engineer by training, decided he wanted to do something to help solve this problem and quickly homed in on the mechanics of needle-less IV catheters. Rather than using needles to inject drugs into IV systems, most hospitals have moved to a new design, which involves screwing the threaded tip of a needle-less syringe into a specially designed port. The problem is that if the tip brushes against a nurse's scrubs, or a counter, or the railing of a hospital bed, it can pick up bacteria. And the rugged threaded surface makes it difficult to get rid of the germs once they're there. Often, the bacteria go straight into the patients' bloodstream--which explains why, according to some studies, the rate of bloodstream infections is three times higher with needle-less systems than with their needle-based counterparts.

After months of trial and error, Shaw hit on the idea of surrounding the tip of the syringe with six petal-like flanges, which could flare open to make way for the catheter port. Unlike some of the solutions floated by big medical device makers, such as coating the ports with silver, Shaw's innovation added only a few pennies to the cost of production. And it seemed to be remarkably effective: a 2007 clinical study funded by Shaw's company and conducted by the independent SGS Laboratories found the device prevented germs from being transferred to catheters nearly 100 percent of the time.

Given these facts, you might expect that hospitals would be lining up to buy Shaw's product. But that is not the case, even though his company is offering to match whatever price medical facilities are paying for their current, infection-prone IV catheter syringes. In fact, since the device hit the market two years ago, Retractable has sold fewer than 20,000 units, mostly to one New York hospital. Often, the company's sales team can't even get in the door to show their wares to purchasing agents. "The product does exactly what it is supposed to do," Shaw says. "But it has one fatal flaw. Right there at the bottom of the handle it says Retractable Technologies."

This is hardly the first time Shaw has found his path to market blocked. In fact, he has spent the last fifteen years watching his potentially game-changing inventions collect dust on warehouse shelves. And the same is true of countless other small medical suppliers. Their plight is just the most visible outgrowth of the tangled system hospitals use to purchase their supplies--a system built on a seemingly minor provision in Medicare law that few people even know about. It's a system that has stifled innovation and kept lifesaving medical devices off the market. And while it's supposed to curb prices, it may actually be driving up the cost of medical supplies, the second largest expenditure for our nation's hospitals and clinics and a major contributor to the ballooning cost of health care, which consumes nearly a fifth of our gross domestic product.

Thomas Shaw is a lanky fifty-nine-year-old man with dark eyes and a shock of gray hair that gives him a bit of a mad scientist air. Growing up, he lived in Mexico and Arizona, where his father worked as a chemist (among other things, the elder Shaw invented the first nitrogen test for plants). Shaw describes his childhood home as a kind of frenetic laboratory where science and math problems were worked out on a chalkboard that hung over the dinner table.

After high school, Shaw went on to study engineering at the University of Arizona, and eventually launched his own engineering firm in a former bicycle-repair shop on a rundown strip in Lewisville, Texas. His core business was small-town building projects, like road repairs and structural inspections, but he also dabbled in medical devices. At one point, a friend's grandmother underwent gallbladder surgery and came out addled and confused. Believing a medication mix-up was to blame, Shaw invented an automated pill dispenser.

Then, one night in the late 1980s, Shaw saw a news program about a doctor in California who had been infected with HIV after being stuck with a contaminated needle. This got Shaw's attention. One of his oldest friends had recently been diagnosed with AIDS, and Shaw was all too aware of the ravages of the disease. "I thought, I can't do anything to save my friends," he recalls. "But maybe I could do something to save other people."

The next day, Shaw set to work trying to invent a safer syringe. He began buying pigs' feet from the local butcher and using them to simulate injections. He outfitted every room in his engineering firm with chalkboards so he could draw design ideas whenever they popped into his head. To make time for the syringe venture alongside his regular work, he started pulling ninety-five-hour weeks. And even when he was on vacation, he rarely stopped obsessing. "I remember being in South Padre Island with my wife and kids," Shaw recalls. "Everyone wanted to go out and play. I wouldn't go anywhere until I figured out what to do with the back corner of the syringe. I told my wife, 'I have to work on it all the time until I get it or I'm dead.'"

It took four years and more than 150 design permutations, but Shaw finally came up with a crude prototype and found a local physician to test it on him--an event Shaw's wife documented with a shaky handheld camcorder. In the video, the doctor holds up a saline-filled syringe about the size of a kielbasa sausage. Then he jabs the needle into Shaw's arm and pauses for a second before pushing in the plunger. First the saline empties, and then the needle snaps back into the barrel with a pop.

Shaw had just invented the first retractable syringe, a fact that drew the attention of public health officials. In 1993, the National Institutes of Health gave him a $600,000 grant to shrink it down to the size of an ordinary hypodermic and produce 50,000 of them for clinical trials. Shaw was now able to bring on a team of engineers and product designers, and turn a cinderblock bay adjoining the old bicycle shop into a clean room. By the mid-1990s, he had the final design in hand.

Around this time, Shaw launched Retractable Technologies and began searching for funds to build a factory in Little Elm, Texas. Eventually, he raised $42 million, much of it from doctors at Presbyterian Hospital in Dallas. "Everyone was eager to invest," recalls Lawrence Mills, who was then chief of thoracic surgery at the hospital and invested $95,000 in Shaw's company. "We all thought it was just a matter of time before it became the standard in the industry."

In 1996, Shaw returned to Presbyterian to conduct a final round of clinical trials. The nurses who took part gave his syringe uniformly high marks (though some complained in the follow-up survey that the packaging was hard to open and that the air bubbles were difficult to get out), and Presbyterian's top medical brass was clamoring to get it into the supply rooms. Edward Goodman, the hospital's director of infection control, wrote a letter to the purchasing department, saying Shaw's product was "essential to the safety and health of our employees, staff and patients." But Shaw soon learned that the enthusiasm of health care workers was not enough to gain him entree; the hospital initially promised him a contract, only to back out three months later. Though he didn't realize it at the time, Shaw had just stumbled into the path of a juggernaut.

Breaking into the medical supply market has always been tough, in part because for decades the business has been dominated by a handful of behemoth suppliers. In the case of syringes, the incumbent heavyweight has long been Becton Dickinson, or BD, a New Jersey-based company that controls 70 percent of the syringe market and has a lengthy history of trampling competitors. As early as 1960, BD was brought up on Justice Department charges for its anticompetitive practices--among them price fixing, buying up patents to kill its rivals' innovations, and forcing hospitals to buy its syringes to get other essential supplies, some of which were only produced by BD.

Often, these large companies used their clout to squeeze hospitals on prices. To keep costs in check, in the 1970s many medical facilities began banding together to form group purchasing organizations, or GPOs. The underlying idea was simple: because suppliers generally give price breaks to customers who buy large quantities, hospitals could get better deals on, say, gauze or gloves, if a group of them came together and bargained for ten cases, rather than each hospital buying a case on its own.

Originally, these purchasing groups were nonprofit collectives and were managed and funded by the hospitals themselves. But in the mid-1970s, the model began to shift. Some large hospital chains started to spin off for-profit GPO subsidiaries, which other hospitals could join by paying membership dues, much the way members of buying clubs like Costco pay dues to get bulk-buying discounts. By decade's end, virtually every hospital in America belonged to a GPO.

Then, in 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect "fees"--in other industries they might be called kickbacks or bribes--from suppliers in the form of a share of sales revenue. (For example, in exchange for signing a contract with a given gauze maker, a GPO might get a percentage of whatever the company made selling gauze to members.) The idea was to help struggling hospitals by shifting the burden of funding GPOs' operations to vendors. To prevent abuse, "fees" of more than 3 percent of sales were supposed to be reported to member hospitals and (upon request) the secretary of health and human services.

But, as with many well-intended laws, the shift had some ground-shaking unintended consequences. Most importantly, it turned the incentives for GPOs upside down. Instead of being tied to the dues paid by members, GPOs' revenues were now tied to the profits of the suppliers they were supposed to be pressing for lower prices. This created an incentive to cater to the sellers rather than to the buyers--to big companies like Becton Dickinson rather than to member hospitals. Before long, large suppliers began using "fees"--sometimes very generous ones--along with tiered pricing to secure deals that locked GPO members into buying their products. In many cases, hospitals were obliged to buy virtually all of their bandages or scalpels or heart monitors from one company. GPOs also began offering package deals that bundled products together. To get the best price on stethoscopes, a hospital might have to agree to buy everything from pacemakers to cotton balls from the GPO's preferred vendors. Hospitals went along because they got price breaks, usually in the form of rebates if they met buying quotas.

This situation only grew thornier in 1996, when the Justice Department and the Federal Trade Commission overhauled antitrust rules and granted the organizations protection from antitrust actions, except under "extraordinary circumstances." Once again, the idea was to help struggling hospitals, this time by allowing the buying groups to grow big enough to negotiate the best deals for their members. But the decision led to a frenzy of consolidation. Within a few years, five GPOs controlled purchasing for 90 percent of the nation's hospitals, which only amplified the clout of big suppliers.

As it turns out, Shaw's retractable syringe hit just as these trends were converging. In fact, the year his product came onto the market, three of the nation's largest GPOs merged to form a company called Premier, which managed buying for 1,700 hospitals, or about a third of all hospitals in the United States. Shortly thereafter, Premier signed a $1.8 billion, seven-and-a-half-year deal with Becton Dickinson. Under the agreement, member hospitals--among them Dallas-based Presbyterian, where Shaw would hit a brick wall--had to buy 90 percent of their syringes and blood collection tubes from the company. Over the next two years, BD landed similar deals with all but one major GPO. As a result, almost everywhere Shaw turned, he found hospital doors were closed to him.

Nevertheless, Shaw soldiered on and managed to score a few victories. He landed a number of contracts with government agencies, including the VA, that negotiate directly with vendors for supplies. Or he sold his wares to systems so small and poor that they weren't on the GPOs' radar--prisons, nursing homes, Indian reservations, and the like. He also teamed up with the SEIU, the nation's largest union of health care workers, which was lobbying for legislation to curb the needle sticks that were afflicting more than 600,000 health care workers each year. Shaw ended up helping craft a California bill that required hospitals to keep a log indicating which syringes were causing needle sticks and take regular steps to transition to the safer ones. Twenty-one states later passed laws patterned after California's, and in 2000 the federal government followed suit. That winter, Shaw traveled from Little Elm for the signing ceremony in the Oval Office, and President Bill Clinton gave him a pen he had used to sign the measure into law.

This bumper crop of legislation should have been a boon to Shaw's company--after all, there was nothing else like his product on the market. BD had released its own safety syringes some years earlier. But the ECRI Institute, the Consumer Reports of the health care industry, had rated its best-selling model "unacceptable" (it was later upgraded to "not recommended"), whereas Shaw's product received the top rating. And some medical facilities had found that, rather than drive down needle sticks, BD products caused their numbers to rise. After the federal needle safety law passed, Cook Children's, a Fort Worth-based chain of pediatric clinics, first moved to BD safety needles. But after dropping initially, the number of needle sticks more than doubled, from nine to nineteen a year. So in 2004 Cooks began transitioning to Retractable syringes, and over the next four years the number of sticks fell to zero.

But Shaw's company continued to have trouble breaking into hospitals. In mid-1999, Kaiser Permanente of California signed a one-year contract to buy Retractable syringes, which seemed like an enormous coup. But a month later, Becton Dickinson announced a "unique" three-year, $30 million deal with Kaiser nationwide. After that, Shaw struggled to get his syringes into Kaiser supply rooms--often, he says, they sat locked in warehouses or trucks in distributors' parking lots. Kaiser spokesman Jim Anderson argues that if Shaw's products didn't make their way to hospitals it was because of "significant supply issues" on Retractable's end. He also says they were prone to malfunction and that, in several cases, needles detached and were left "stuck in the arms of patients." Whatever the reasons, Kaiser broke off the deal early.

Meanwhile, as Shaw was fighting his battles hospital to hospital, Becton Dickinson was working to extend its hold on the nation's GPOs. According to confidential documents filed as part of a whistleblower lawsuit, in 1999 BD paid $1 million to Novation, the only major GPO with which it hadn't yet signed a sole-source contract, in return for a three-year sole-source deal for syringes and needles. This payment, which it dubbed a "special marketing fee," was on top of more than 3 percent of its sales revenue and other perks valued at hundreds of thousands of dollars. Becton Dickinson's grip on hospitals was now even tighter than it had been before.

By this point, the struggle was starting to take its toll on Shaw. Now when he came home after long days in the office, he would shut himself in a room and not let anyone in except his children. His marriage was unraveling (he later divorced) and his increasingly confrontational style was starting to put off potential allies. When he was invited to speak at a luncheon of the Medical Device Manufacturers Association, an alliance of small medical suppliers, no one would sit near him; he ate alone, surrounded by twelve empty chairs, and was booed when he stepped to the podium. "They were afraid if we took on the GPOs they would be destroyed," Shaw recalls. Meanwhile, Retractable Technologies' stock had lost nearly two-thirds of its value, and its operating capital was dwindling rapidly. After weighing his options, in 2001 Shaw finally filed an antitrust suit against Becton Dickinson, Novation, and Premier.

Around this time, GPOs started to come under scrutiny. The New York Times ran an investigative series on their business practices in 2002, and Congress followed suit with a string of hearings. One of the first witnesses was California entrepreneur Joe Kiani, who had invented a machine to monitor blood-oxygen levels. Unlike other similar devices, Kiani's worked even when patients moved around or had little blood flowing to their extremities, a crucial innovation for treating sickly, premature infants, who tend to squirm and need to be monitored constantly for oxygen saturation--too little and they suffocate, too much and they go blind. But most hospitals couldn't buy Kiani's product because his larger rival, Nellcor, had cut a deal with the GPOs.

Kiani's testimony was followed by a flood of revelations about self-dealing and conflicts of interest among GPOs and their executives. Congress was also given a slew of documents showing that GPOs were collecting upfront payments of up to $3 million from suppliers, including drug makers like Astra-Zeneca, in return for awarding them sales contracts, not to mention a large share of revenues. In one case, a vendor was handing Novation not 3 percent of its revenue on a given product line, but a full 94 percent, according to Novation documents.

These revelations stirred a groundswell of outrage, and there was talk of legislation to rein the GPOs in. Spooked by this threat, in 2002, the industry introduced a voluntary code of conduct, which it promised would foster "a thriving, innovative and competitive healthcare marketplace," and three years later created a body to oversee compliance. For the first time, it seemed as if these powerful middlemen might actually cede some ground.

By this point, Shaw appeared to be on the verge of a breakthrough as well. In mid-2003, Novation, Premier, and another company offered to pay him $50 million to settle out of court and agreed to take steps to give him market access, though the specific terms remain under gag order. As the case was getting ready to go to trial the following year, Shaw received a two a.m. phone call from his lawyer saying that Becton Dickinson was prepared to offer a $100 million settlement. Shaw roused his children, and they piled in the car and drove to the local IHOP for blueberry pancakes.

After the settlement, Shaw started offering his retractable syringes for ten cents a piece, about what other companies were charging for their conventional hypodermics. But even this didn't boost sales--in fact, Retractable's sales to non-VA hospitals dropped. Shaw has since come to see the settlement as nothing more than a tool for the GPOs to keep the details of their operations under wraps. "The group purchasing organizations that were BD's agents paid us $50 million to keep their practices from being reviewed in front of a jury," he told me. "They took the equivalent of $10,000 from every hospital in the U.S. and gave it to a company in Little Elm, Texas. Either they've got minimal trust in the average juror or they've got something they don't want the public to know."

Shaw is not the only one who kept running into brick walls after the GPOs' promised reforms took hold. In 2004, Garrett Bolks, a Tulsa native who had spent twenty-four years working in the medical supply business, brought the first X-ray-detectable surgical towel to market. It was a simple invention--nothing more than a strip of blue waffle-weave cloth about the size of a hand towel, with a flexible ribbon of barium sulfate tucked into one corner of the hem. But it promised to eliminate the problem of towels being accidentally left to fester inside the body after surgery, and it garnered attention in high places.

After learning about the product through a friend in the summer of 2004, then Secretary of Health and Human Services Tommy Thompson invited Bolks out to Washington, where they discussed it over steaks at a local restaurant. Thompson liked what he heard. "It made a heck of a lot of sense to me," Thompson recalled when I spoke to him in January. "I thought, Why hasn't anybody thought of this before? This should be the standard in the industry." After leaving the Bush administration the following year, Thompson agreed to sit on the company's board and began talking up Bolks's product in speeches. Bolks also landed a contract to sell his towels to the venerable Cleveland Clinic.

Nevertheless, Bolks couldn't manage to make inroads with the GPOs, even when his X-ray-detectable towel was the only one on the market--and soon enough he had competitors. By 2006, Bolks had sunk more than $1 million of his own money into the venture, and was running out of capital. So when a Dallas-based GPO named Broadlane put out a bid for surgical towels that year, he decided to go all out. Not only did he offer his towels at pennies above cost, he also called in his connections, including Thompson, who personally put in a call to Broadlane. "I brought out as many big guns as I could," Bolks recalls. "Because I knew this was my last chance."

But even this was not enough for him to land the deal. Instead, Broadlane chose to go with ordinary, non-X-ray-detectable surgical towels from two established players, Medical Action and Medline. On its face, this choice made little sense. According to internal Broadlane documents, the quality of Bolks's towels was on par with competitors, and his bid was nearly 20 percent lower than any other company's X-ray-detectable products. It was also lower than the non-X-ray-detectable towels Broadlane chose. By all appearances, Broadlane went with a more expensive product that offered fewer benefits for patients.

Broadlane's executive vice president for supply chain services, Michael Berryhill, said via e-mail that he could not comment on the reasons for the decision, though he emphasized that the company and its member hospitals weigh a number of factors beyond price when choosing which bids to accept, including "the reputation and reliability of each potential supplier" and "the transaction costs associated with having more suppliers on-contract compared to a lean supply chain." But Diana Smith, a former director of surgical services at Broadlane who was privy to the selection process, sees the situation differently. "It should have been a no-brainer," Smith told me when I met with her in Dallas. "Garrett had a good product, and it was cheaper than everybody else's. But GPOs make their money by charging vendors fees. And if you get a percentage of sales, going with a lower bid from a little company just loses you money and pisses off the big vendors with multiple contracts."

Smith, who provided the information on which bids were chosen, adds that the tricky part for GPO executives is getting member hospitals to sign off on higher-priced contracts, something she says Broadlane did by presenting the statistics in ways that, though technically accurate, were often misleading. In the case of the towel bid, hospital administrators were shown a PowerPoint presentation (a copy of which she gave to me) indicating that going with the Medline and Medical Action bids would save them between 6 and 29 percent. But this was relative to the same companies' bids the previous year, not the bids offered by other vendors. "Our job was to bamboozle hospital CFOs and purchasing managers," Smith explained. "My boss used to call it getting them to drink the Broadlane Kool-Aid."

The Broadlane decision turned out to be the death knell for Bolks's towel company. But he continues to come up with new devices. Last April, I visited him at his office in Tulsa, which was stuffed with crumpled cardboard boxes full of medical supplies, and he showed off his newest invention--a black handheld wand and a diode about the size of a fleck of pepper with a tiny antenna poking out from one side. He explained that the idea was to embed the diode, which gives off a special frequency, into all kinds of surgical supplies. That way, if objects are left inside patients, the wand can be used to detect them before the incision is even sown back up. "The towel was nice--at the time it was innovative," Bolks added. "But this was the product I felt could make a major contribution." However, his savings are too depleted to put it into production, and he has been unable to drum up outside funding. "Investors know how the system works," he explained. "Without a GPO contract, it doesn't matter how good your product is. Even if I could wave this wand over your body and cure you from cancer, chances are I couldn't sell it to hospitals."

Stories like these abound among small suppliers, a number of whom have filed suit against GPOs. But most are wary of speaking out. Several talked to me off the record. At least a half dozen more agreed to speak, only to back out at the last minute or retract their statements after we had spoken. "Most people who know this world wouldn't speak to you under threat of subpoena," one former GPO executive told me. "They are terrified."

As for the GPOs and their advocates, they argue that if small companies have trouble breaking in, it has to do with the quality of their wares. "Why do small manufacturers fail?" Curtis Rooney, president of the Health Industry Group Purchasing Association, the trade organization for GPOs, asked when I met him at his Washington office. "The answer is that they don't have a product." He added that GPOs pick vendors through competitive bidding, which puts small companies on equal footing with their larger rivals.

Rooney also stressed that most GPOs adhere to the code of conduct, which he argued assures openness and competition. But while the code sets firm guidelines regarding conflicts of interest--GPO employees are barred from holding stock in companies whose contracts they are in a position to influence, for instance--when it comes to core business practices, it is vague. Rather than setting caps on kickbacks, for example, it merely directs GPOs to take steps to ensure that any financial perks don't "encroach upon the best interests" of hospitals and clinics. Obviously, this leaves room for maneuvering. And, while the industry generally keeps its business practices under wraps, critics charge that the tactics that raised red flags in the past continue. In fact, there is evidence to this effect. Some GPOs admit in their limited public disclosures to collecting "fees" of 25 percent or more of vendors' sales. Others continue to pursue aggressive bundling programs--the GPO MedAssets now bundles together everything from sutures and bedpans to blood-oxygen monitors and cafeteria services (although hospitals have a certain number of opt-outs).

In some cases, GPOs have backed away from their old practices only to revive them in modified form. After the last congressional probe, Premier introduced its own stringent code of conduct and began signing contracts with multiple suppliers for most products nationwide. But it has since begun working with regional hospital groups to forge deals that drive sales to a few preferred vendors. Through a recently launched program called ASCEND--a program the company's president, Mike Alkire, has called "the future model of Premier"--it has also begun locking individual hospitals into sole-source agreements for a wide variety of products. What's more, Premier's code explicitly bars it from pursuing sole-source deals and bundling for what are known as "physician preference items," meaning those that are seen by doctors as affecting the quality of patient care. But during Premier's official quarterly conference call for suppliers last February, ASCEND's director, Andy Brailo, suggested that, while hospitals are not required to sign restrictive deals for physician-preference products, the company is taking steps to persuade them to do so. He added that Premier is "investigating things even down to profit sharing with the physicians." (Premier maintains that either Brailo misspoke or his words were taken out of context, and that the company "does not include physician preference items in the commitment associated to the ASCEND program" or "engage in profit sharing programs of any type with physicians.")

Prakash Sethi, president of the International Center for Corporate Accountability at Baruch College and author of a recently published book on GPOs, argues that if the industry hasn't transformed itself, that's because the pay-for-play system remains intact. "It's a gravy train," he explains. "Why should they get off it? We can't even begin to talk seriously about GPO reform until we realign the financial incentives so that hospitals, not vendors, are their main clients."

The multibillion-dollar question is what this incentive system means for health care costs. GPOs maintain that by pooling hospitals' buying power and getting big medical suppliers to submit to competitive bidding, they are able to negotiate better deals and save hospitals billions of dollars. If this weren't the case, Blair Childs, Premier's senior vice president for public affairs, argues there would be no reason for hospitals to join. "They wouldn't use our contracts if they weren't competitive," he told me. "Many of these hospitals have tiny margins. They've got to get better products, better prices, better value."

Industry-funded studies support these cost-saving claims. In fact, one recent study found that GPOs save hospitals as much as $36 billion a year. The problem is that, rather than hard numerical data, this figure is based on surveys of hospital administrators. And while survey takers weren't asked what yardstick they used to measure savings, the study's author, Arizona State University professor Eugene Schneller, says that hospitals generally base their figures on the discounts they get off GPO list prices, often in return for agreeing to buy from select suppliers. Obviously, this is a far less meaningful benchmark than what they would pay for the same supplies if they negotiated prices on their own. But, then, most hospitals don't appear to have that information. An earlier survey of hospital purchasing managers by supply chain expert Lynn James Everard found that most of the managers who claim to know what they are saving through their GPOs know only what their GPOs report to them.

The idea of hospitals outsourcing oversight of their supply budgets may seem hard to fathom. But the price of medical supplies is not always transparent. Makers of the costliest devices and equipment tend to be secretive about pricing and generally require buyers to sign gag clauses promising not to disclose what they've paid, which makes it difficult for hospitals to comparison shop. (In fact, this is one reason GPOs maintain their services are necessary.) Also, many larger hospitals hold stakes in GPOs, and even smaller ones have less incentive than outsiders might think to pour over cost reports, since insurance companies and government programs, like Medicare and Medicaid, are picking up the tab for much of their supplies and equipment.

As for independent assessment of GPOs' effect on costs, they are hard to come by. But the little information that is available suggests that they may actually drive up the price of supplies. A 2002 pilot study by the Government Accountability Office found, for instance, that hospitals that went through GPOs paid more for safety needles and most models of pacemakers than those that negotiated prices on their own--for some pacemakers the median gap was as wide as 39 percent.

Even more unsettling are the findings of MEMdata, a Texas-based company that helps hospitals process their bids for new equipment and captures the quotes in a database, so that administrators can compare the prices they are offered to what others have paid. Shortly after the company opened for business, founder Bob Yancy says he discovered that bids hospitals got through their GPO contracts were substantially higher than the ones he or medical centers that weren't locked into GPO pricing could get by negotiating directly with vendors for the same equipment. Yancy later had his staff add a field to their database to track just how GPO bids stacked up. Over the last seven years, his company, which serves more than 500 medical facilities, has collected tens of thousands of bids. On average, Yancy says, the GPOs' prices are 22 percent higher than the ones that hospitals can get on their own. "The bottom line is that hospitals are being systematically overcharged," he told me, when I met him at a Washington, D.C., restaurant. "GPOs are inflating the pricing."

To back up these claims, Yancy sent me more than three dozen paired bids, including two quotes for a suite of endoscopy equipment from the same vendor that were issued on the same day. The specs were identical, from the cameras down to the fiber-optic cables. But one had "aggressive pricing" scrawled across the top and came out to $83,000, while the other had the name of a large GPO above the header (Yancy asked that the name and other sensitive details be withheld to protect his business contacts), and was priced at $131,000--or nearly $50,000 more for the same equipment. In other cases, the picture was less clear; there were modest variations between the specs of the two bids, for instance. But the overall pattern was unmistakable.

The experience of hospitals and clinics that have struck out on their own seems to confirm Yancy's findings. When Iowa Health System, a chain of ten Midwest hospitals, cut ties with Premier some years ago, it immediately shaved $7 million a year off its supply costs, a savings of more than 12 percent, according to the New York Times. Similarly, in 2005 a chain of community clinics affiliated with the University of California, Los Angeles, began going outside its Novation contract to buy chemotherapy drugs and managed to save $800,000 a year.

And yet, despite all the talk about "bending the cost curve down" in the runup to health care reform, GPOs barely entered the conversation. Critics of the system find this baffling, especially since most believe that if GPOs are driving up prices, the problem could be fixed by simply getting rid of the anti-kickback protections. Nevertheless, lawmakers appear to have limited appetite for taking the issue on. Last August, Congress launched an investigation into GPO contracting practices, and the Government Accountability Office followed suit. But Senate staffers now say that hearings on the subject are unlikely to be held this year, and may not be held at all.

Part of the reason interest has waned seems to be that those who know enough about the system to care aren't eager to change it. "Hospitals are a big constituency in every district," explains one senior Senate staffer involved in the ongoing GPO investigation. "And hospitals support GPOs. Reform, on the other hand, doesn't really have a lobby, which can make it difficult to take action."

For Shaw this unsolvable riddle has become a kind of obsession. He turns it over and over in his head like an engineering problem, as if the fix might come to him if he just looks at it from enough different angles. Perhaps the part he finds most perplexing is that it was largely government grants that paid for him to develop his retractable syringe. "I've spent twenty years fighting to return my obligation to the American taxpayer and to a government that turns its head from its responsibility to protect the free market," he says. "The taxpayers got screwed out of the technology they paid for."

Even today, Shaw continues to develop new products. In fact, he has brought five of them onto the market in the last two years, including the IV catheter syringe. But his efforts remain consumed largely by the struggle for access. Among other things, he has hired a lobbyist to agitate for the repeal of the anti-kickback exemption and filed a stack of lawsuits, including a second antitrust suit against Becton Dickinson. All this struggle has brought a few scattered victories--most recently last November, when a jury found that BD had used Shaw's patented technology for its own retractable syringe and ordered the company to pay Retractable another $5 million. (The case is on appeal.) But Shaw still isn't any closer to breaking into the hospital market, and in the meantime the life on his patents is dwindling. In just four years, the first of them will expire and the game will be over.

This isn't just bad news for Shaw. Because his company is in the red, he has been unable to pull together the financing he needs to expand his factory in Little Elm. So he has partnered with Chinese companies, which put up money to build assembly lines in China in return for permission to produce his syringes for the Chinese market. When his patents do run out, the Chinese manufacturers will be the ones poised to bring his technology to the world market, meaning all the jobs and economic benefits that could have gone to the local residents will instead go to the people of Gansu Province.

The senselessness of this quandary has driven Shaw to distraction. "We are devoting our entire lives to something we know is going to fail," he told me during my final visit to his office. "If we expected anything else, it would be devastating. If somebody's holding you under water and they let you up and you think you're going to escape, you're going to go insane." He was in one of those moods where he paces about, his mind flitting from outrage to outrage so quickly that it can be hard to follow the flow, much less stop it. As I got up to leave, he trailed me down the stairs and out to the parking lot, where he stood amid the gravel and grit in his socks. Even as I backed my car out of the lot, he was still talking. The question is whether anyone out there is listening.

Poverty Is Through the Roof, and Billionaires Are Getting Pissy About Not Enough Profits

Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?
By Les Leopold, AlterNet
Posted on September 17, 2010
The ranks of the working-age poor in the United States climbed to the highest level since the 1960s as the recession threw millions of people out of work last year, leaving one in seven Americans in poverty. The overall poverty rate climbed to 14.3 per cent, or 43.6 million people, the Census Bureau said yesterday in its annual report on the economic well-being of US households.
While 43.6 million Americans live in poverty, the richest men of finance sure are getting pissy. First Steve Schwartzman, head of the Blackrock private equity company, compares the Obama administration's effort to close billionaires' tax loopholes to "the Nazi invasion of Poland." Then hedge fund mogul David Loeb announces that he's abandoning the Democrats because they're violating "this country's core founding principles" -- including "non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination." Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?

Why are Wall Street's billionaires so whiny? Is it really possible to make $900,000 an hour (not a typo -- that's what the top ten hedge fund managers take in), and still feel aggrieved about the way government is treating you? After you've been bailed out by the federal government to the tune of $10 trillion (also not a typo) in loans, asset swaps, liquidity and other guarantees, can you really still feel like an oppressed minority?

You'd think the Wall Street moguls would be thankful. Not just thankful -- down on their knees kissing the ground taxpayers walk on and hollering hallelujah at the top of their lungs! These guys profited from puffing up the housing bubble, then got bailed out when the going got tough. (Please see The Looting of America for all the gory details.) Without taxpayer largess, these hedge fund honchos would be flat broke. Instead, they're back to hauling in obscene profits.

These billionaires don't even have to worry about serious financial reforms. The paltry legislation that squeaked through Congress did nothing to end too big and too interconnected to fail. In fact, the biggest firms got even bigger as they gobbled up troubled banks, with the generous support of the federal government. No bank or hedge fund was broken up. Nobody was forced to pay a financial transaction tax. None of the big boys had a cap placed on their astronomical wealth. No one's paying reparations for wrecking the US economy. The big bankers are still free to create and trade the very derivatives that catapulted us into this global crisis. You'd think the billionaires would be praying on the altar of government and erecting statues on Capital Hill in honor of St. Bailout.

Instead, standing before us are these troubled souls, haunted by visions of persecution. Why?

The world changed. Before the bubble burst, these people walked on water. Their billions proved that they were the best and the brightest -- not just captains of the financial universe, but global elites who had earned a place in history. They donated serious money to worthy causes -- and political campaigns. No one wanted to mess with them.

But then came the crash. And the things changed for the big guys -- not so much financially as spiritually. Plebeians, including me, are asking pointed questions and sometimes even being heard, both on the Internet and in the mainstream media. For the first time in a generation, the public wants to know more about these emperors and their new clothes. For instance:
• What do these guys actually do that earns them such wealth?
• Is what they do productive and useful for society? Is there any connection between what they earn and what they produce for society?
• Did they help cause the crash?
• Did these billionaires benefit from the bailouts? If so, how much?
• Are they exacerbating the current unemployment and poverty crisis with their shenanigans?
• Why shouldn't we eliminate their tax loopholes (like carried interest)?
• Should their sky-high incomes be taxed at the same levels as during the Eisenhower years?
• Can we create the millions of jobs we need if the billionaires continue to skim off so much of our nation's wealth??
• Should we curb their wealth and political influence?
How dare we ask such questions! How dare we consider targeting them for special taxes? How dare we even think about redistributing THEIR incomes... even if at the moment much of their money comes directly from our bailouts and tax breaks?

It's true that the billionaires live in a hermetically sealed world. But that doesn't mean they don't notice the riffraff nipping at their heels. And they don't like it much. So they've gotten busy doing what billionaires do best: using their money to shield themselves. They're digging into their bottomless war chests, tapping their vast connections and using their considerable influence to shift the debate away from them and towards the rest of us.

We borrowed too much, not them. We get too much health care, not them. We retire too soon, not them. We need to tighten our belts while they pull in another $900,000 an hour. And if we want to cure poverty, we need to get the government to leave Wall Street alone. Sadly, their counter-offensive is starting to take hold.

How can this happen? Many Americans want to relate to billionaires. They believe that all of us are entitled to make as much as we can, pretty much by any means necessary. After all, maybe someday you or I will strike it rich. And when we do, we sure don't want government regulators or the taxman coming around!

Billionaires are symbols of American individual prowess and virility. And if we try to hold them back or slow them down, we're on the road to tyranny. Okay, the game is rigged in their favor. Okay, they got bailed out while the rest of us didn't -- especially the 29 million people who are jobless or forced into part-time work. But what matters most is that in America, nothing can interfere with individual money-making. That only a few of us actually make it into the big-time isn't a bad thing: It's what makes being rich so special. So beware: If we enact even the mildest of measures to rein in Wall Street billionaires, we're on the path to becoming North Korea.

Unfortunately, if we don't adjust our attitudes, we can expect continued high levels of unemployment and more people pushed below the poverty line. It's not clear that our economy will ever recover as long as the Wall Street billionaires keep siphoning off so much of our wealth. How can we create jobs for the many while the few are walking off with $900,000 an hour with almost no new jobs to show for it? In the old days, even robber barons built industries that employed people -- steel, oil, railroads. Now the robber barons build palaces out of fantasy finance. We can keep coddling our financial billionaires and let our economy spiral down, or we can make them pay their fair share so we can create real jobs. These guys crashed the economy, they killed billions of jobs, and now they're cashing in on our bailout. They owe us. They owe the unemployed. They owe the poor.

Dwight D. Eisenhower was no radical, but he accepted the reality: If America was going to prosper -- and pay for its costly Cold War -- the super-rich would have to pony up. It was common knowledge that when the rich grew too wealthy, they used their excess incomes to speculate. In the 1950s, memories of the Great Depression loomed large, and people knew that a skewed distribution of income only fueled speculative booms and disastrous busts. On Ike's watch, the effective marginal tax rate for those earning over $3 million (in today's dollars) was over 70 percent. The super-rich paid. As a nation we respected that other important American value: advancing the common good.

For the last thirty years we've been told that making as much as you can is just another way of advancing the common good. But the Great Recession erased that equation: The Wall Streeters who made as much as they could undermined the common good. It's time to balance the scales. This isn't just redistribution of income in pursuit of some egalitarian utopia. It's a way to use public policy to reattach billionaires to the common good.

It's time to take Eisenhower's cue and redeploy the excessive wealth Wall Street's high rollers have accumulated. If we leave it in their hands, they'll keep using it to construct speculative financial casinos. Instead, we could use that money to build a stronger, more prosperous nation. We could provide our people with free higher education at all our public colleges and universities -- just like we did for WWII vets under the GI Bill of Rights (a program that returned seven dollars in GDP for every dollar invested). We could fund a green energy Manhattan Project to wean us from fossil fuels. An added bonus: If we siphon some of the money off Wall Street, some of our brightest college graduates might even be attracted not to high finance but to jobs in science, education and healthcare, where we need them.

Of course, this pursuit of the common good won't be easy for the billionaires (and those who indentify with them.). But there's just no alternative for this oppressed minority: They're going to have to learn to live on less than $900,000 an hour.

The U.S. Stirs Persian Gulf Waters

(Bad idea...--jef)


The Saudi Arms Deal

It would be the single largest foreign arms deal in United States history.

Pending congressional approval, the Obama administration plans to sell $60 billion in advanced aircraft and sophisticated weaponry to the Kingdom of Saudi Arabia. Add $30 billion in proposed enhancements to the country’s navy and ballistic missile-defense systems, and the result is one huge jobs program, further deterioration in Saudi-Iranian relations and heightened tension in the Persian Gulf—all calculated endpoints.

That the colossal arms package was made public enough to be reported on in Monday’s Wall Street Journal indicates it comes without serious Israeli objection—giving credence to the longstanding notion that Saudi Arabia and Israel maintain increasingly close ties, joined by a mutual animus toward Iran.

The agreement would authorize Riyadh to buy 84 new F-15 fighter jets, upgrade another 70 and purchase three types of attack helicopters: 70 Apaches, 72 Black Hawks and 36 Little Birds. If Congress makes no significant modifications and Saudi Arabia opts for the entire package, a $90 billion deal to allegedly help the Kingdom counter Iranian influence is in the offing.

Boeing would be responsible for production of all aircraft other than the Black Hawk. They estimated the deal would support at least 75,000 direct or indirect jobs in 44 states. The muted criticism of the proposal by reflexively pro-Israel lawmakers was aided—not by the potential for job creation—but by knowledge that the fighters will not be equipped with long-range missiles and would soon be followed by the sale of the even more advanced F-35 Joint Strike Fighter to Israel as part of $30 billion in military assistance over 10 years.

Loren Thompson, defense consultant with the Lexington Institute, said, “With domestic demand for weapons headed down, the big defense companies have been looking overseas to customers like Saudi Arabia to make up the difference. Those countries have money to spend at a time when the U.S. government is in dire fiscal straits.”

It is lamentable that the type of economic stimulus upon which the Obama administration is embarking will come at the expense of exacerbating, rather than easing, hostilities between Persian Gulf rivals Saudi Arabia and Iran.

Anthony Cordesman, defense analyst at the Center for Strategic and International Studies superficially concluded that the anticipated sale will “ … help give Saudi Arabia the capability to convince Iran that it can't use missiles or air power against Saudi Arabia or its neighbors.”

That might hold true if anyone seriously believed Iran was foolish enough to contemplate the use of military force against its Arab neighbors. In fact, it is arguably Iran who ought to be wary of Saudi Arabia.

As The Sunday Times reported in a June 2010 article titled “Saudi Arabia gives Israel clear skies to attack Iranian nuclear sites,” U.S. defense sources stated that Saudi Arabia had agreed to stand down its air defenses and allow Israel use of a narrow stretch of airspace should they decide to conduct bombing raids into Iran.

“The Saudis have given their permission for the Israelis to pass over and they will look the other way … This has all been done with the agreement of the [U.S.] State Department,” said one source.

The etiology of Saudi Arabia’s antagonist Iran posture is multifactorial. It not only involves the Wahabi establishment’s intolerance of Shia Muslims (the same Wahabis whose religious sanction is required for the al-Sauds to govern at all), but recognition of what Iran’s 1979 Islamic Revolution led to and may continue to inspire: the overthrow of repressive, corrupt, Western-backed royal dynasties.

The same anxieties are held by other like-minded Persian Gulf monarchies, Egypt and Jordan—all recipients of American military largesse. Indeed, the U.S. and Israel have done their utmost to stoke and capitalize on these fears.

The massive arms deal with Saudi Arabia is just one more step toward war, one more step toward death in the Persian Gulf.