Remarks by the President to a joint session of Congress on health care

The White House, Office of the Press Secretary

Immediate Release September 9, 2009
REMARKS BY THE PRESIDENT TO A JOINT SESSION OF CONGRESS ON HEALTH CARE
U.S. Capitol Washington, D.C.
8:16 P.M. EDT

THE PRESIDENT: Madam Speaker, Vice President Biden, members of Congress, and the American people:

When I spoke here last winter, this nation was facing the worst economic crisis since the Great Depression. We were losing an average of 700,000 jobs per month. Credit was frozen. And our financial system was on the verge of collapse.

As any American who is still looking for work or a way to pay their bills will tell you, we are by no means out of the woods. A full and vibrant recovery is still many months away. And I will not let up until those Americans who seek jobs can find them -- (applause) -- until those businesses that seek capital and credit can thrive; until all responsible homeowners can stay in their homes. That is our ultimate goal. But thanks to the bold and decisive action we've taken since January, I can stand here with confidence and say that we have pulled this economy back from the brink. (Applause.)

I want to thank the members of this body for your efforts and your support in these last several months, and especially those who've taken the difficult votes that have put us on a path to recovery. I also want to thank the American people for their patience and resolve during this trying time for our nation.

But we did not come here just to clean up crises. We came here to build a future. (Applause.) So tonight, I return to speak to all of you about an issue that is central to that future -- and that is the issue of health care.

I am not the first President to take up this cause, but I am determined to be the last. (Applause.) It has now been nearly a century since Theodore Roosevelt first called for health care reform. And ever since, nearly every President and Congress, whether Democrat or Republican, has attempted to meet this challenge in some way. A bill for comprehensive health reform was first introduced by John Dingell Sr. in 1943. Sixty-five years later, his son continues to introduce that same bill at the beginning of each session. (Applause.)

Our collective failure to meet this challenge -- year after year, decade after decade -- has led us to the breaking point. Everyone understands the extraordinary hardships that are placed on the uninsured, who live every day just one accident or illness away from bankruptcy. These are not primarily people on welfare. These are middle-class Americans. Some can't get insurance on the job. Others are self-employed, and can't afford it, since buying insurance on your own costs you three times as much as the coverage you get from your employer. Many other Americans who are willing and able to pay are still denied insurance due to previous illnesses or conditions that insurance companies decide are too risky or too expensive to cover.

We are the only democracy -- the only advanced democracy on Earth -- the only wealthy nation -- that allows such hardship for millions of its people. There are now more than 30 million American citizens who cannot get coverage. In just a two-year period, one in every three Americans goes without health care coverage at some point. And every day, 14,000 Americans lose their coverage. In other words, it can happen to anyone.

But the problem that plagues the health care system is not just a problem for the uninsured. Those who do have insurance have never had less security and stability than they do today. More and more Americans worry that if you move, lose your job, or change your job, you'll lose your health insurance too. More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won't pay the full cost of care. It happens every day.

One man from Illinois lost his coverage in the middle of chemotherapy because his insurer found that he hadn't reported gallstones that he didn't even know about. They delayed his treatment, and he died because of it. Another woman from Texas was about to get a double mastectomy when her insurance company canceled her policy because she forgot to declare a case of acne. By the time she had her insurance reinstated, her breast cancer had more than doubled in size. That is heart-breaking, it is wrong, and no one should be treated that way in the United States of America. (Applause.)

Then there's the problem of rising cost. We spend one and a half times more per person on health care than any other country, but we aren't any healthier for it. This is one of the reasons that insurance premiums have gone up three times faster than wages. It's why so many employers -- especially small businesses -- are forcing their employees to pay more for insurance, or are dropping their coverage entirely. It's why so many aspiring entrepreneurs cannot afford to open a business in the first place, and why American businesses that compete internationally -- like our automakers -- are at a huge disadvantage. And it's why those of us with health insurance are also paying a hidden and growing tax for those without it -- about $1,000 per year that pays for somebody else's emergency room and charitable care.

Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem. Nothing else even comes close. Nothing else. (Applause.)

Now, these are the facts. Nobody disputes them. We know we must reform this system. The question is how.

There are those on the left who believe that the only way to fix the system is through a single-payer system like Canada's -- (applause) -- where we would severely restrict the private insurance market and have the government provide coverage for everybody. On the right, there are those who argue that we should end employer-based systems and leave individuals to buy health insurance on their own.

I've said -- I have to say that there are arguments to be made for both these approaches. But either one would represent a radical shift that would disrupt the health care most people currently have. Since health care represents one-sixth of our economy, I believe it makes more sense to build on what works and fix what doesn't, rather than try to build an entirely new system from scratch. (Applause.) And that is precisely what those of you in Congress have tried to do over the past several months.

During that time, we've seen Washington at its best and at its worst.

We've seen many in this chamber work tirelessly for the better part of this year to offer thoughtful ideas about how to achieve reform. Of the five committees asked to develop bills, four have completed their work, and the Senate Finance Committee announced today that it will move forward next week. That has never happened before. Our overall efforts have been supported by an unprecedented coalition of doctors and nurses; hospitals, seniors' groups, and even drug companies -- many of whom opposed reform in the past. And there is agreement in this chamber on about 80 percent of what needs to be done, putting us closer to the goal of reform than we have ever been.

But what we've also seen in these last months is the same partisan spectacle that only hardens the disdain many Americans have towards their own government. Instead of honest debate, we've seen scare tactics. Some have dug into unyielding ideological camps that offer no hope of compromise. Too many have used this as an opportunity to score short-term political points, even if it robs the country of our opportunity to solve a long-term challenge. And out of this blizzard of charges and counter-charges, confusion has reigned.

Well, the time for bickering is over. The time for games has passed. (Applause.) Now is the season for action. Now is when we must bring the best ideas of both parties together, and show the American people that we can still do what we were sent here to do. Now is the time to deliver on health care. Now is the time to deliver on health care.

The plan I'm announcing tonight would meet three basic goals. It will provide more security and stability to those who have health insurance. It will provide insurance for those who don't. And it will slow the growth of health care costs for our families, our businesses, and our government. (Applause.) It's a plan that asks everyone to take responsibility for meeting this challenge -- not just government, not just insurance companies, but everybody including employers and individuals. And it's a plan that incorporates ideas from senators and congressmen, from Democrats and Republicans -- and yes, from some of my opponents in both the primary and general election.

Here are the details that every American needs to know about this plan. First, if you are among the hundreds of millions of Americans who already have health insurance through your job, or Medicare, or Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. (Applause.) Let me repeat this: Nothing in our plan requires you to change what you have.

What this plan will do is make the insurance you have work better for you. Under this plan, it will be against the law for insurance companies to deny you coverage because of a preexisting condition. (Applause.) As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it the most. (Applause.) They will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or in a lifetime. (Applause.) We will place a limit on how much you can be charged for out-of-pocket expenses, because in the United States of America, no one should go broke because they get sick. (Applause.) And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies -- (applause) -- because there's no reason we shouldn't be catching diseases like breast cancer and colon cancer before they get worse. That makes sense, it saves money, and it saves lives. (Applause.)

Now, that's what Americans who have health insurance can expect from this plan -- more security and more stability.

Now, if you're one of the tens of millions of Americans who don't currently have health insurance, the second part of this plan will finally offer you quality, affordable choices. (Applause.) If you lose your job or you change your job, you'll be able to get coverage. If you strike out on your own and start a small business, you'll be able to get coverage. We'll do this by creating a new insurance exchange -- a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices. Insurance companies will have an incentive to participate in this exchange because it lets them compete for millions of new customers. As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage. This is how large companies and government employees get affordable insurance. It's how everyone in this Congress gets affordable insurance. And it's time to give every American the same opportunity that we give ourselves. (Applause.)

Now, for those individuals and small businesses who still can't afford the lower-priced insurance available in the exchange, we'll provide tax credits, the size of which will be based on your need. And all insurance companies that want access to this new marketplace will have to abide by the consumer protections I already mentioned. This exchange will take effect in four years, which will give us time to do it right. In the meantime, for those Americans who can't get insurance today because they have preexisting medical conditions, we will immediately offer low-cost coverage that will protect you against financial ruin if you become seriously ill. (Applause.) This was a good idea when Senator John McCain proposed it in the campaign, it's a good idea now, and we should all embrace it. (Applause.)

Now, even if we provide these affordable options, there may be those -- especially the young and the healthy -- who still want to take the risk and go without coverage. There may still be companies that refuse to do right by their workers by giving them coverage. The problem is, such irresponsible behavior costs all the rest of us money. If there are affordable options and people still don't sign up for health insurance, it means we pay for these people's expensive emergency room visits. If some businesses don't provide workers health care, it forces the rest of us to pick up the tab when their workers get sick, and gives those businesses an unfair advantage over their competitors. And unless everybody does their part, many of the insurance reforms we seek -- especially requiring insurance companies to cover preexisting conditions -- just can't be achieved.

And that's why under my plan, individuals will be required to carry basic health insurance -- just as most states require you to carry auto insurance. (Applause.) Likewise -- likewise, businesses will be required to either offer their workers health care, or chip in to help cover the cost of their workers. There will be a hardship waiver for those individuals who still can't afford coverage, and 95 percent of all small businesses, because of their size and narrow profit margin, would be exempt from these requirements. (Applause.) But we can't have large businesses and individuals who can afford coverage game the system by avoiding responsibility to themselves or their employees. Improving our health care system only works if everybody does their part.

And while there remain some significant details to be ironed out, I believe -- (laughter) -- I believe a broad consensus exists for the aspects of the plan I just outlined: consumer protections for those with insurance, an exchange that allows individuals and small businesses to purchase affordable coverage, and a requirement that people who can afford insurance get insurance.

And I have no doubt that these reforms would greatly benefit Americans from all walks of life, as well as the economy as a whole. Still, given all the misinformation that's been spread over the past few months, I realize -- (applause) -- I realize that many Americans have grown nervous about reform. So tonight I want to address some of the key controversies that are still out there.

Some of people's concerns have grown out of bogus claims spread by those whose only agenda is to kill reform at any cost. The best example is the claim made not just by radio and cable talk show hosts, but by prominent politicians, that we plan to set up panels of bureaucrats with the power to kill off senior citizens. Now, such a charge would be laughable if it weren't so cynical and irresponsible. It is a lie, plain and simple. (Applause.)

There are also those who claim that our reform efforts would insure illegal immigrants. This, too, is false. The reforms -- the reforms I'm proposing would not apply to those who are here illegally.

AUDIENCE MEMBER: You lie! (Boos.)

THE PRESIDENT: It's not true. And one more misunderstanding I want to clear up -- under our plan, no federal dollars will be used to fund abortions, and federal conscience laws will remain in place. (Applause.)

Now, my health care proposal has also been attacked by some who oppose reform as a "government takeover" of the entire health care system. As proof, critics point to a provision in our plan that allows the uninsured and small businesses to choose a publicly sponsored insurance option, administered by the government just like Medicaid or Medicare. (Applause.)

So let me set the record straight here. My guiding principle is, and always has been, that consumers do better when there is choice and competition. That's how the market works. (Applause.) Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company. And without competition, the price of insurance goes up and quality goes down. And it makes it easier for insurance companies to treat their customers badly -- by cherry-picking the healthiest individuals and trying to drop the sickest, by overcharging small businesses who have no leverage, and by jacking up rates.

Insurance executives don't do this because they're bad people; they do it because it's profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill, they are rewarded for it. All of this is in service of meeting what this former executive called "Wall Street's relentless profit expectations."

Now, I have no interest in putting insurance companies out of business. They provide a legitimate service, and employ a lot of our friends and neighbors. I just want to hold them accountable. (Applause.) And the insurance reforms that I've already mentioned would do just that. But an additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. (Applause.) Now, let me be clear. Let me be clear. It would only be an option for those who don't have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact, based on Congressional Budget Office estimates, we believe that less than 5 percent of Americans would sign up.

Despite all this, the insurance companies and their allies don't like this idea. They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I've insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits and excessive administrative costs and executive salaries, it could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities. (Applause.)

Now, it is -- it's worth noting that a strong majority of Americans still favor a public insurance option of the sort I've proposed tonight. But its impact shouldn't be exaggerated -- by the left or the right or the media. It is only one part of my plan, and shouldn't be used as a handy excuse for the usual Washington ideological battles. To my progressive friends, I would remind you that for decades, the driving idea behind reform has been to end insurance company abuses and make coverage available for those without it. (Applause.) The public option -- the public option is only a means to that end -- and we should remain open to other ideas that accomplish our ultimate goal. And to my Republican friends, I say that rather than making wild claims about a government takeover of health care, we should work together to address any legitimate concerns you may have. (Applause.)

For example -- for example, some have suggested that the public option go into effect only in those markets where insurance companies are not providing affordable policies. Others have proposed a co-op or another non-profit entity to administer the plan. These are all constructive ideas worth exploring. But I will not back down on the basic principle that if Americans can't find affordable coverage, we will provide you with a choice. (Applause.) And I will make sure that no government bureaucrat or insurance company bureaucrat gets between you and the care that you need. (Applause.)

Finally, let me discuss an issue that is a great concern to me, to members of this chamber, and to the public -- and that's how we pay for this plan.

And here's what you need to know. First, I will not sign a plan that adds one dime to our deficits -- either now or in the future. (Applause.) I will not sign it if it adds one dime to the deficit, now or in the future, period. And to prove that I'm serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don't materialize. (Applause.) Now, part of the reason I faced a trillion-dollar deficit when I walked in the door of the White House is because too many initiatives over the last decade were not paid for -- from the Iraq war to tax breaks for the wealthy. (Applause.) I will not make that same mistake with health care.

Second, we've estimated that most of this plan can be paid for by finding savings within the existing health care system, a system that is currently full of waste and abuse. Right now, too much of the hard-earned savings and tax dollars we spend on health care don't make us any healthier. That's not my judgment -- it's the judgment of medical professionals across this country. And this is also true when it comes to Medicare and Medicaid.

In fact, I want to speak directly to seniors for a moment, because Medicare is another issue that's been subjected to demagoguery and distortion during the course of this debate.

More than four decades ago, this nation stood up for the principle that after a lifetime of hard work, our seniors should not be left to struggle with a pile of medical bills in their later years. That's how Medicare was born. And it remains a sacred trust that must be passed down from one generation to the next. (Applause.) And that is why not a dollar of the Medicare trust fund will be used to pay for this plan. (Applause.)

The only thing this plan would eliminate is the hundreds of billions of dollars in waste and fraud, as well as unwarranted subsidies in Medicare that go to insurance companies -- subsidies that do everything to pad their profits but don't improve the care of seniors. And we will also create an independent commission of doctors and medical experts charged with identifying more waste in the years ahead. (Applause.)

Now, these steps will ensure that you -- America's seniors -- get the benefits you've been promised. They will ensure that Medicare is there for future generations. And we can use some of the savings to fill the gap in coverage that forces too many seniors to pay thousands of dollars a year out of their own pockets for prescription drugs. (Applause.) That's what this plan will do for you. So don't pay attention to those scary stories about how your benefits will be cut, especially since some of the same folks who are spreading these tall tales have fought against Medicare in the past and just this year supported a budget that would essentially have turned Medicare into a privatized voucher program. That will not happen on my watch. I will protect Medicare. (Applause.)

Now, because Medicare is such a big part of the health care system, making the program more efficient can help usher in changes in the way we deliver health care that can reduce costs for everybody. We have long known that some places -- like the Intermountain Healthcare in Utah or the Geisinger Health System in rural Pennsylvania -- offer high-quality care at costs below average. So the commission can help encourage the adoption of these common-sense best practices by doctors and medical professionals throughout the system -- everything from reducing hospital infection rates to encouraging better coordination between teams of doctors.

Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan. (Applause.) Now, much of the rest would be paid for with revenues from the very same drug and insurance companies that stand to benefit from tens of millions of new customers. And this reform will charge insurance companies a fee for their most expensive policies, which will encourage them to provide greater value for the money -- an idea which has the support of Democratic and Republican experts. And according to these same experts, this modest change could help hold down the cost of health care for all of us in the long run.

Now, finally, many in this chamber -- particularly on the Republican side of the aisle -- have long insisted that reforming our medical malpractice laws can help bring down the cost of health care. (Applause.) Now -- there you go. There you go. Now, I don't believe malpractice reform is a silver bullet, but I've talked to enough doctors to know that defensive medicine may be contributing to unnecessary costs. (Applause.) So I'm proposing that we move forward on a range of ideas about how to put patient safety first and let doctors focus on practicing medicine. (Applause.) I know that the Bush administration considered authorizing demonstration projects in individual states to test these ideas. I think it's a good idea, and I'm directing my Secretary of Health and Human Services to move forward on this initiative today. (Applause.)

Now, add it all up, and the plan I'm proposing will cost around $900 billion over 10 years -- less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration. (Applause.) Now, most of these costs will be paid for with money already being spent -- but spent badly -- in the existing health care system. The plan will not add to our deficit. The middle class will realize greater security, not higher taxes. And if we are able to slow the growth of health care costs by just one-tenth of 1 percent each year -- one-tenth of 1 percent -- it will actually reduce the deficit by $4 trillion over the long term.

Now, this is the plan I'm proposing. It's a plan that incorporates ideas from many of the people in this room tonight -- Democrats and Republicans. And I will continue to seek common ground in the weeks ahead. If you come to me with a serious set of proposals, I will be there to listen. My door is always open.

But know this: I will not waste time with those who have made the calculation that it's better politics to kill this plan than to improve it. (Applause.) I won't stand by while the special interests use the same old tactics to keep things exactly the way they are. If you misrepresent what's in this plan, we will call you out. (Applause.) And I will not -- and I will not accept the status quo as a solution. Not this time. Not now.

Everyone in this room knows what will happen if we do nothing. Our deficit will grow. More families will go bankrupt. More businesses will close. More Americans will lose their coverage when they are sick and need it the most. And more will die as a result. We know these things to be true.

That is why we cannot fail. Because there are too many Americans counting on us to succeed -- the ones who suffer silently, and the ones who shared their stories with us at town halls, in e-mails, and in letters.

I received one of those letters a few days ago. It was from our beloved friend and colleague, Ted Kennedy. He had written it back in May, shortly after he was told that his illness was terminal. He asked that it be delivered upon his death.

In it, he spoke about what a happy time his last months were, thanks to the love and support of family and friends, his wife, Vicki, his amazing children, who are all here tonight. And he expressed confidence that this would be the year that health care reform -- "that great unfinished business of our society," he called it -- would finally pass. He repeated the truth that health care is decisive for our future prosperity, but he also reminded me that "it concerns more than material things." "What we face," he wrote, "is above all a moral issue; at stake are not just the details of policy, but fundamental principles of social justice and the character of our country."

I've thought about that phrase quite a bit in recent days -- the character of our country. One of the unique and wonderful things about America has always been our self-reliance, our rugged individualism, our fierce defense of freedom and our healthy skepticism of government. And figuring out the appropriate size and role of government has always been a source of rigorous and, yes, sometimes angry debate. That's our history.

For some of Ted Kennedy's critics, his brand of liberalism represented an affront to American liberty. In their minds, his passion for universal health care was nothing more than a passion for big government.

But those of us who knew Teddy and worked with him here -- people of both parties -- know that what drove him was something more. His friend Orrin Hatch -- he knows that. They worked together to provide children with health insurance. His friend John McCain knows that. They worked together on a Patient's Bill of Rights. His friend Chuck Grassley knows that. They worked together to provide health care to children with disabilities.

On issues like these, Ted Kennedy's passion was born not of some rigid ideology, but of his own experience. It was the experience of having two children stricken with cancer. He never forgot the sheer terror and helplessness that any parent feels when a child is badly sick. And he was able to imagine what it must be like for those without insurance, what it would be like to have to say to a wife or a child or an aging parent, there is something that could make you better, but I just can't afford it.

That large-heartedness -- that concern and regard for the plight of others -- is not a partisan feeling. It's not a Republican or a Democratic feeling. It, too, is part of the American character -- our ability to stand in other people's shoes; a recognition that we are all in this together, and when fortune turns against one of us, others are there to lend a helping hand; a belief that in this country, hard work and responsibility should be rewarded by some measure of security and fair play; and an acknowledgment that sometimes government has to step in to help deliver on that promise.

This has always been the history of our progress. In 1935, when over half of our seniors could not support themselves and millions had seen their savings wiped away, there were those who argued that Social Security would lead to socialism, but the men and women of Congress stood fast, and we are all the better for it. In 1965, when some argued that Medicare represented a government takeover of health care, members of Congress -- Democrats and Republicans -- did not back down. They joined together so that all of us could enter our golden years with some basic peace of mind.

You see, our predecessors understood that government could not, and should not, solve every problem. They understood that there are instances when the gains in security from government action are not worth the added constraints on our freedom. But they also understood that the danger of too much government is matched by the perils of too little; that without the leavening hand of wise policy, markets can crash, monopolies can stifle competition, the vulnerable can be exploited. And they knew that when any government measure, no matter how carefully crafted or beneficial, is subject to scorn; when any efforts to help people in need are attacked as un-American; when facts and reason are thrown overboard and only timidity passes for wisdom, and we can no longer even engage in a civil conversation with each other over the things that truly matter -- that at that point we don't merely lose our capacity to solve big challenges. We lose something essential about ourselves.

That was true then. It remains true today. I understand how difficult this health care debate has been. I know that many in this country are deeply skeptical that government is looking out for them. I understand that the politically safe move would be to kick the can further down the road -- to defer reform one more year, or one more election, or one more term.

But that is not what the moment calls for. That's not what we came here to do. We did not come to fear the future. We came here to shape it. I still believe we can act even when it's hard. (Applause.) I still believe -- I still believe that we can act when it's hard. I still believe we can replace acrimony with civility, and gridlock with progress. I still believe we can do great things, and that here and now we will meet history's test.

Because that's who we are. That is our calling. That is our character. Thank you, God bless you, and may God bless the United States of America. (Applause.)

END 9:03 P.M. EDT

The Organic Food Nutrition Wars

The Organic Food Nutrition Wars. By Joseph D. Rosen, Ph.D.
ACSH, Sep 08, 2009

A few weeks ago, the world of organic food proponents was rocked by new research that organic food was not any more nutritious than conventionally-grown food. Consumers have long been interested in knowing if the extra money they have been shelling out for organic food is justified and the subject, therefore, is of much interest.

A Little Bit of Background

Food nutrients include minerals (trace elements), vitamins and antioxidants. Up until about ten years ago, people interested in nutritional differences between organic and conventional food concentrated on nutrients such as minerals and vitamins. Nitrates were not thought of as a nutrient but were included in many studies. In recent years, emphasis has shifted to differences in antioxidant content.

Dating back to 1924, numerous studies dealing with the nutritive advantages, or lack thereof, of organic food have been published. These studies were reviewed by Katrin Woese and her colleagues in 1997 (Journal of the Science of Food and Agriculture Volume 74, pp. 281-293), Virginia Worthington in 2001 (Journal of Alternative and Complementary Medicine, Volume 7, pp. 161-173), Diane Bourn and John Prescott in 2002 (Critical Reviews in Food science and Nutrition, Volume 42, pp. 1-34) and Faidon Magkos and co-authors in 2003 (International Journal of Food Sciences and Nutrition, Volume 34, pp. 357-371). Except for higher nitrate content and lower vitamin C content in some conventionally-grown vegetables, Woese et al. concluded (after examining about 150 publications) that “with regard to all other desirable nutritional values...no major differences were observed” between organically- and conventionally-grown vegetables. Worthington’s review of forty-one publications noted increased vitamin C, magnesium, iron and phosphorus as well as lower nitrate content in organic vegetables. She found no differences between organic and conventional vegetables for any other minerals or vitamins.

Bourn and Prescott looked at forty-nine publications and found that “with the possible exception of nitrate content, there is no strong evidence that organic and conventional foods differ in concentrations of various nutrients.” (They also reported that organic food did not taste any better than conventional food in blind taste tests.) The Magkos review concluded that “a balanced diet rich in fruits and vegetables, and adequate in foods from the other groups, is unequivocally able to maintain and improve health, regardless of its organic or conventional origin.” A recent article in the Journal of the Science of Food and Agriculture concluded organic food did not contain any more trace elements than conventional food.

In recent years, the emphasis has shifted to antioxidants. It is widely believed that antioxidant chemicals may be important in the control of free radicals, chemical species that we produce as part of normal metabolic processes, which may be responsible for the initiation of certain cancers as well as contributing to hardening of the arteries. There are several types of antioxidants found in food: beta-carotene, lycopene, vitamin C; phenolic acids such as caffeic acid and flavonoids such as quercetin. Phenolic acids and flavonoids are many times measured together and the results are referred to as total phenols.

The Soil Association

The Soil Association is a British charity (roughly the same as a not for profit organization in the US) dedicated to the growth of the organic food industry. According to the latest available figures, the association derives its annual income, about $31M, from grants, certification of organic farms, membership dues, sales of agricultural reports and donations. More than one-third of its income is derived from certifying organic farms.

The association was founded in 1946 by Lady Eve Balfour who had become a convert to organic farming. She started a thirty-year experiment at her farm at Haughey in order to prove the nutritional superiority of organic food. Experimental results, however, failed to provide any evidence for this hypothesis. In spite of that setback, the association has, over the years, claimed that organic food is nutritionally superior to conventional food.

The current policy director of the association is Lord Peter Melchett . He is the owner of an 890-acre organic farm in the UK and served as Executive Director of Greenpeace UK between 1989 and 2000. He is the grandson of the founder of Imperial Chemicals Industry and the son of the founder of the British Steel Corporation. In 1999, Lord Melchett was arrested for trespassing and destroying crops on a farm where genetically modified crops were being experimentally grown. He beat the rap by convincing the jurors he feared that pollen from the GM crops would “contaminate” the crops on his own farm.


A Great Day for Lord Melchett

October 30, 2007 was a great day for Lord Melchett. For the past few days, the major London newspapers had carried stories about new discoveries proving the nutritional superiority of organic food. These results had been announced by Dr. Carlo Leifert, Professor of Ecological Agriculture at the University of Newcastle and the head of the Tesco Centre for Organic Agriculture which he set up in 2001 with an $870,000 investment from Tesco, the largest seller of organic food in the UK. Dr. Leifert also headed the Quality Low Input Food (QLIF) Project, a four-year, $25M project funded by the European Union that “aims to improve quality, ensure safety and reduce cost along the organic and low input food supply chains through research, dissemination and training activities.” The project included scientists from thirty-three research institutions, companies and universities throughout Europe

According to information supplied by Dr. Leifert, organic fruits and vegetables were grown alongside conventional produce on a 725-acre experimental farm near Newcastle University, and their nutritional qualities were compared. Professor Leifert said that the organic produce contained “up to 40% more beneficial compounds in vegetable crops and up to 90% more in milk.” High levels of minerals such as iron and zinc were also found in organic produce.

In addition, Leifert said that moving to organic food was like “eating an extra portion of fruit and vegetables every day” and implied that conventional produce was responsible for obesity and heart disease. He told the BBC that the study, whose results were “due to be published over the next twelve months,” showed “more of certain nutritionally desirable compounds and less of the baddies in organic foods,” but “the study showed some variations,” the nature of which he did not explain.The UK media were ecstatic. “Eat your words, all who scoff at organic food,” headlined The Times; “Organic food is healthier and safer, four-year EU investigation shows,” wrote The Independent; “Organic produce ‘better for you,’” said the BBC. The Telegraph chimed in with “Organic food better than ordinary produce,” while The Guardian used the more subdued headline “Organic food is healthier: study.” None of the media reporters asked Leifert for independent proof of these findings, which he claimed would be published within the next twelve months (i.e., by November 1, 2008).

The fact that Leifert had no data to back up his claims did not appear to bother the media reporters, who were much more interested in the running battle between the UK government and the Soil Association, intimating that the government would soon have to recognize that it was wrong. In an opinion piece that appeared in the The Guardian on October 30, Melchett chided the FSA and its chief scientist, Andrew Wadge to admit that organic food was better.

By this time, the FSA had commissioned an independent group of scientists to study and evaluate the relevant literature dealing with nutritional differences, a. study that was vitally needed to confirm or to counter assertions by the Soil Association and the media that organic food was nutritionally superior to conventional food.

A Press Release from the Soil Association -- October 30, 2007

Also on that day, the Soil Association weighed in with a demand that the FSA “publicly acknowledge the nutritional benefits of organic food,” a demand that was based on five points that essentially summarized the Soil Association’s case:

1-a 2001 report written by an “independent nutritionist” who “reviewed over 400 scientific papers” and found “indicative evidence” for higher levels of “vitamin C, minerals and trace elements”

2-three presentations by French and Polish scientists at a QLIF Symposium held at the University of Hohenheim in Germany March 20-23, 2007 (according to the UK press, higher concentrations of antioxidants were found in organic peaches, tomatoes and apples)

3-a peer-reviewed article written by University of California scientists suggesting that organic kiwis had more vitamin C and antioxidants than conventional kiwis

4-research at several UK farms that found higher levels of “beneficial” vitamins, antioxidants and omega-3 fatty acids in the milk of cows that were raised on grass and clover

5-the results from the QLIF study announced by Dr. Leifert just a day or two earlier that were going to be published in peer-reviewed journals during the next twelve months.


A Closer Look at the Soil Association October 30, 2007 Press Release

1. The 2001 Report

In 2000, Sir John Krebs, at that time Head of the UK Food Standards Agency (the FSA was set up to ensure food safety and to protect consumer interest) said that there was not enough scientific information available to be able to say that organic food is nutritionally different from non-organic food. In order to counter the damage done by the FSA pronouncement, the Soil Association commissioned a report titled “Organic Farming, Food Quality, and Human Health: a review of the Evidence.” The author, Shane Heaton, was described as a nutritionist, but there is no record of his ever graduating with a degree in nutrition or any other scientific discipline, for that matter.

An August 6th press release (no longer available on the Internet) accompanied the report and claimed that “over 400 published papers” were examined and that “on average” organic crops “are not only higher in vitamin C and essential minerals,” but also higher in chemicals that “are often beneficial in the treatment of cancer.” A second press release claimed that “alternative cancer therapies have achieved good results relying on the exclusive consumption of organic food.” One would think that the report would spend more than 105 words discussing a subject of such import. The major UK newspapers treated the report favorably, using only the Soil Association August 6th press release for information.

Had the reporters read the actual report instead of relying on the Soil Association for analysis of its own publication, they would have found that of the over 400 published papers only ninety-nine compared organic to conventional food and seventy of these were rejected by the author because they did not fit his self-imposed criteria for valid comparisons or for proper organic certification. Of the twenty-nine remaining studies, only sixteen had been published in peer-reviewed journals. Five publications dealing with antioxidant differences were found, but only two of them were published in scientific journals and the reported differences were not statistically significant.

Note: Pre-publication peer review is extremely important in science because it allows other scientists to examine the research methodology that was used and to determine if the manuscript’s conclusions are warranted based on the data submitted. Responsible scientists do not pay attention to published information that has not gone through the peer-review process. In addition, results must show statistical significance to be considered as meaningful.

So what had been touted as a thorough review of the literature turned out to be a review of only sixteen articles. And even in these precious few studies, the results were inconsistent. Combining all reports that fit the author’s criteria for consideration revealed that organic produce had higher levels of minerals in only seven out of fourteen studies and higher levels of vitamin C in only seven out of thirteen studies, hardly a reason to rush out to the store for over-priced organic food.

2. Reports from the QLIF Symposium

On March 28, 2007, The Daily Mail (“Proof at last that organic apples can be better for you”) said that studies in several countries had shown organic tomatoes, apples and peaches contained greater concentrations of nutrients “said to protect the body against heart attacks and cancer-causing chemicals.”

Later that week, The Independent (“It’s not just a fad -- organic food is better for you, say scientists”) reported new research that organically grown peaches and apples contained higher levels of chemicals that “protect against heart attacks and cancer” than conventional fruits. Both newspaper articles implied that UK government officials were wrong in not admitting how healthful organic food was, and both articles contained errors which indicated to me that neither newspaper reporter had ever attended the symposium at which these results were presented or had even spoken to the scientists who made the presentations.

Reading the summaries written by the scientists, however, provides more accurate accounts of the symposium. For example, one QLIF investigator wrote that organic peaches grown in 2004 had 46% higher total phenol content than conventional peaches, but there were “no significant differences in 2005.”

If you do a little simple algebra with the data provided by the investigators, you can calculate that conventional peaches contained 30% more total phenolics than the organic peaches in 2005. This information is available on the Internet but was not in any of the newspaper stories, Soil Association writings or the 2008 Organic Center report (which will be discussed later).

A second lecture compared organic and conventionally-grown tomatoes cultivated at different farms in Poland. But the distance (thirty-six miles) between the farms and the fact that the organic tomatoes were grown in a soil of a different type than the soil in which the conventional tomatoes were grown made meaningful interpretation of the results impossible. A graduate student involved with this research “found different levels of the nutritional compounds in every year of her studies” and “concluded that organic production methods did not guarantee a higher quality product”

A third presentation reported higher antioxidant capacity in three different varieties of varieties of organic apples, but no statistical data was given, making the data useless. Some of the data made no sense. For example, total polyphenol content, an important factor in antioxidant capacity, was not significantly higher in the organic than in the conventional apples.

More than two years have passed since these three presentations were made but none has ever been published in a peer-reviewed scientific journal.

3. Comparison Between Organic and Conventional Kiwis

The University of California investigators made two serious errors. First, the test they used measured not only antioxidants but also vitamin C. They did not subtract vitamin C content (which was 14% higher in the organic kiwis) from the antioxidant (17% higher in the organic kiwis) content, thus coming up with too high a value for organic kiwi antioxidant content. Second, antioxidant concentrations are usually higher in the peel of a fruit than in the flesh. In this experiment, the organic kiwi peels were 35% thicker than the peels from the conventional kiwis, suggesting that most, if not all, of the antioxidant increase observed in the organic kiwis were in the peel. Since kiwi peels are inedible, it would have been more meaningful to measure only the edible portions of the kiwi.

4. Omega-3 Fatty Acids

Research published between 2003 and 2006 reported increased (about 64-71%) amounts of an omega-3 fatty acid, alpha-linoleic acid (ALA), in the milk of cows that had grazed on red clover and grass as opposed to those cows that were fed corn and hay. Omega-3 fatty acids have gotten good press in recent years, and there is some evidence that two of these acids, eicosapentanoic acid (EPA) and docosahexaenoinoic acid (DHA), which are found in salmon and tuna fish, may be helpful in preventing cancer and heart disease. ALA is also an omega-3 fatty acid but is not the same as EPA or DHA. A publication authored by world-class epidemiologists has warned that while EPA and DHA may reduce the risk of advanced prostate cancer, ALA may increase the risk. True, ALA is converted to EPA and DHA in humans, but the conversion is very low (about 8%). The bottom line is that a huge ALA increase in cow milk is meaningless because ALA is found in very small amounts in milk to begin with and increasing that small amount by 71% will not result in any appreciable health benefit.

For example, nutritionists recommend that we eat two three-ounce portions of salmon per week. If we preferred instead to get our EPA and DHA from conventional milk, we would have to drink 185 quarts of conventional milk every week. Drinking organic milk would cut our weekly intake to 110 quarts.

But the pro-organic folks were undaunted. Sally Bagnal of the UK’s Organic Milk Suppliers Cooperative called on the FSA to “start recommending organic milk as part of a healthy diet.” Kathryn Ellis, a University of Glasgow scientist who was the lead author on one of the studies, published an open letter signed by thirteen other scientists requesting the FSA change its stance on organic milk and “recognize that there are differences that exist between organic and nonorganic milk.”

In the USA, the Whole Foods website proclaimed that the UK studies confirmed that “organic milk is a good source of omega-3”, neglecting to mention that the organic milk you would need to drink was also a good source of saturated fat and that ALA had been linked to advanced prostate cancer.

(Another article on this subject was published in 2008 in the Journal of the Science of Food and Agriculture by scientists from Newcastle University and the Danish Institute for Agricultural Science (DIAS). Large increases in contents of vitamin E (33%), beta-carotene (30%), lutein (67%), zeaxantin (45%) conjugated linoleic acid (60%), and the omega-3 fatty acid, ALA (39%) were found in milk from cows that had been raised on pasture grass and clover as compared to cows fed standard grain. Again, the UK media sprang into action. “Drinking organic milk may cut the risk of heart disease and cancer” headlined the Daily Mail. Similar reports were also published in the other major UK newspapers except for The Guardian, which apparently had caught on to the scam. An article published by the UK National Health Service explaining that it had “not been demonstrated that any type of milk protects against cancer or heart disease” was totally ignored by the media. And, as I pointed out in The Guardian, a person would have to drink between 3 and 170 quarts of organic milk every day in order to get the currently recommended quantities for these nutrients. What’s more, the consumer would have to drink milk that contained a full complement of saturated fats. There is nothing magical about the organic milk produced at the Newcastle University farm -- when you remove the artery-clogging saturated fats you also remove all the “beneficial” constituents.)

5. The QLIF Four-Year European Union Project “Results”

By the end of this August, it will have been twenty-two months since Dr. Leifert told reporters that peer-reviewed publications detailing the nutritional superiority of organic produce would be published within a year. If any of these reporters had bothered to ask just a few questions, they would have discovered, as had Dr. Todd Carroll of the Skeptik’s Dictionary, that there was no new data for produce! (Note: you will have to scroll down to the section headed by “update Nov. 2, 2007” in the Skeptik’s Dictionary for this information). About a year later, Leifert confirmed this when he told the Montreal Gazette that “the data are quite clear on livestock products,” but there was less evidence for the nutritional benefits of organic produce. “It’s not as clear a story on the cropping side,” Leifert said. And if there is still any doubt, the QLIF Workshop 1 Report of June 2008 stated, “while there is a trend for more of the nutritionally desirable secondary metabolites (i.e., antioxidants) to be found at higher levels...some compounds were unaffected and some were increased when conventional fertilization and/or crop protection schemes were applied.” In other words, when ALL the data are examined, conventional crops are just as high in beneficial nutrients, if not higher, than organic crops.

A Summary of the Soil Association’s Five Points

The five points picked by the Soil Association to advance its argument that organic food is nutritionally superior fall apart upon examination. The 2001 report turned out to be eighty-eight pages of nothing; the milk studies demonstrated that organic production methods give much higher quantities of chemicals that some consider good for us, but not high enough to make us healthier; the kiwi study had two serious flaws that made its conclusions questionable; there was a wide gulf between the Soil Association interpretations of the QLIF peach, tomato and apple studies and what the scientists actually reported; and the Leifert study was actually a classic study of media manipulation.

The Empire Strikes Back

The conclusions of the scientific review commissioned by the FSA to respond to the Soil Association attacks were made public on July 29, 2009. According to Dr. Alan Dangour, a senior lecturer in nutrition at the London School of Hygiene and Tropical Medicine, after a thorough review of all the available literature, he and his research group found “no evidence of a difference in nutrient quality between organically and conventionally produced foodstuffs.” Unlike Dr. Leifert and some of the QLIF investigators, Dr. Dangour laid out his results in a respected, peer-reviewed publication, The American Journal of Clinical Nutrition for comment and criticism.

Criticism was not long in coming. Leading the charge, of course was the Soil Association. Their major complaint was that the study “failed to include the results” of the QLIF project and the “publication, so far, of more than 100 scientific papers.”

Never mind that these publications are not concerned with nutritional differences between organic and conventional produce. Writing in The Guardian on August 1, Dr. Ben Goldacre found that almost all of these publications were “irrelevant” and the overwhelming majority of them were “unpublished conference reports.” But this had no effect whatsoever on Melchett who wrote that “The full results of the five years of EU research, presented at a conference in April, and including a positive review of nutritional differences, will be peer-reviewed and published next spring.”

The Soil Association also complained that the Dangour study failed to consider pesticides, but Dangour was asked to look only at Soil Association claims about nutritional superiority. In fact, it was the Soil Association’s unfounded claims about nutritional superiority that led to this study in the first place. Lord Melchett had the chutzpah to tell the BBC that the Dangour review “rejected almost all of the existing studies of comparisons between organic and non-organic nutritional differences,” ignoring that many of those studies were of poor scientific quality, omitted important information or found large increases of constituents that would be of no benefit to human health. Leifert, for his part, thought the “conclusions of the study were selective” -- apparently because his non-existent data was not included.

The Organic Center is Heard From

On this side of the Atlantic, the Organic Center (OC) has also been trying to convince us of the nutritional superiority of organic food. The OC is a “not for profit” organization supported mainly by the organic food industry which is now controlled by the same large food companies we were previously told were poisoning us. These relationships may be found here.

The Organic Center is an entity set up by the Organic Trade Association (OTA) for the promotion and the sale of organic food. According to the Organic Center’s website, donors of $50,000 or more include Aurora Organic Dairy, Horizon Organic, Organic Valley Cooperative, Silk Soy, Stonyfield Farm, White Wave and Whole Foods Market, the leading organic food retailer in the world. Individual donors of $50,000 and above include Walter Robb, co-president of Whole Foods; Eugene Kahn, a General Mills vice president and founder of their subsidiary, Cascadian Farm; Mark Retzloff, founder of Horizon Dairies; and Steve Demos, president of combined operations for White Wave, Horizon Organics and Dean Foods.

In a 2008 report, the OC claimed organic food was 25% more nutritious than conventional food, a finding at odds with the Dangour study. That finding is also at odds with my own evaluation of the OC’s report, in which I pointed out how they erroneously arrived at conclusions based on results from publications that had not been peer-reviewed and contained data that was not statistically significant. And, just like the Soil Association, the OC report ignored results not to their liking. A detailed version of my criticisms was published in July 2008 by the American Council on Science and Health. The OC rebuttal is here and my reply to their rebuttal is here.

The OC had several complaints about the Dangour report. One complaint was that an important nutrient quality, total antioxidant capacity, was not addressed by the British scientists. However, the OC listed only eight publications in this category in their own report. One was favorable to conventional food; five were not peer-reviewed; one contained data favorable to both organic and conventional pac choi, but the OC did not include the latter; one was the questionable kiwi study that I discussed earlier.

A second complaint was that the Dangour study found no differences in the phenolic content of the “twenty-five” matched crops that the OC had studied. But according to the OC report, they had identified only twenty-one such studies. There were no statistically significant data for thirteen of the matched crops. Of the remaining eight studies, two were not peer-reviewed; one was the kiwi study; another was a study of organic flea- beetle infested pac choi, which may have contained more phenolics but was inedible.

Dietary Nitrate Is Not Only Safe...

A third complaint was that Dangour and his group did not consider lower nitrate concentrations in organic crops, supposedly a nutritional advantage. The problem with nitrate, according to the OC is that “most scientists” (was there an election I missed?) regard nitrate “as a public health hazard because of the potential for cancer-causing chemicals to be formed in the human GI tract.”

Several months ago I called the OC’s attention to the fact that nitrate in conventional food was not as bad as they were making it out to be, but they chose to ignore my arguments. Several months later they still maintain this fiction, so I’ll try again. Perhaps some of the references I’ve added will cause them to change their minds.

There is no epidemiological evidence for a connection between nitrate in food and human cancer. Current scientific belief is that people who eat lots of fruits and vegetables (even with nitrates) have lower cancer rates than those who do not. The European Food Safety Authority has declared that “the estimated exposures to nitrate from vegetables are unlikely to result in appreciable health risks.”

Carlo Leifert, when he was still publishing results in peer-reviewed scientific journals was a key member of a team that found no epidemiological evidence for an increased risk of gastric and intestinal cancer in population groups with high nitrate intake.

...It’s Good for You!!

He and his co-workers also discovered that nitrate fueled an important mammalian resistance mechanism against infectious disease. A study published in the New England Journal of Medicine reported a statistically significant drop in systolic blood pressure after ingestion of sodium nitrate. Drinking a glass or two of beet juice substantially lowered blood pressure. Scientists writing in the Proceedings of the National Academy of Sciences reported that mice fed a high nitrate/nitrite diet were more likely to survive an induced heart attack.

Nitrate has also been shown to protect against stomach ulcers and the gastric side effects of aspirin and other non-steroidal anti-inflammatory drugs. A comprehensive review in The American Journal of Clinical Nutrition concludes that “the data on nitrate and nitrite contents of vegetables and fruit bolster the strength of existing evidence to recommend their consumption for health benefits” and that plant origin nitrates and nitrites “play essential physiologic roles supporting cardiovascular health and gastrointestinal immune function.” An on-line article published recently in _Medical Hypotheses_ suggested that ingestion of high nitrate-containing fruits and vegetables such as pomegranates, lettuce, spinach and beets might be useful in lowering obesity, diabetes, hypertension, and coronary artery disease.

If any group has reason to complain to Professor Dangour, it’s the conventional farmers who use fertilizers that deliver high nitrate doses to soil. It turns out that high dietary nitrate is not only safe, but provides a health benefit that the Dangour team was apparently unaware of.


Conclusions

Table 1 gives a concise summary of the numerical claims for the nutritional superiority of organic produce, claims that have no basis in fact. Organic food proponents have learned that they do not need to provide evidence for their assertions. All they have to do is publish any plausible evidence, keep on repeating it ad infinitum and it will be magnified by news organizations and their self-serving commercial organic and environmental allies on the Internet.

Table1. Numerical Estimates for Nutritional Superiority of Organic Produce

AUTHOR: Brandt, 2001
CLAIM: 10-50% more nutrients
COMMENT: No data, just a “guess”

AUTHOR: The Organic Center, 2005CLAIM: 30% more nutrientsCOMMENT: Only 5 studies: 2 did not meet standards for inclusion in 2008 OC report; 1 not peer-reviewed; 1 comparison invalid

AUTHOR: Leifert, 2007
CLAIM: “up to 40%” more nutrients
COMMENT: No data to support claim and it appears that there never will be

AUTHOR: The Organic Center, 2008
CLAIM: 25% more nutrients; a good part of this number depends on mistaken claim that nitrate is harmful
COMMENT: Included key publications that were not peer reviewed; many results were not statistically significant; included several invalid comparisons; ignored some unfavorable data; entire report not peer-reviewed

AUTHOR: Rosen, 2008
CLAIM: Essentially no difference
COMMENT: Not peer-reviewed either

AUTHOR: Dangour, 2009
CLAIM: No difference
COMMENT: Methods and results peer-reviewed

Organic food proponents such as the Soil Association and the Organic Center are organizations with missions to promote and sell organic food and they have done an incredible job, as borne out by the large year to year increases in organic food sales.

But in their zeal to fulfill their missions they many times stretch the truth. In my opinion, any reporters who rely on organizations such as the Soil Association or the Organic Center for information without checking the facts are complicit in defrauding their readers.

Organic food proponents do more than act as unreliable sources of information. They may actually cause harm. For example, in order to obtain the supposed nutritional benefits of organic milk, you must drink copious quantities of high-fat milk. And then there is the alarm sounded by the epidemiological study that too much ALA may increase the risk of advanced prostate cancer. Those who are so concerned with human health should stop promoting the sale of organic milk until that question is resolved.

Organic food proponents are so concerned with distinguishing their products from conventional food that they have campaigned against useful practices such as food irradiation and genetic engineering. In addition, organic food proponents cause unnecessary guilt and angst in parents who cannot afford to buy overpriced (and completely useless) organic food for their children.

In the United States, some food activists have demanded that because organic food is “more nutritious,” it should be provided to mothers and children in the government–funded WIC Program. WIC stands for “Women, Infants and Children” and its mission is to support low-income women who are at nutritional risk by providing food to supplement diets. Government funding is a zero-sum game, and if money is provided for more expensive (and unneeded) organic food there will be less food to go around. Although it is a federally-funded program, WIC is administered separately in each state. Washington State was assailed earlier this year for not giving organic food to the program participants. Their replies provide a perfect way to end this article:

1-The American Academy of Pediatrics and the American Medical Association have not supported the need for organic food.
2-The Mayo Clinic and the American Dietetic Association state that there are no benefits from organic food.
3-The US Department of Agriculture states there is no conclusion about the need for or benefit from organic food.
4-After a thorough study of WIC foods, the National Academy of Sciences, Institute of Medicine made no reference to the need for organic food.

Joseph D. Rosen, Ph.D., is Emeritus Professor of Food Toxicology at Rutgers University School of Environmental and Biological Sciences and an ACSH Advisor.

The Fed Can't Monitor 'Systemic Risk'

The Fed Can't Monitor 'Systemic Risk'. By PETER J. WALLISON
That's like asking a thief to police himself.
WSJ, Sep 09, 2009

Using the financial crisis as a pretext, the Obama administration is determined to enact massive financial regulatory reforms this year. But the centerpiece of its proposal—putting the Fed in charge of regulating or monitoring systemic risk—is a serious error.

The problem is the Fed itself can create systemic risk. Many scholars, for example, have argued that by keeping interest rates too low for too long the Fed created the housing bubble that gave us the current mortgage meltdown, financial crisis and recession.

Regardless of whether one believes this analysis, it is not difficult to see that a Fed focused on preventing deflation in the wake of the dot-com bubble's collapse in the early 2000s might ignore the sharp rise in housing prices that later gave us a bubble.

There is also the so-called Greenspan put. That's a term that refers to investors taking greater risks than they otherwise would because they believed the Fed would protect them by flooding the financial system with liquidity in the event of a downturn. If there really was a Greenspan put, it has now been supplanted by a "Bernanke put."

These puts may or may not be real, but there is no doubt that the Fed has the power to create incentives for greater risk taking. In other words, simply by doing its job to stabilize the economy, the Fed can create the risk-taking mindset that many blame for the current crisis.

And finally, there are those—including some at the Fed itself—who argue that the Fed does not have, and will never have, sufficient information to recognize a real bubble. As a result, the Fed is just as likely to stifle economic growth as it is to sit idly by while a serious asset bubble develops.

All of this means just one thing: If we are to have a mechanism to prevent systemic risk it should be independent of the Fed. That is probably one reason why creating a systemic-risk council made up of all of the federal government's financial regulatory agencies, including the Fed, has the support of Senate Banking Committee Chairman Christ Dodd (D., Conn.) and others on the committee.

The current administration isn't the only one that has been willing to hand too much power to the Fed. The idea that the Fed should have some responsibility to detect systemic risk originated with the Bush Treasury Department's "Blueprint for a Modern Financial Regulatory Structure," issued in March 2008. In that plan, the regulation of bank holding companies would be transferred from the Fed to the comptroller of the currency and the Federal Deposit Insurance Corporation. The Fed would be charged with detecting the development of systemic risk in the economy.

The idea was that the Fed's authority would be pared back in those areas where it is actually supervising specific financial institutions but expanded where its responsibilities dealt with the economy as a whole. This is a plausible idea. There is every reason to remove from the Fed's plate the supervision of specific financial institutions as well as the regulation of businesses such as mortgage brokers. As a matter of government organization, it makes a tidy package for the Fed to handle issues that affect the economy as a whole.

But piling yet more responsibilities on the Fed raises the question of whether we are serious about discovering incipient systemic risk. If we are, then an agency outside of the Fed should be tasked with that responsibility. Tasking the Fed with that responsibility would bury it among many other inconsistent roles and give the agency incentives to ignore warning signals that an independent body would be likely to spot.

Unlike balancing its current competing assignments—price stability and promoting full employment—detecting systemic risk would require the Fed to see the subtle flaws in its own policies. Errors that are small at first could grow into major problems. It is simply too much to expect any human institution to step outside of itself and see the error of its ways when it can plausibly ignore those errors in the short run. If we are going to have a systemic-risk monitor, it should be an independent council of regulators.

It is one thing to set a thief to catch a thief—as President Franklin Delano Roosevelt is said to have done when he put Joe Kennedy in charge of the newly created Securities and Exchange Commission in the 1930s. But to set a thief to catch himself is quite a different matter.

Mr. Wallison is a senior fellow at the American Enterprise Institute.

Beijing Plays Hedge Ball - A contract should be a contract

Beijing Plays Hedge Ball. WSJ Editorial
A contract should be a contract.
WSJ, Sep 09, 2009

Beijing needs to clarify whether a contract is a contract, and fast. Recent suggestions that the government might allow or even encourage companies to challenge derivatives contracts that went against them send a bad signal to foreign companies and countries doing business with China.

The controversy stems from commodities hedges gone wrong. When fuel prices were high, airlines like China Eastern, Air China and Shanghai Airlines and shippers like China Ocean Shipping crafted derivatives contracts with foreign banks to protect the companies from even higher fuel prices. Instead the price of oil has fallen, leaving the companies on the hook for the downside risk of their hedge—a total of about $2 billion for the airlines alone, by some counts.

The companies are crying foul, and several reportedly sent a letter to the banks that sold them the derivatives suggesting they may be "void, invalid or unenforceable." Worse, the government is getting into the act. The state-owned Assets Supervision and Administration Commission, which oversees these companies, on Monday posted a statement on its Web site suggesting that Beijing might countenance efforts to sue to nullify the contracts.

China has been down this road before, pushing foreign counterparties several times over the past decade to back down from derivatives contracts that had turned against a Chinese company. In those cases, the companies or the government variously argued that the firms had been illegally speculating or had not understood the risks they were taking—or even that the people signing the papers on behalf of the Chinese companies hadn't been authorized to do so. It's hard to see how such arguments could apply to the kind of bread-and-butter fuel hedging at issue here.

Policy makers might think the government holds a lot of cards in this case, and in some respects it does. While the derivatives contracts would be tough to wriggle out of legally since they're enforceable through courts in Hong Kong, Singapore or Britain, it would be hard for the banks to collect on any judgment unless they're willing to seize planes at Heathrow or Changi airports.

The banks would have strong incentives not to try, too. Regulators in Beijing decide whether the foreign banks receive various business licenses, for instance, and state-owned enterprises constitute some of the biggest bank clients. Especially since the goal could only be to renegotiate the contracts instead of canceling them, policy makers and executives might think the banks will be willing to pay that price to continue doing business in China.

But this kind of bullying is not free. Most immediately, hedging is a risk-management tool that many Chinese companies can't afford to live without. It works on trust between counterparties that each side will hold up its end of the bargain. Already banks reportedly are demanding higher collateral for derivatives contracts like those at issue here to compensate for the loss of trust. That's an added cost of doing business not faced by other airlines that take their lumps when hedges go wrong. like Hong Kong's Cathay Pacific or America's United.

This incident will leave foreign investors wondering where China stands on its road to commercial rule of law. Following the arrests of Rio Tinto executives in a dispute over ore prices, foreign businesses already have to wonder about their physical safety if they run afoul of Chinese companies in contract negotiations. Now it appears foreign companies can be in financial danger simply for ending up on the "wrong" side of a standard off-the-shelf derivatives transaction.

Beijing officials may not realize the potential effects of this controversy on Chinese companies investing abroad. Chinese mergers and acquisitions in countries like America or Australia have been controversial in large part because politicians in those countries have worried about a lack of transparency within Chinese companies, and whether those companies would play by the rules once they hit foreign shores. Politicians already predisposed to oppose Chinese investment—and perhaps some who'd otherwise support allowing such investments—will hardly take comfort from a sign that Chinese companies won't play by the rules if it doesn't suit them. If Beijing is actively trying to dissuade foreign investment, it's on the right track.

Beijing might be responding to a political storm over the notion Chinese companies have been exploited by Western banks (one wag has called derivatives "financial opium," a charged phrase in China). Or it could be trying to bail out a few companies that made bad fuel-price bets. Or some other political motivation could be at work. Whatever the cause, though, Beijing's only smart way forward is to state clearly that a contract is a contract and that Chinese companies must abide by theirs.

The jobless stimulus: It's still not too late to redirect $400 billion to business tax cuts

The Jobless Stimulus. WSJ Editorial
It's still not too late to redirect $400 billion to business tax cuts.
WSJ, Sep 07, 2009

The recession may be over on Wall Street and Silicon Valley, but on Working Family Avenue it still has a ways to run. That's the lesson of yesterday's August jobs report that showed losses of 216,000, which believe it or not is the slowest monthly decline in a year and caused the White House to praise with the faint damn that the "trajectory is in the right direction." That's the good news.

On the other hand, the jobless rate popped up to 9.7%, the highest rate in 26 years, from 9.4%, reflecting an increase in the size of the labor force. The main concern we see going forward is the slow pace of new job creation to soak up the 7.4 million workers who have lost jobs since 2007.

There are now 26 million Americans who can't find a full-time job. Average weekly hours remained at an abysmally low 33.1—which is putting a strain on family budgets. And the jobless rate including so-called discouraged workers, or those who have stopped looking, leapt to 16.8% from 16.3% in July. Meanwhile, the number of Americans working part-time who want full-time work increased by 278,000 to 9.1 million, which as a share of the workforce is larger than at any time since the recession of 1982. These are the workers that employers will tend to hire first as a recovery unfolds, so it is worrisome that this cohort remains so large.

None of this does much for the credibility of the Obama Administration's stimulus spending plan, which was sold with the promise of a jobless rate this year of "below 8%" if the stimulus were passed. That was off by some three million jobs in a mere seven months. The same economists who fretted in February that $780 billion in stimulus was too small now claim that the $300 billion or so that has been spent has somehow ignited the recovery.

But a tax-cutting stimulus would have provided much more job and economic growth for the buck, and it could even now too. If the Administration really wants to fire up private job creation, how about taking the remaining $400 billion or more and using it to lower business taxes? The unspent stimulus is enough for a two-year down payment on repealing the U.S. corporate income tax, which studies show is a job and wage-increase killer.

Congress could also reconsider its July minimum-wage increase of 70 cents an hour, which almost certainly contributed to the leap in teenage unemployment to 25.5% in August. The rate was 24% in June and 23.8% in July, before the wage hike started to price low-skilled teens looking for jobs out of the workplace. Congress would be wise to suspend the increase until the overall jobless rate falls below 7%.

Of course neither of our proposals is going to happen given the current policy views in Washington, but someone has to speak up for workers who want a job, as opposed to those lucky enough to still have them.

We still believe an economic recovery is under way, and some job growth will certainly follow. But the danger is that the U.S. will recover with only European levels of job creation. The French and Germans have had a hard time bringing down unemployment even during expansions, thanks to the burden of high taxes, regulation and onerous union work rules. The economic agenda now pending on Capitol Hill includes all three of these burdens, so it's no wonder that employers are being supercautious before they add to their payrolls.

The U.S. economy is a remarkably resilient animal, and even deep recessions have always been followed by recoveries, usually strong ones. But businesses aren't going to rehire nearly as many workers amid the current policy uncertainty. The faster Congress defeats cap and trade, union card check and the House health-care bill, the better for job creation

Industry views: The NREL’s Flawed White Paper on the Spanish Green Jobs Study

The NREL’s Flawed White Paper on the Spanish Green Jobs Study
Institute for Energy Research, Sep 03, 2009

Libertarian: There's no evidence for the theory that state spending has shortened this or any other slowdown

Big Government, Big Recession. By ALAN REYNOLDS
There's no evidence for the theory that state spending has shortened this or any other slowdown.
WSJ, Aug 21, 2009

‘So it seems that we aren’t going to have a second Great Depression after all,” wrote New York Times columnist Paul Krugman last week. “What saved us? The answer, basically, is Big Government. . . . [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why.”

This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts. It is not enough to assert the U.S. economy would have experienced a "second Great Depression" were it not for the Obama stimulus plan.

Even those who think government borrowing is a free lunch can't possibly believe the government has already done enough "stimulus spending" to explain the difference between depression and recovery.

CNNMoney recently calculated that the stimulus plan has spent just $120 billion—less than 1% of GDP—mostly on temporary tax cuts ($53 billion) and additional Medicaid, food stamps and unemployment benefits. Less than $1 billion has been spent on highway and energy projects. Commitments for the future are much larger, but households and firms can't spend commitments.

Proponents of Big Government can't say we avoided the next Great Depression due to hypothetical stimulus money that is mostly unspent. So they argue it's more important that the federal government merely continued spending and didn't "slash" spending as in the early 1930s. But the federal government didn't slash spending in the early '30s. Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling, real increases in federal spending were huge during the Hoover years.

President Obama clearly believes Big Government is the antidote to this and perhaps all recessions. At his first news conference in February, the president said, "The federal government is the only entity left with the resources to jolt our economy back to life." Yet that raises a key question: If the U.S. economy could not recover without a big "jolt" of deficit spending, then how did the economy recover from recessions in the distant past, when the federal government was very small?

A 1999 study in The Journal of Economic Perspectives by Christina Romer (now head of the Council of Economic Advisers) found that "real macroeconomic indicators have not become dramatically more stable between the pre-World War I and post-World War II eras, and recessions have become only slightly less severe." Ms. Romer also noted that "recessions have not become noticeably shorter" in the era of Big Government. In fact, she found the average length of recessions from 1887 to 1929 was 10.3 months. If the current recession ended in August, then the average postwar recession lasted one month longer—11.3 months. The longest recession from 1887 to 1929 lasted 16 months. But there have been three recessions since 1973 that lasted at least that long.

The relative brevity of recessions before the New Deal is particularly surprising since the U.S. economy was then dominated by farming and manufacturing—industries far more prone to nasty cyclical surprises than today's service-based economy.

In the late 19th and early 20th centuries, nobody thought the government could or should do anything except stand aside and let the mistakes of business and banking be fixed by those who made them. There were no Keynesian plans to borrow and spend our way out of recessions. And bankers had no Federal Reserve to bail them out until 1913. Yet recessions after the Fed was created soon turned out to be much deeper than before (1920-21, 1929-33, 1937-38) and often more persistent.

It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.

The recent experience of other countries provides another way to test the Big Government theory of economic recovery. If it is true that Big Government prevents or cures recessions, then countries where government accounts for the largest share of GDP should have suffered much smaller losses of GDP over the past year than countries where the private sector is dominant.

The chart nearby [Spending and recession depth - http://s.wsj.net/public/resources/images/OB-EH223_REynol_G_20090820211046.jpg] lists 13 major economies by the size of government spending relative to GDP using OECD figures for 2007 (the U.S. is well above 40% by 2009). Europe's big spenders are at the top, the U.S. and Japan are in the middle, and fiscally frugal countries like China and India are at the bottom.

The last column shows the change in real GDP over the most recent four quarters—ending in the second quarter for the U.S., U.K., Germany, Japan, France, Italy, Sweden and China, but the first for the rest. Four of the five deepest contractions happened in countries with the biggest governments—Sweden, Italy, Germany and the U.K. Japan's government spending in 2007 was about like ours, but Japan's tax rates are far more punitive and the economy has suffered endless "fiscal stimulus" packages. China's central government spent 22% of GDP, but 30%-plus with local government included.

To believe Big Government explains why this extremely long recession was not even longer, we need to find some connection between the size of government and the depth and duration of recessions. There is no such connection in U.S. history, or in recent cyclical experience of other countries.

On the contrary, recessions have become longer as the U.S. government (and the Fed) became larger, more expensive, and more involved in the economy. Foreign countries in which government spending accounts for about half of the economy have also suffered the deepest recessions lately, while economic recovery is well established in countries where government spending is a smaller share of GDP than in the U.S.

In short, bigger government appears to produce only bigger and longer recessions.

Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).

The Swedish Model

The Swedish Model, by Richard W. Rahn
This article appeared in the Washington Times on August 18, 2009

Do you think America would be better off with a Swedish-type welfare state? This question tends to evoke strong reactions from both the left and right, yet few understand Sweden's economic history and the revisions it has been making to its welfare-state model in recent years. Sweden was a very poor country for most of the 19th century.

The poverty of those years caused many to emigrate from the country, mostly to the U.S. Upper Midwest. Beginning in the 1870s, Sweden created the conditions for developing a high-growth, free-market economy with a slowly growing government sector. As a result, Sweden for many years had the world's fastest-growing economy, ultimately producing the third-highest per capita income, almost equaling that in the United States by the late 1960s. Sweden became a rich country before becoming a welfare state.

Sweden began its movement toward a welfare state in the 1960s, when its government sector was about equal to that in the United States. However, by the late 1980s, government spending grew from 30 percent of gross domestic product to more than 60 percent of GDP.

Most full-time employees faced marginal tax rates of 65 percent to 75 percent, as contrasted with 40 percent in 1960. Labor-market regulations were introduced to make it very difficult to fire workers. Business profits were taxed heavily, and financial markets were regulated heavily. By 1993, the government budget deficit was 13 percent of GDP and total government debt was about 71 percent of GDP, which led to a rapid fall in the value of the currency and a rise in inflation.

These policies and outcomes greatly diminished the incentives to work, save and invest. Economic growth slowed to a crawl. Other countries that avoided the excess spending, taxing and regulation of Sweden grew more rapidly, leaving Sweden in the dust. Sweden is still a prosperous country, but far from the top, and its per capita income has fallen to just about 80 percent of that in the United States.

In the late 1980s and 1990s, Sweden began an economic course correction that continues today. Marginal tax rates were reduced for most of the population, and this trend is expected to continue.

The wealth tax and inheritance tax were abolished. Financial markets, telecommunications, electricity, road transport, taxis and other activities were deregulated. Privatization of industry was begun, and the current government is continuing the process. The generosity of some welfare and other benefits has been reduced, with the goal of making work more economically rewarding relative to government benefits. Also, trade liberalization has been expanded greatly. The result has been a pickup in economic growth, and Sweden is no longer falling further behind other developed countries.

One notable success has been pension reform. Sweden was the first nation to implement a mandatory government retirement system for all its citizens. Sweden, like the United States and most other countries, was faced with an increasing, unfunded social security liability as a result of low birthrates and people living much longer. After studying the problem in the early 1990s, the Swedes approved, in 1998, moving toward a Chilean private pension system, first developed by former Chilean Labor Minister Jose Pinera. (Seventeen countries have adopted variations of the Pinerian system, which has been very successful in Chile.)

The new Swedish pension system has four key features, including partial privatization, individual accounts, a safety net to protect the poor and a transition to protect retirees and older workers. The benefits have been substantial budgetary savings, higher retirement income and faster economic growth.

Those who wish to chase the Swedish model need first to decide which model they seek: The high-growth, pre-1960 model; the low-growth model of the 1970s and 1980s; or the reformist, welfare-state model of recent years. The irony is that the current Democratic Congress and administration are rapidly emulating the parts of the Swedish model that proved disastrous and rejecting those parts that are proving to be successful.

Most Swedes now understand that they still have a good distance to go to further strengthen the market economy to ensure continued growth. Thus, they continue to move toward reducing the size of government rather than increasing it.

If the Obama Democrats were wise enough to learn from the Swedes, they would be moving toward trade liberalization rather than away from it. They would be moving to at least partially privatize Social Security. They would not seek to prevent the abolition of the death tax. They would be reducing rather than increasing regulations. They would be reducing rather than trying to increase marginal tax rates on work, saving and investment. They would be reducing the corporate income tax as was done in Sweden.

Finally, the Obama Democrats would be reducing government spending rather than increasing it and not running deficits as large as those that almost sank the Swedish economy 16 years ago.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Mount Sinai's Scare Campaign

Mount Sinai's Scare Campaign (and John Stossel's reaction). By Elizabeth M. Whelan, Sc.D., M.P.H. ACSH, August 19, 2009

ACSH's view on this issue was noted by John Stossel on his blog [http://blogs.abcnews.com/johnstossel/2009/08/teach-dont-scare.html] today:

It is nothing new for junk science to make it onto the New York Times op-ed page. But some agendas are so far outside the mainstream they have to buy their way onto the page. That's what the Mount Sinai School of Medicine did in buying a platform for their Dr. Philip Landrigan, an activist who has dedicated his career to raising anxieties about "chemicals" in the environment.

In an August 4 "op-ad" likely costing around $50,000, Dr. Landrigan rails against thousands of new, synthetic chemicals introduced over the last few decades.

He says they are responsible for a full spectrum of diseases in our children -- including cancer, hyperactivity, asthma, reproductive difficulties, and even autism. There is not a shred of evidence to back up such claims. He cites some specific chemicals that have been in the news of late: PCBs (industrial chemicals used until 1977 in fireproofing and insulation ), phthalates (plastic softeners used in a wide variety of consumer products and medical devices), and bisphenol-A (BPA, used to harden plastics and in food and beverage packaging).

He states that these and other chemicals are routinely found in the bodies of both adults and children -- and that this itself is a cause for alarm. In an attempt to gain some legitimacy for his scientifically bereft claims, Dr. Landrigan throws in for good measure the actual documented health risks from exposure to high levels of lead in paint and gasoline (which was the case decades ago but is no longer an issue) and the actual link between asthma and exposure to cigarette smoke. Even a broken clock is right twice a day.

But for all his claims that "chemicals" are not safe and have not been tested, he does not acknowledge these basic facts:

•Everything in our universe consists of chemicals. Our natural foods (yes, even organic ones) are 100% chemical in composition -- and come replete with myriad natural toxins (otherwise known as poisons) and carcinogens (usually defined as chemicals which cause cancer in high doses in animal studies). Such natural carcinogens and toxins are of no health consequences because they occur at such low doses.
•Nearly all the health claim Dr. Landrigan makes -- regarding chemicals causing cancer or "toxic effects," for example -- are based on high-level animal studies. By that criterion, he should be worried about nutmeg (which contains a natural hallucinogen and the carcinogen safrole), potatoes (which contain a toxicologically significant level of arsenic), and apples (with their own natural carcinogen quercetin glycosides)
•That we can detect traces of myriad "chemicals" in the human body should be no surprise. With today's sophisticated analytical techniques, we can basically find anything in anything. The mere ability to detect a substance does not mean that the substance poses a hazard.
•Landrigan mentions something called "endocrine disruption" and reproductive defects -- but these phenomena have absolutely no practical application to human risk. Again, the claim that trace levels of chemicals adversely affect hormone production is based only on high-dose animal studies. The allegation that synthetic chemicals cause abnormalities in reproductive potential -- including allegedly chemically-induced penis shrinking -- is derived from observations of alligators growing up in polluted Florida lakes. The human data provide no evidence of reproductive problems linked to chemicals.

In short, the paid-for Landrigan piece is alarmist propaganda masquerading as science and represents a great disservice to parents, children, and public health. One cannot help wonder why Mount Sinai let its good name be associated with this unscientific diatribe -- even allowing its logo to be included in the op-ad.

Dr. Landrigan says that our children need our protection. I could not agree more. Dr. Landrigan's false alarms contribute nothing to our children's health but do create needless distractions. Instead of scaring parents about phantom risks, we should, among other things, advocate basics such as seatbelts, bike helmets, smoke detectors, childhood vaccinations, nutritious diets, and healthy recreation. Parents who provide their kids with these should not be needlessly terrified by Mount Sinai about imaginary chemical menaces.

Dr. Elizabeth Whelan is president of the American Council on Science and Health (ACSH.org).

Don't Set Speed Limits on Trading - Why penalize efficiency? It creates deep and liquid markets

Don't Set Speed Limits on Trading. By ARTHUR LEVITT JR.
Why penalize efficiency? It creates deep and liquid markets.
WSJ, Aug 18, 2009

The debate over high-frequency trading may seem remote and irrelevant to small investors. After all, they may think, if you're only buying and selling stocks and mutual funds occasionally, what difference does it make whether some traders are able to move quickly in and out of those same stocks, squeezing an extra penny or two of profit here and there?

But this debate is not just about the rarified world of high-frequency traders, dominated by superfast computing and trading by advanced algorithms. It's fundamentally about the competitiveness and health of U.S. markets, and the ease with which all investors are able to find willing buyers and sellers. Small investors may never directly use a high-frequency trading strategy in their lives, but they have a very large stake in whether such strategies are regulated out of existence, as is now urged by some in Congress, the media and Wall Street.

High-frequency trading is, in many respects, just the next stage in the ongoing technological innovation of financial markets. Just as paper tickets for trades were replaced by computer orders, and the trading floor seen on television was made largely irrelevant by electronic exchanges, so has high-frequency trading revolutionized the way most U.S. stocks and related investment products are priced and sold.

High-frequency trading occurs when traders position very fast computers as close as possible to the stock market's computer servers to minimize the distance and time it takes for an order to pass through telecom lines. The traders then program those computers to analyze and react to incoming market data in mere fractions of a second.

Those fractions of a second translate into only slightly better margins in executing trades, but if done in large enough volume they add up to significant value. Because of that, roughly two-thirds of all U.S. daily stock volume is generated by high-frequency traders.

Due to the rise of high-frequency trading, investors both large and small enjoy a deeper pool of potential buyers and sellers, and a wider variety of ways to execute trades. There are today more than 30 execution venues—ranging from established global exchanges to a plethora of specialized markets—catering to the particular trading needs of institutions and individuals. Choice abounds, and investors now enjoy faster, more reliable execution technology and lower execution fees than ever before. All of that contributes significantly to market liquidity, a critical measure of market health and something all investors value.

Normally, this revolution in trading would be welcomed, but the practice of "flash trading," which has recently garnered negative headlines and regulatory action, has led some market observers to condemn high-frequency trading as a whole. This is a mistake. While I support the move to ban flash orders because they have the potential to undermine the goals of market competition, that does not mean we should demonize or regulate out of existence all high-frequency trading.

Some in Congress have suggested a tax on all trades of up to 25 basis points per trade, which would raise the per-transaction price on the purchase of a $20 stock to five cents from less than a penny now. Such a tax has been tried before—from 1914 to 1966, there was a transfer tax set at 0.2% on stock trades. But that expense was simply passed on to investors. Today, a tax on each stock transaction would probably drive high-frequency traders, and the liquidity they bring, to foreign markets.

Others simply assert that all high-frequency trading has no moral or underlying economic value, and that high-frequency trading is simply a game for those who want to profit from getting access to data a split-second ahead of someone else. The Securities and Exchange Commission should ignore these complaints and the caricature that has developed of high-frequency traders.

These traders have developed systems to allow them to beat the competition to displayed quotes. They have taken available space near the markets' data servers to squeeze time out of every transaction. These traders continuously look for inefficiencies, and by exploiting them, correct them. I see nothing sinister or unfair about the advantages that come out of their investments and efforts.

We should not set a speed limit to slow everyone down to the pace set by those unwilling or unable to compete at the highest levels of market activity. Investors large and small have always been served well by those looking to build the deepest possible pool of potential buyers and sellers, make trades at a better price, and all as quickly as possible.

More liquidity, better pricing and faster speeds are the building blocks of healthy and transparent markets, and we must always affirm those goals.

Mr. Levitt was chairman of the Securities and Exchange Commission from 1993 to 2001.

We Don't Spend Enough on Health Care

We Don't Spend Enough on Health Care. By CRAIG S. KARPEL
It's crazy to adopt a bean-counting mentality amid revolutionary, albeit expensive, advances in medicine.
WSJ, Aug 16, 2009

Americans are being urged to worry about the nation spending 17% of its gross domestic product each year on health care—a higher percentage than any other country. Addressing the American Medical Association in June, Barack Obama said, "Make no mistake: The cost of our health care is a threat to our economy." But the president is mistaken. Japan spends 8% of its GDP on health care—the same as Zimbabwe. South Korea and Haiti both spend 6%. Monaco spends 5%, which is what Afghanistan spends. Do all of these countries have economies that are less "threatened" than that of the U.S.?

No. So there must be other factors that affect the health of a nation's economy.

Mr. Obama has said that "the cost of health care has weighed down our economy." No one thinks the 20% of our GDP that's attributable to manufacturing is weighing down the economy, because it's intuitively clear that one person's expenditure on widgets is another person's income. But the same is true of the health-care industry. The $2.4 trillion Americans spend each year for health care doesn't go up in smoke. It's paid to other Americans.

The basic material needs of human beings are food, clothing and shelter. The desire for food and clothing drove hunter-gatherer economies and, subsequently, agricultural economies, for millennia. The Industrial Revolution was driven by the desire for clothing. Thus Richard Arkwright's water frame, James Hargreaves's spinning jenny, Samuel Crompton's spinning mule, Eli Whitney's cotton gin and Elias Howe's sewing machine.

Though it hasn't been widely realized, the desire for shelter was a major driver of the U.S. economy during the second half of the 20th century and the first several years of the 21st. About one-third of the new jobs created during the latter period were directly or indirectly related to housing, as the stupendous ripple effect of the bursting housing bubble should make painfully obvious.

Once these material needs are substantially met, desire for health care—without which there can be no enjoyment of food, clothing or shelter—becomes a significant, perhaps a principal, driver of the economy.

A little-noticed feature of the current recession is the role of the health-care industry as a resilient driver of the general economy. Health-care now accounts for 10.4% of nonfarm employment. Health-care employment grew by 19,600 jobs in July 2009, on a par with the average monthly gain for the first half of 2009, which was down from an average monthly increase of 30,000 in 2008. Remarkably, these gains occurred in a period during which total employment shrank by 6.7 million.

The U.S. health-care economy should be viewed not as a burden but as an engine of growth. Medical and orthopedic equipment exports increased by 65.1% from 2004 through 2008. Pharmaceutical exports were up 74.6%. The unprecedented advances expected to come out of American stem cell, nanotechnology and human genome research—which other countries' constricted health sectors cannot support—will send these already impressive figures skyward.

A study by Deloitte LLP has found that more than 400,000 non-U.S. residents obtained medical care in the U.S. in 2008, and it forecasts an annual increase of 3%. Some 3.5% of inpatient procedures at U.S. hospitals were performed on international patients, many of them escaping from Canada's supposedly superior health system.

"Inbound medical tourism," Deloitte stated, "is primarily driven by the search for high-quality care without extensive waiting periods. Foreign patients are willing to pay more for care within the United States if these two factors play a large role." The deficiencies of the foreign health-care systems the Obama administration wishes to emulate can be counted on to generate ever-increasing revenues for U.S. providers and employment for Americans.

In a 2007 study, Stanford University economists Robert E. Hall (who will take office next year as president of the American Economic Association) and Charles I. Jones reported that modeling they've conducted has found that mid-21st century U.S. health-care expenditures would optimally amount to 30% of GDP or more. They wrote:

"We examine the allocation of resources that maximizes social welfare in our model. We abstract from the complicated institutions that shape spending in the United States and ask a more basic question: from a social welfare standpoint, how much should the nation spend on health care, and what is the time path of optimal health spending? . . .

"Viewed from every angle, our results support the proposition that both historical and future increases in the health spending share are desirable. . . . [W]e believe it likely that maximizing social welfare in the United States will require the development of institutions that are consistent with spending 30 percent or more of GDP on health by the middle of the century."

The administration's health-care plan is biased toward bean-counting rather than designed to maximize American physical and mental well-being. We need to ask ourselves whether there is truly anything more valuable to us than our loved ones and our own health and longevity.

In the signature radio sketch of Jack Benny, whose performing persona was laughably frugal, actor Eddie Marr snarled at him, "Don't make a move—this is a stickup. Now, come on: Your money or your life." Benny didn't respond. The "robber" said, "Look, bud—I said your money or your life!" Whereupon Benny shot back, "I'm thinking it over!"

Confronted for the first time in history with a constant stream of medical innovations that are marvelously effective but tend to be very expensive, our legislative representatives—in particular, the Blue Dog Democrats—would do well to stop "thinking it over" and to commit themselves to action that will preserve the ability of Americans to choose life over money.

Mr. Karpel is the author of "The Retirement Myth" (HarperCollins, 1995).

Arizona’s Budget Breakthrough - An alternative to California’s tax and spend model

Arizona’s Budget Breakthrough. WSJ Editorial
An alternative to California’s tax and spend model.
WSJ, Aug 11, 2009

Perhaps states are starting to learn the right fiscal lessons from the red-ink blowouts in high-tax California and New York. Today, the legislature in Arizona will vote on a tax reform designed to entice more employers and high-income taxpayers to the state. Sponsored by Republican Governor Jan Brewer, the plan would cut state property taxes, the corporate tax and personal income taxes, in exchange for a temporary rise in the sales tax.

Most economic studies agree that states have more jobs and higher income growth when they tax consumption rather than savings, investment and business profits. This explains why most of the nine states with no income tax at all—such as Texas, Florida and Tennessee—have been economic high-flyers in recent decades.

Ms. Brewer’s proposal reflects this economic logic. Effective January 1, 2011, her plan would reduce the state’s corporate income tax rate to 4.86% from 6.97%, which would be one of the largest business tax cuts in the nation in recent years. The proposal also cuts all personal income tax rates by 6.6%, thus lowering the top marginal rate to 4.24% from 4.54%. A hated statewide tax on commercial and residential property would also be abolished.

Arizona has been hit especially hard by the housing slump, and its budget woes were compounded thanks to former Governor Janet Napolitano’s spending spree before she joined the Obama cabinet. On her watch the budget grew by more than 50% in five years—to $10.2 billion from $6.5 billion in 2004. The state now has a $1 billion budget gap, and to close it the legislature will also vote on a one percentage point increase in the sales tax to 6.6% in 2010 and 2011; in the third year the sales tax would fall to 6.1%, and in the fourth year would revert to its current 5.6% rate.

We’d rather see the legislature cut more spending than raise the sales tax, but on the other hand the sales tax would only take effect if it is approved on the November ballot. The political class is giving voters a say in the matter. The sales tax increase also has the advantage of a built-in expiration date, while the tax cuts are permanent.

Democratic opponents are calling this a tax giveaway to big business. But lawmakers needn’t apologize for trying to retain Arizona’s status as a business-friendly state—particularly when jobs are so scarce. Small employers also benefit from the lower property tax rates and the personal income tax reductions. Lower tax payments will enable them to reinvest more in their enterprises.

The opponents should consult a new study of state business taxes by former U.S. Treasury economist Robert Carroll for the Tax Foundation. He examined 50 states and found that states with lower corporate tax rates have higher wage gains and more productivity over time. This tax cut sounds like a high-return investment.

Republicans control both houses of the Arizona legislature, and as we went to press the main obstacle to passing the reform was the Arizona Senate’s antitax conservatives. They oppose the higher sales tax. These Republicans should look to one of the triumphs of the Reagan Presidency, the 1986 tax reform, which broadened the tax base but substantially lowered tax rates and thus sustained the 1980s expansion.

Arizona has the chance to be the anti-California, closing the budget deficit by growing the economy, not by raising taxes. We hope legislators don’t blow it, because the U.S. desperately needs an alternative to the tax, spend and tax again philosophy of Sacramento and Albany.