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David Brodwin's blog

Money for Nothing

One of greatest threats to the U.S. economy in the long term is the absurdly high cost of U.S. health care. We spend nearly 18 percent of GDP on it, whereas the rest of the developed world spends around 11 percent and gets about the same results.

The difference damages the competitiveness of American businesses, and prevents American workers from prospering in the global economy. 7 percent of extra spending amounts to $1.2 trillion each year. If we didn't waste that money on health care that didn't work, we could double the number of K-12 public school teachers. And then we could make public colleges and universities completely tuition-free. After making both of those investments, we would still have more than half a trillion dollars left over. We could invest it directly in R&D or provide it as tax credits to boost privately-funded research. That would boost competitiveness quite a bit.

One of the major drivers of health care cost is mental illness. Spending on mental health care rarely makes headlines because it isn't dramatic. It doesn't grab attention like cancer and hepatitis drugs that cost over $100,000 per round of treatment. But the numbers add up because so many people are affected: In any given year about 20 percent of Americans are diagnosed with a mental health problem severe enough to interfere with daily functioning. About 270 million prescriptions are filled each year for anti-depressants alone. And because mental illness affects people in their prime earning years (whereas most diseases primarily affect older people) mental illness has a catastrophic effect on people's earning power. The total earnings lost by Americans with mental illness – nearly $200 billion -- is nearly twice as high as the costs of drugs and psychotherapy used to treat them.

Given the stakes, we should be immensely troubled by recent research which tells we don't really understand what treatments actually work. Two researchers in Norway published a study last month on the effectiveness of cognitive behavioral therapy for treating depression. Cognitive behavioral therapy has long been a popular treatment (in addition to drugs like Prozac and Zoloft). The study was a "meta-analysis," which means that it was a study of studies: It looked at all the published research on the effectiveness of cognitive behavioral therapy conducted from 1977 through 2014. After analyzing more than 70 individual clinical trials the researchers found that the value of the therapy has fallen steadily and continuously over the years.

Several factors could explain the loss of effectiveness: perhaps novelty is an essential part of the success of any psychotherapeutic technique; once people get used to something, it loses its punch. (This is widely known in motivational research as the Hawthorne effect.) Perhaps the first generation of therapy practitioners was better trained, more gifted or more consistent in their approach than their followers. Perhaps the therapy never really worked that well, but negative research findings were suppressed. Such research is often suppressed when funding and careers hang in the balance.

The difficulty of evaluating treatment for mental illnesses is not limited to talk therapies. Psychoactive drugs draw skepticism as well; critics claim, with some justification, that many antidepressants are " only marginally better than placebos" for most people. The official diagnostic manual that guides the use of psychoactive drugs has been called " a product of unscrupulous politics and bureaucracy." Nonetheless, antidepressants are a huge business, "the most consumed class of medication in the U.S.," although revenues are shrinking as patents lapse on blockbuster drugs.

In a well-functioning market, consumers are supposed to be able to figure out for themselves what products are good and what products are bad. They are supposed to be able to recognize value when they see it. The process of competition should lead to effective treatments winning out, and ineffective treatments being driven from the market.

But the market for mental health treatments is not a well-functioning market. Customers can't easily tell what works and what doesn't. Patients and doctors can be manipulated by purveyors of solutions. The Food and Drug Administration's system for drug approval makes it too easy for drug companies to bury studies that reach inconvenient conclusions. And drug companies have too many ways to curry favor among leading physicians and university researchers.

The misery wrought by mental illness and the terrible cost it inflicts on our economy make this a crucial problem to solve. We need more and better research into what actually works. Meanwhile, given the difficult of knowing what works and what doesn't, a little modesty would be in order. For example, we can scale back some of the aggressive marketing of products that are barely better than a sugar pill. The stakes are too high to do otherwise.

David Brodwin is a co-founder and board member of American Sustainable Business Council. This article appeared in U.S. News & World Report July 22, 2015.

The Case Against Exporting Natural Gas

The U.S. now enjoys abundant energy supplies at lower prices, largely due to fracking, which uses hydraulic pressure to extract oil and gas from rock. Fracking is widely criticized for polluting groundwater, triggering earthquakes and delaying the switch to renewable energy sources. But without question, it has boosted America's energy supplies enormously.

Prices have come down as production has soared. Total U.S. oil and gas output has roughly tripled from 2007 to 2014. In parts of New Jersey, which gets much of its gas from the Marcellus Shale deposit, "energy costs for residential and smaller businesses on average have fallen 30 percent."

With all this natural gas on hand, the question arises: Should we keep the gas here for domestic use, or should we export it?

If we accept conventional economic thinking, we should export the gas. The logic is that trade benefits both the country doing the exporting and the country doing the importing. The importing country gets to save money when buying something it needs, so it benefits. The exporting country gets to sell something it has in abundance for more money, so it benefits. This standard logic is used to justify reducing tariffs, quotas and other trade barriers around the world.

This conventional thinking has spurred a move to build new ports on America's coastline to facilitate natural gas exports. An economic consulting firm was enlisted to forecast the economic impact of this trade. It projected that exports would boost U.S. gross domestic product by about $20 billion by 2020.

But wait a minute. It's not just the total growth in GDP that matters; it also matters who benefits from the growth. How does large-scale export of natural gas affect jobs, incomes and the profits of the millions of businesses that depend on energy, as nearly all do?

A broad swath of the U.S. economy benefits from lower energy prices. Low prices help U.S. businesses in both direct and indirect ways. The direct benefits are obvious: With cheaper energy, it costs less to heat offices and power factories. But the indirect benefits are just as important: When employees pay less to heat and light their homes, businesses face less pressure to raise pay. When consumers enjoy lower home energy costs they have more discretionary spending power. Lower energy costs also lead to lower transportation costs, which helps small businesses to grow. The price advantage that American business enjoys as a result of abundant natural gas is something we can exploit domestically rather than give away.

Another report, prepared by Synapse Energy Economics, re-analyzed the data. It found that that the economic benefits of natural gas exports are highly concentrated but the costs are widely spread. With greater exports, producers and shippers win, but the rest of the economy suffers a loss in revenue, profits, jobs and competitive advantage. In effect, exporting natural gas is a wealth redistribution scheme. It exports wealth from a broad range of people, places and businesses, and imports it to the natural gas industry.

A political fight is underway between those who feel the federal government should actively support this wealth transfer and those who think it should stand aside. A bill in the Senate, the "LNG Permitting Certainty and Transparency Act" is under consideration in the Senate Energy and Natural Resources Committee. If passed, the bill would ease the permitting of new natural gas export facilities, and accelerate exports. In parallel, the Senate Small Business and Entrepreneurship Committee is considering the impact of higher energy prices specifically on small businesses.

But none of the above deals with the cost of climate change, a result of our continued use of natural gas and other fossil fuels. Climate change costs include hardening our shorelines, rebuilding storm-damaged infrastructure and realigning food production to cope with changing temperatures and rainfall. These costs are difficult to forecast, but they are no less real as they hit businesses in the form of higher taxes or lower national productivity.

There is room for reasonable people to disagree over the short-term impact of fracked gas on climate change. Fracked gas emits less carbon dioxide for the amount of energy it contains, so a shift from coal to gas is helpful. On the other hand, fracking releases methane, which is a potent climate-changing gas. But regardless of debate over short-term effects, the long term outlook is clear: We need to move toward renewable fuels as part of a coordinated worldwide program to protect the climate.

Energy exports sound good, but in this case they're not. Keeping energy inexpensive in the U.S. makes the domestic economy more competitive and helps a wide range of industries, places and people. Meanwhile, we should accelerate our shift away from fossil fuels as part of program of diplomacy to gets other countries to cut their carbon emissions in parallel. Those are the economics that really matter.

David Brodwin is a co-founder and board member of American Sustainable Business Council. This article appeared in U.S. News & World Report July 16, 2015.