Welcome to Cato Audio for July 2024. I'm Caleb Brown. In this month's offering, we discuss the life and legacy of David Bowes, who passed away last month at the age of 70. We'll bring you a detailed discussion of the interplay between big firms, small firms, and antitrust laws. Cato's Michael Cannon details some of the complicated issues surrounding prescription drugs and Medicare. Cato's Scott Lincecum shows why electric vehicle subsidies don't easily escape the typical problems of industrial policy. And I speak with Daniel Raisbeck and Ian Vasquez about the Cato Conference highlighting the rebirth of liberty in Argentina and beyond.
First, this month's Kato Roundtable. In June, the Cato Institute lost one of its most dedicated and principled advocates. David Bowes was Cato's longtime executive vice president, passed away at 70. I first met David via email when I was a college student. Learning that he was from Kentucky made us fast friends, and 12 years later, I came to work with him here at Cato. For this Cato Audio Roundtable, I bring you an episode of the Cato Daily Podcast in which I speak with Aaron Ross Powell, the founder and longtime director of libertarianism.org, and Cato Institute senior fellow Tom Palmer about our friend and colleague, and perhaps the leading advocate for libertarian ideas of the last several decades, David Bowes.
Before I came to work at the Cato Institute, I already knew David Bowes. In fact, I already knew David Bowes in a sense before I ever met him. I had read books that he had edited. Most notably in high school, I had a dog-eared copy of The Crisis in Drug Prohibition, which was a collection of essays from a wide variety of people across the ideological spectrum, all making one element of the case against our counterproductive, devastating war on drugs. And I met David via email when I was just a freshman in college.
and became his friend before I became an employee at the Cato Institute. But throughout all of that time, he has always loomed large in terms of being an exponent of, a great communicator of, and a great thinker about the ideas that we in this room hold very dear and believe are key to human progress, to human flourishing, and to harmony and peace in society. Tom, if you don't mind, could you talk about David Bowes and how important he was to liberty? I would rephrase it ever so slightly how important he is to liberty because his books and lectures are still with us and worth learning from. One of the things that characterized David was a clear adherence to principles and to the public good, not just looking at what's good for me, but what is the right thing to do? How should a society be governed so it's cooperative and voluntary and has space for everyone to live their lives as they want, to go to this church or that church or synagogue or temple or mosque, to live the way that you want and to do so in a common framework, as you pointed out, of peaceful cooperation with others. So David maintained principle. You mentioned the war on drugs. He never...
as far as I know, ever sipped a beer? whiffed a marijuana cigarette, had his cigarette. He had no intoxicating substance other than one that he was devoted to, which was Coca-Cola. Aside from Coca-Cola, his only vice, he didn't engage in any, but he thought it was wrong to imprison people, to put them in cages, to smash down their doors and shoot them, as happens with our war on drugs, because they own a plant or because they do something that might be harmful to themselves, but is a victimless crime. There's no complaining victim. And so he really spent a lot of time on this because of his belief in justice and freedom and moral responsibility.
And that, I think, is one of the enduring lessons. People often would attack advocates of legalization of marijuana, oh, a bunch of potheads. They could never do that to David. I don't know if he could really identify what a marijuana cigarette smelled like. But for him, it was a matter of clear principle about what is the right thing and how should we treat other human beings.
a gift that he gave to all of us. And any particular writing of his that you think is especially valuable? I mean, he wrote so much stuff over the years. And of course, his book, The Libertarian Mind, which will be a third edition, which started years ago with his previous book, which was a manifesto of sorts for libertarian thinking and how libertarians think about the world. But is there a piece of his that you think is especially important? Well, in addition to The Libertarian Mind, and there's no edition that's updated with the most recent data and so on, I think his later speeches where he
tried to set a historical framework, his lens widened or his vision on the world as he got older. One thing is you often meet very young people who say, oh, the world's all terrible, everything's getting worse every day, because in the course of their lifetime, that may be the case. Certainly, politically, there's been a retrogression about freedom in the U.S. and many other countries around the world in the last decade. And if you're 18, that decade started when you were eight, your whole life, things look worse in this regard. And David wanted to pull back and say, let's look at the whole picture and the tremendous strides and how terrible life was if you were born 400 years ago, even in a fabulously wealthy family, compared to what the poorest among us today can enjoy.
In terms of the obvious thing like dentistry, what person today would want the dentistry available to the richest people in the world 50 years ago or even 30 years ago? The strides have been so enormous. So he would widen out and then make the case that the achievement of liberty and limited government is not just the natural state of humanity, like some natural equilibrium. It's an achievement. It's something that people worked for and fought for for generations. And now it's our job. It's our task to pass this on to future generations. You know, in that spirit, Aaron, I can recall David Bowes talking about maybe some group of conservatives.
pointing back to something like the 1950s as some sort of ideal era in a sense. And David was very quick to point out, well, that may be true if you were a white man, but if you were a minority or you were a woman or you were gay, the 50s is not a place to point back to and say that was the good time because there was still significant progress to be made on behalf of individuals at that time. Yes. And tying that back to your opening question about the importance, the ongoing importance of David to this movement, I think that's exactly the message that he hammered home. It's very easy to love your own liberty and think that the world is free when you feel free. But being genuinely principled libertarian means recognizing.
how many other people are not free and insisting on freedom for them, not settling just because you're comfortable, but saying those people over there are uncomfortable and that needs to be fixed too. And when you ask about the writings that are important, it is obviously the primer and then the libertarian mind. But he wrote essays when I was at Cato, when I was a staff writer, he wrote a series of essays pushing back on this narrative common among a lot of libertarians that the high watermark of freedom in the United States was the 19th century, when the federal government was rather limited and taxes were rather low. And I think that the enduring legacy of David is to say, look, this is a movement and a set of ideas that was catalyzed by struggles for religious freedom and for abolition.
Lower taxes, lower regulations are important. They're a big part of libertarianism, but they're not the whole ballgame. And if you stop there and you say, well, if taxes are low and regulations are low, we're good, or I don't care about the other impositions of power, then you've really missed fundamentally what libertarianism is. And so to say, the 18th century was great, but then as David would point out, unless you were a woman, unless you were black, it wasn't great for gays until relatively recently, and now it's kind of turned again. And that is...
at least as central to this set of ideas as to the baseline stuff that gets privileged. Tom, I want to point out, you talked about David's... insistence on people looking at sort of the broad sweep of history, especially in the last year or so in some of his speeches. A book that was very important to me and one that I think will continue to have really enduring value is The Libertarian Reader, which walks you through a very long history of individual moments of intensely liberal thought. And you worked on that. Can you talk about that a little bit?
Yes, one of the points was to show that these ideas are instantiated in multiple cultures, not just what is called Western civilization, but also other civilizations as well that have had these ideas of personal freedom and moral agency and responsibility, which are the core ideas of the Liberty Movement, the idea of moral agency. We are choosing beings. And so having writings, poetry from Lao Tzu, the great Chinese sage talking about how order emerges spontaneously. This is many hundreds of years before Adam Smith. And also other voices that are part of the American founding. Frederick Douglass, most notably. The excerpt from his July 4th oration, which is in the book, is very powerful, which says it's not just about articulating the ideas that were in the Declaration of Independence, which David considered one of the most eloquent and beautiful statements of these principles, but applying them and insisting.
It's for everyone when it says all men are created equal. First, it's not gendered. English is curious of this way. It means all human beings. And it doesn't just mean people like me, people of my religion or faith or color or ethnicity. It means everybody. This is a promise made to everybody. And Frederick Douglass said, we want to see this promise fulfilled. That's all. We're not demanding anything more than just that. So including those voices gives a much fuller sense of what liberty is about. There are also chapters that explicate in very readable style.
How order emerges in society without a dictator? For many people, that's hard to comprehend. How can there be order without someone who made the order? Like you see a beautiful garden, you ask, who's the gardener? But society isn't like that. The order emerges as an outcome of the voluntary interaction of untold numbers of people.
And it's not planned. We never know what's going to happen next. And that's actually one of the beautiful things of a free society. It's much more creative than these planned, hierarchical, pyramidally shaped orders where the dictator sends down the commands to people. So the book gives really a broad spectrum that's historical, but it's also thematic, talking about rights, talking about order, the rule of law, the role of constitutions, and setting the framework of the rules of voluntary interaction. And finally, peace, which is one of the important outcomes, peace among nations and peace within nations among different groups, ethnicities, religions, and so on.
One of the pieces that I point to, and I will include several of these in the show notes for this episode so you can look there for them, was testimony that David gave, I believe it was in the late 1980s, talking about funding for the arts, that is the government having some direct role in deciding what was art and what wasn't. And the line that stuck with me from that testimony was David saying, do we really want to emulate the Medici's of Rome? The government that funded the arts and also was somewhat tyrannical. But that always stuck with me as looking back and saying, look, this is a risk here of having the government be involved in this really important creative enterprise. The first thing we need to decide what's beautiful is a government committee, of course. This was a perspective that David brought.
consistently because he studied history in college. I spent a lot of time over the last couple of weeks at his house, and it is overflowing with history books. And I think one of the core messages of his kind of libertarianism was This thing that you are proposing, government getting involved in funding the arts, which means necessarily carving out what is art that can get funding and what isn't art that does not qualify, but it also calls for supporting, say, journalism and news with public dollars, runs into similar issues, was being able to point to, look, this has been done before many times. Here are the historical narratives of it, and it hasn't worked. And I think the value in that is that it pushes back against, it's easy to accuse libertarians, and he was certainly accused of this as, you just don't care about the arts. You just don't, you don't care if we have this stuff or you don't care about if we have education because you oppose public schools or you don't care if we have journalism, you don't oppose public support for it. Or you don't care about people having healthcare because you oppose having the government run it and on and on and on and being able to say, no, like the reason that I oppose this is precisely because I care about a flourishing ecosystem of art or widespread access to care or high quality education. And here is the historical evidence for.
for why you're not going to get what you want. So you can acknowledge shared goals of a better world would look like this, but what you're offering up, we know from the historical evidence and the economic evidence and the philosophical side of it and so on, is not going to get you what you want. So here's a better way. You know, there was a lecture he attended. He used to love to go to these very serious lectures by historians, Gordon Wood and people of that sort, and listen and think about them and sometimes make notes to himself of challenging issues to follow up on. He once attended one by Richard Dawkins, evolutionary theorist. And Dawkins, kind of militantly atheistic and dismissive of religion, he said he didn't understand how in America, with no state support or subsidies to religion, there's so many churches and so much religion, unlike in many European countries where they're state funded. And people don't go to church. That's exactly the point. And David was...
flabbergasted that an evolutionary theorist couldn't understand why the competition among churches to be able to offer solace and spiritual meaning to people's lives would generate more church attendance when it's voluntary. And you feel that you're needed as a part of the community. When the collection plate comes around and children put a 25-cent coin into the collection plate, it means we're part of the community. In Germany, it's all funded by the church tax, and people are offended if you ask them for money for participation in church. And David saw that connection, that the volunteerism was what created this dynamic.
a set of institutions that actually serve people and provide spiritual meaning to them as opposed to turning them into bureaucracies. But Dawkins, despite all of his learning and intellect, could not understand that simple point. So in terms of, I guess I want to move this a little bit more to the personal if I can. And as I said, I met David when I was a freshman in college via email. He emailed me.
which was already a pretty notable thing to me. This was pre-Google. This was at a time when finding information about people online was maybe a little more difficult. But I had some probably bombastic writing on my university-provided web space, and he emailed me and just wanted to know more about libertarians in Kentucky and whether or not there were some. Of course, David was from Kentucky, as I learned later. He was from a small town about 15 minutes away from the town I went to high school in. And we stayed in touch for a long time.
And that's actually how I got here. That's how I'm sitting here with you is because David and I maintained a communication. Both of you, I hope, can speak to this, which is he always seemed to be extremely interested in identifying and cultivating people who thought well about these ideas and had something to contribute. always was focused on that next generation of the liberty movement. He always made time for Students for Liberty. His last public speech was in February at Students for Liberty event here in DC. Which was a podcast I just put out a few days ago related to that. Yeah, it was a terrific speech. And he simply, I think, recognized that it's hard to be, ours is not a large movement. It's one that is not terribly popular among young people.
Sometimes when it is, it's in forms that we maybe don't want to encourage. And so he put real effort into finding that talent. And then, and this was my experience with him when he hired me out of law school. He didn't reach out to me. I just applied and I had no history of, I'd done nothing. I had not volunteered for campaigns. I had some public writing on a blog, but no formal publications.
I had not been active in campus libertarianism, but I think he just spotted something worth cultivating. And the experience of working for David, and this is an experience that I've just heard countless times from other people, was... Once he decided there's something there, the generosity of time and energy that he would put into mentoring to just saying, I can give of myself to this person to help this person become what I think they're capable of becoming was extraordinary. I hold as an example of the younger people who have worked for me over the years trying to do the same because our movement depends upon exactly what David spent.
He gets the credit for the books. He gets the credit for the media appearances. But I think ultimately, David's legacy is exactly that, is the people that he identified and the people that he influenced and the people he gave his time to who then can go on and carry on the mission that he dedicated his life to. One of the reasons for that is that David was never snobby, never snooty, never thought he was above somebody else. And so when he found someone who was interesting and interested, in these principles that were so dear to him, he would reach out and be encouraging. And it might be a teenager. It might be a middle-aged person. The person might be from Kentucky or New York or from Nigeria or Indonesia. And he was gracious and encouraging. And he would also show an interest in what they thought, which is really flattering if you're a college student. And some person, you know, when you're 18, anyone 45 and above seems ancient. So when an old person writes to you out of the blue and says, I saw you wrote this piece, congratulations, well done.
and so on, it really is, well, it's life-changing for many people. And the fact that he never thought that he was above other people in this regard, I think is a character trait worthy of emulation. There was no job that somehow he was above. There was no person that he felt he was superior to in this regard. And so he showed respect to people and encouragement. And the last point, especially with regard to younger people, because he did have a feeling of generations passing the baton to the next. This is, of course, as he got older.
increasingly important. And so he was very encouraging to young people and hoping that they would make a 50 plus year commitment to liberty as he did. That's sort of thematically ties back to what you were talking about, Tom, which is the broad sweep that David viewed in part his role to explain and detail and give people that sort of perspective about how far humanity has come and how important freedom is to harmony in society. And because he is gone now, a friend of mine said recently in regards to David that he was careful to plant trees that he knew that he would never see at their full power. That's right. But I should add one other dimension to this that's worth remembering. He didn't do it as a duty, a burden. It was fun.
He loved it. One of the saddest elements of losing David is he really loved life. He enjoyed it. As he said, he always wanted to see what was going to happen next and to see all the surprises that human life and social interaction would throw up. And he had fun doing it. And so that was an important part of his approach. It was something you did consistently, even though you knew you wouldn't see all the results in your lifetime. But he had a lot of fun doing it at the same time. And he wanted to share that enjoyment of life and of ideas. He loved sparring back and forth.
If you argued something he agreed with, he'd come up with all the counter arguments. OK, what about this? What about that? How would you deal with this problem? Oh, come on, come on. That seems to you're going out on a limb here. Show me your argument for this. And that for him was also just a joyous intellectual activity. The number of hours I spent in his office arguing with him and was a second and profound education. And you're right. He just simply loved it. And I think that's how he picked out, you know, when he'd interview people. Everyone who interviewed David, it was a.
A moment in their lives they will never forget because it made an impression. And all he would do is he wouldn't ask you at all the standard HR questions of how did you overcome a challenge or tell me about a time you failed, etc. It was just, I'm going to see how much you know about. libertarian ideas and how quickly you can think on your feet about them. And part of that was he's picking people who are going to be expressing ideas on behalf of the organization that he had spent much of his life building, and he wanted to make sure they were going to do a good job of it. But to your point about it being fun, he was also choosing people that they were going to be colleagues and that he wanted to talk with. And he just loved wrestling with these ideas. And as you said, it was a humble way. He wasn't looking to win the arguments. He wasn't looking to proselytize. It was just...
I don't think there's anything he enjoyed more than simply wrestling with ideas, bouncing ideas off of someone, refining them, seeing where it went. It was just, he loved it. Let me say something in relation to that with regards to David as a manager. Because David was my friend first before I worked at the Cato Institute, I feel like I had a better sense of how he was and how he talked about things. Very direct. Really just brought the full-throated argument of something he might disagree with to you and say, how do you respond to this?
And so when young people or people who were new to Cato would say, I've got to talk to David Bowes about this thing, and I really want to do this, but I don't, you know, he's just a very intimidating person. And I always thought that was kind of funny that people viewed him that way. But at the same time, my advice consistently to those people was, well, are you right about the thing that you would like to do? Well, yes. Can you articulate that clearly and concisely? Yes.
Well, then you don't have anything to worry about because if you are right, ultimately, and David will actually sit there and he will ponder it. And then if you're right, he will immediately accept what you have to say. And rank or title or whatever within the organization was utterly irrelevant. And that's something I really admired about him. We had a couple of reasons why some people were.
unfortunately a little intimidated if they're colleagues. He could spot a typographical error at 20 paces. It was astonishing. He just saw them. Everyone else had gone over it. Bingo. He could open a book and look at the pages and instantaneously say, well, that's wrong. This citation is incorrect. And that's misspelled. It's just astonishing. Without what I have to do, I have to read line by line. I read the pages and something jumps at him. He would just look at it. Somehow it all came into his consciousness.
He was doing you a favor in spotting these things, but people felt, oh, my God, he's attacked me. But he wasn't. He was being helpful. The other thing is he was able to, in private, tell people when their work was not up to snuff and to say, you can do better than this. This is not good enough. This is the Cato Institute. And we have higher standards. Go back and redo this. And he didn't do it publicly. There was no berating and so on. He had the right HR attitude in that regard. You praise in public and you correct in private. But he helped so many people to be better at what they do.
There was a time when he was writing the first draft of the primer, and I was working full-time at Cato, that for six months he took off. I took over a portion of his responsibility, which was to read every study and paper produced by the Institute and give the final okay after it had gone through race groups, and sometimes rejecting things, saying this just doesn't meet our standards and we're not publishing it. It was exhausting, but David did that for decades. every single paper. It had gone through reviews and peer reviews and so on. And then he would look at it and make that final determination whether it should be sent back for revision, whether it should be published, or whether it just shouldn't be published at all. And the ability to do that and remain sane after decades is a testament to his spirit. It was also very libertarian in terms of the values that he wanted to advance in the world because his worldview was people can achieve.
incredible things. And as a manager, that very much applied. I think he got what made him. He's the best boss I have ever had. And one of the things that made him a good boss was he recognized that the role of a manager is not to be like the officious state and tell the people beneath you what to do. Because if you have to tell the people beneath you what to do, you've failed as a manager. Because either you failed in hiring, because you shouldn't be hiring people who don't know what to do or need to constantly be told, or
You've hired people who do have good judgment and you're overriding it and you're interfering with their ability to do what they know is right based on their on the ground knowledge. And so instead, he set very high standards. He held people to those standards, but then he just poured an enormous amount of his time into helping them meet that. And so, yes, when he'd spot those typos for you or when he'd critique the arguments, it was because he knew that you could do better and he knew that his job was to bring you up to the level that he saw you were capable of. related to that was a deep sense of a kind of moral propriety, that how you represent the ideas of liberty matters. And it has to be done in a way that brings credit to them. So in a very small way, when I've talked to the interns at Cato and so on, I always say, people will judge you by how you present yourself. And if your work is sloppy and trashy looking, that's how they assume that's how you're thinking. And so if you see a...
plastic bag on their front lawn, go pick it up. The president of the K2 Institute goes and picks it up and puts it in the trash. The president does it. I can do it. You can do it. We can all do it. But it applies also to how we present our arguments. We do not question the motives of other people, even if privately we might think they're dodgy, because that's not the way that you engage with people. Start by assuming people you disagree with have the highest of motives, and then look at what they've argued, think about it, understand it. If you think it's in error, if it's wrong, explain why clearly, but never engaging in personal invective.
always directing yourself to the arguments and the evidence and assuming good motivation. This was extremely important to David, and it set the tone for the Cato Institute as well. Aaron Ross Powell is host of the Reimagining Liberty podcast and was founder of Libertarianism.org, a project of the Cato Institute. Tom Palmer is a senior fellow at the Cato Institute. Antitrust is regularly cast as a range of efforts to restrict only big business, and restricting purchases of smaller firms are meant to help the broader market. So what are the impacts of antitrust on smaller firms, bigger firms, and ultimately on consumers?
Cato's Jennifer Huddleston and Will Reinhart of the American Enterprise Institute hashed out some of the arguments. There's often been this critique that there's some sort of kill zone or killer acquisitions going on in the tech sector and that this is one of the reasons that we need antitrust changes or competition policy reform. You've been critical of this idea. What do you think this idea of a quote unquote kill zone in technology misunderstands about the startup ecosystem or about the nature of mergers and acquisitions or about the exit options that are available to companies of all sizes? Yeah, thank you, Jennifer. I'm glad to be here. Thanks for the invite. There's a lot that's going on here. And this question that you've suggested and you kind of laid out here is big because there is so much interesting or a number of interesting things rather that are happening here within the startup ecosystem and its relationship to say the larger innovation ecosystem. And to me, those are slightly different things. But I would say largely, as you mentioned, I've been writing and thinking about this idea of the kill zone. And I'm kind of convinced, or at least I'm pretty well convinced, that kill zone is really twinned with another idea, which we call killer acquisitions or a killer acquisition rather. And killer acquisitions really are this kind of...
uh issue that affects kind of the the exchange between two uh you know two companies so writ large right a killer acquisition is when an incumbent effectively tries to buy a small company to shut down a new product. Now, there is an opposite reaction to that, which is an acquisition to continue, which is, again, is when an incumbent buys a small company to expand the acquiring company's products. And these two tensions between an acquisition to continue and acquisition to kill really define this killer acquisitions idea at large. So you've got the killer acquisition. It's very much this notion that's central to a deal between an incumbent and another company or largely between two companies. So it really is internal to the exchange or internality, as economists call it.
But then there's this externality, which is what I call the kill zone. I think a lot of people are talking about when they describe the kill zone. And the sense is that, you know, the kill zone is an externality to this exchange, which is the effect in the larger industry. And what we really mean here, what I mean here is that, say, a deal, say, Google or Facebook or, you know, Microsoft buying a smaller company has a bigger effect on the industry itself and changes innovation and startup culture writ large because of that, you know, because of that deal, because of buying that specific company. What I think we found is that these two tensions, the kill zone and killer acquisition, have really been a constant conversation that has gone on in Silicon Valley.
kind of ramped up in 2012, I'm sorry, in 2018 and 2019. And I think that especially since COVID, we've had a kind of a shift in a number of different spaces, but we've also had a lot of really good data that's come out to understand this issue much, much broader. So the one that I really look for on, or at least that I've been relying upon with killer acquisitions is this interesting survey by Gautier and Lamesh. This is 2020, and they surveyed the 175 companies that were acquired by all the big tech companies, right? Google, Apple, Facebook, Amazon, and Microsoft from 2015 to 2017. And what they largely found is that these companies strengthened their core markets. So you would consider it as an acquisition to continue, right? It's not a killer acquisition for most of these.
companies that were bought by the bigger firms. But there was probably one, and perhaps maybe even as many as five, different cases or deals that would actually be considered a killer acquisition. That number, that five number is kind of a tough balance, but they thought, this paper thought in particular, that there was really one good case for this. That seems to me, and I think that what we're seeing largely, and this kind of the original killer acquisitions paper and the literature of which there's an executive order based upon it, all of this material, all of this research, really suggests that it's probably, you know, it occurs. It's not to say that it doesn't occur, but it does only under very specific conditions, and it's probably not all that consistent, or at least it's not all that common.
within the big tech markets that we talk about. Now, there is something that's different that's going on in more patent-derived technology spaces, which we can talk about further. But that's also another thing that I think is important here as well, which is to look at the industries, right? You really do have to look at the industries. And again, this is kind of where this kill zone notion comes into play. And the kill zone, again, is this really is how the deal or how a series of deals might affect the industry itself. And again, we have pretty good research, or at least we're having a beginning of research. This happened really in 2022 from Prado and Bauer. And what they found is that when they looked specifically at VC deals, and now that is a limited set, what they found is that there was
a pretty persistent impact of big tech startup acquisitions to invest in startups of similar industry segments whenever something is bought. So basically what that's suggesting and what the literature at least now is suggesting is not that there's a kill zone in these industries when, say, Google or Facebook come in and buy a company, but rather it shows that there's interest in that, you know, because they're frontier firms, because they're leaders in their space, obviously there's interest in doing something here, right? That this is a new hot market. And what at least the Prado and Bauer's report suggests and the literature that comes from them really suggests is that there is this sort of like knock-on effect that it really shows that there's interest in the industry and that it's actually, you know, generally positive and not negative, as you might think. The one last thing I would say before kind of getting in really, really quickly on the startup industry, there has been some research that has come out of the FTC, which I think probably needs some more analysis. This is really, they recently released the end of last year, they released a report on all of these, you know, smaller companies and smaller deals that didn't come up to the normal threshold for antitrust review for merger review. That I think is an interesting report we could get into. This is the Hart Scott Rodino report that was put out. And I think what's really, really interesting about that report for people who are watching this very clearly is that the deals actually seem to cluster right around the 10 to $25 million level. And they actually taper off as they approach.
the Hartscott-Rodino threshold, which occurs over time, which suggests to me that you probably have this threshold, this issue that the Hartscott-Rodino threshold actually creates a hard cap and that basically they're trying to get companies below this cap probably isn't actually the case. They're in fact probably looking for companies within this like $10 to $25 million space. But again, that's kind of, you know, it's really top line levels. And the last thing I would suggest and where I think this really comes to Roost is on startup economy and what this means for the startup economy and really I kind of think why we're here, which is that we're trying to understand and maintain a competitive startup economy because we know that these companies often can become the largest players. They can...
you know, they can help with labor, they can be supporters of the innovation economy and support jobs. And so there's an important part here of ensuring that business dynamism is maintained. And I think that one of the ideas or one of the interest is going after this sort of area, right? These deals, the acquisition deals. And I think the big thing that I find interesting, especially since COVID is that business dynamism is pretty largely up. And we really have seen this in 2020. There was a huge increase in the number of US startups. It shot up something like 24% relative to the previous year. This is unlike the rest of European countries and basically unlike the rest of the partners. And really what this shows me is that there is these broader macro level trends. And my tendency is that there's these broader macro level trends.
really driving the startup economy in business dynamism and then also in the business and acquisition space, which I think complicates this picture pretty dramatically. And fundamentally what it means to me is, especially when we're looking at changing some of the ways in which antitrust and mergers and acquisitions traditionally have been dealt with, or broadly speaking, the antitrust regime has been dealt with. But I think that we should be a little bit more skeptical considering just how big these macro level impacts can be. But there's a lot of nuance here, and I don't want to suggest that there's any good trends that can be really captured very, very easily. You're going to have to go industry by industry. And in fact, that's all the kind of work that I'm doing right now is just trying to do this sort of analysis industry by industry to figure out what the impacts are.
Will Reinhart is a senior research fellow at the American Enterprise Institute. Jennifer Huddleston is a senior fellow at the Cato Institute. A complex array of government policies and market forces cause drug prices to be higher in the U.S. than in other nations. And just what is the right price of a drug anyway? Cato's Michael Cannon in May described some of the trouble with Medicare and pricing drugs appropriately.
Why are we focusing on prescription drug spending in the Medicare program? Well, it turns out that this is a significant chunk of Medicare spending. The Medicare program estimates that Medicare in 2024 will spend about $146 billion on prescription drugs. Did we decide if that was just Part D or Part D net of rebates, but not Part B? Is that what we decided? Yeah, I think we decided it's an attempt at Part D net of rebates. It's hard to figure out exactly sometimes how much Medicare is spending on prescription drugs. Sometimes that's arguably by design. But as a share of total Medicare outlates, it's about 13%.
And Medicare spending on prescription drugs is about a third of overall spending on prescription drugs in the United States. But again, I want to draw your attention to the growth projections in Medicare prescription drug spending. You will notice that for the next three years, this year and the next two years, the Medicare program predicts that growth in prescription drug spending by Medicare will, it'll be growing, that category of spending will grow even faster than overall spending in the Medicare program. And this is significant for the laws, when it comes to examining the laws that we're going to be examining in Congress's efforts to try to contain Medicare spending on prescription drugs. But for the moment, just keep in mind, it's growing at a pretty rapid clip. So the question arises, is Medicare paying too much? Is the reason that Medicare spends so much on prescription drugs and prescription drug spending in Medicare is growing so rapidly is because the prices that Medicare is paying are excessive?
There's evidence that suggests that maybe that is the case. In 2018, the Trump Department of Health and Human Services put out a study of the prices that Medicare pays for drugs that physicians administer to patients, what we call Part B drugs. They estimated that the Medicare program pays about twice as much as payers in other countries pay for the same drugs. The Government Accountability Office a few years ago put together a study on the prices that the VA, the Veterans Health Administration, pays for drugs versus the prices that Medicare Part D pays for drugs. This is different from the Part B program I just mentioned. But the Part D part of Medicare pays, on average, more than double what the Veterans Health Administration pays for the same drugs. However you slice these data, if the VA were to pay the same prices as Medicare, the prices that it pays for those drugs would double.
So how much should Medicare be paying for these drugs? Well, conceptually, that's a fairly straightforward or simple question. Because in the United States, we have a patent system that tries to embed in the price of new drugs or grants patent holders marketing exclusivity so that they can recoup the cost of researching and developing innovative new drugs and embed in the prices of those new drugs the incentives necessary to undertake those investments. Given that we have a patent system, the right price, the socially optimal price for drugs is whatever encourages innovator drug companies to invest in innovations all the way up to the point where any more innovation would cost more than the benefits it would deliver. So whatever the price is that encourages innovators to keep investing in innovation until the total social cost of innovation or the total social cost of that last unit of innovation equals total social value of that last unit of innovation. Simple, right?
Because if the price is too low, so that's where you want the price to be, because if the price is too low, you're going to get too little innovation. And what's going to happen is a lot of people are going to suffer unnecessarily when, if we had encouraged more innovation, there would be more drugs available on the market to treat and cure illnesses. But if the prices are too low, you're going to get a suboptimal level of innovation. People are going to be suffering and even dying prematurely because we got the price too low. However, by the same token...
It's also possible that we might be getting the prices too high, and if you get the prices too high, you create similar problems. Society ends up devoting resources to drug innovation that will produce more human happiness someplace else. We will get additional drug innovation if the prices are too high, but a lot of that innovation will produce benefits, but the cost of those innovations will exceed the benefits. So the benefits will not justify the cost, and there is some evidence that the Medicare program might be paying prices that are so high that we're getting this sort of innovation. The economists Pesanko, Drenov, and Garthwaite in 2016 looked at oncology drugs and concluded that Medicare Part D might have allowed firms to capture more value than their products created. That's another way of saying we might be over here in this zone where the prices are too high and we're getting excessive levels of innovation, where the costs of that innovation exceed the benefits. They say, while there are worries that if Medicare reduces the prices it pays for prescription drugs, we might reduce social welfare because we would get less innovation, keep in mind that some existing regulations may provide incentives for innovation that are themselves not welfare maximizing because they are based on prices that exceed value.
So we might be getting inefficiently high levels of innovation all the way up here. OK. So Congress is aware of these concerns, and Congress has done a number of things to try to reduce the prices that Medicare pays for prescription drugs. One of Congress's efforts, and every time Congress does this, however, every piece of legislation Congress passes that has provisions to try to reduce Medicare drug prices, it's sort of a mixed bag. There are provisions in each of these bills that would tend to reduce the prices that Medicare pays, and other provisions would tend to increase the prices. The Bipartisan Budget Act of 2018, about which Luca will be saying more, is one of those laws. It had some provisions that...
would tend to increase the prices that Medicare pays, such as increasing subsidies for drugs by reducing enrollees out-of-pocket exposure, but other provisions that would reduce prices, including mandatory price reductions in what we call the coverage gap. And Luca will be saying more about what that coverage gap in Part D is. And he's going to be presenting on what I've got there in the last bullet, which is the provisions of the Bipartisan Budget Act that increase insurers' incentives to cover lower-cost biosimilars versus branded biologics. The Inflation Reduction Act of 2022, another mixed bag. Some provisions tend to increase prices, such as capping enrollee out-of-pocket spending on insulin. Rather than run through the entire list, I'll skip right to the end. That's the provision that Prague is going to be talking about, which is the provision that has been very much in the news of the Inflation Reduction Act that allows the Medicare bureaucracy to negotiate lower prices.
for prescription drugs, basically by telling drug makers that if they don't agree to lower prices, the Medicare program will not cover their products. The way those negotiations work is Medicare picked 10 drugs for which it will negotiate the prices with the manufacturers in August of last year. Those negotiations are ongoing right now. And by 2026, Medicare will be paying the new negotiated prices for those drugs. But before that, in 2025, Medicare will pick another 15 drugs to negotiate lower prices for those drugs. And then in 2026, another 15. And lather, rinse, repeat will have its ongoing cycle where they'll keep picking more and more drugs and hopefully negotiating lower prices to the point where I think in 2029, there'll be 80.
If my math is right, there'll be 80 drugs that Medicare should, if things go according to plan, be paying lower prices for. Michael Cannon directs health policy studies at the Cato Institute. It's been more than two years since more than $2 trillion in new U.S. industrial policy initiatives were signed into law, but the manufacturing boom that was supposed to follow hasn't. And that's perhaps emblematic of a lot of industrial policy. At the Cato Institute in May, Scott Lincecum detailed why.
Why are we here today? Well, like I said, industrial policy is very trendy in Washington. Of all of the pillars of so-called Bidenomics, the president's economic agenda, I think it's undoubtedly true that industrial policy is the crown jewel. The White House, I think, would say so itself. We have seen over the last few years.
a litany of industrial policy measures. Not exactly a sea change in Washington. We've done industrial policy for a long time. But in terms of magnitude, it's undoubtedly true that the scope of industrial policy in the United States coming from the federal government and state governments in following the Fed's lead has increased rather dramatically. But what are we actually talking about in industrial policy? Well, we've seen producer subsidies. So this is the government giving loans and grants and tax breaks to semiconductor producers and all sorts of renewable energy producers. And then, of course, the electric vehicle supply chain with producers and batteries and minerals and the rest.
But we've also seen localization subsidies as well. Consumer tax credits for electric vehicles, again, but also generation bonuses for renewable electricity that's done with American-made technologies. We've also seen localization mandates, so where the government's actually telling you to use local content, whether via Buy American Rules or Inflation Reduction Act or CHIPS Act requirements. And then generally in federal procurement, the president has boosted Buy American Rules that mandate certain local content, domestically made content like steel and the rest. And then finally, we have tariffs, lots and lots of tariffs. Really, this started in the Trump era with steel and aluminum and Chinese imports, solar products, washing machines. And then, of course, we traditionally have trade remedies, anti-dumping measures, countervailing duty measures, and the rest are duties on select imports from select countries. But as you all surely saw just in the last week, we have new tariffs that the Biden administration has implemented on various, quote unquote, strategic imports from China. And then the President Biden has continued almost all of the Trump administration's tariffs that I just mentioned.
So in terms of total cost, I think it's important to try to get our head around this. Like I said, the scope has increased pretty dramatically. Well, what started out as a few hundred million dollars, a few hundred billion dollars, excuse me, is now estimated to be somewhere between one and two trillion dollars in new government spending, maybe three trillion, depending on how some of these open-ended subsidies pan out. There are also additional costs that are paid by consumers through higher prices because of all that protectionism I mentioned. So how has this all worked out? Well, I think before we get to that, I'm going to briefly mention a paper that I wrote a couple years ago that's kind of your industrial policy handbook of sorts called Questioning Industrial Policy. I'm not going to bore you with all the details of what's a very long paper, but I do think it serves as kind of a manual of sorts for the things we should be looking out for when we see industrial policy go from the textbooks to the real world. The first thing, though, we have to ask is what is industrial policy? This sounds like a rudimentary and very boring question, but if you hang out in D.C. long enough, you realize that...
anything and everything is called industrial policy. And it doesn't matter if it's a broad-based corporate tax rate reduction or maybe some sort of educational program or adjustment, corporate, you know, WTO reform I've seen called industrial policy. But the reality is that we have a very clear definition of industrial policy over the years. It has to be related to manufacturing. It has to be based on some sort of government plan or strategy to beat the market. The market isn't doing this well, so the government has to get involved, address some sort of market failure.
It's going to happen in a commercial market and not in defense market or in academia after subsidizing basic research. And it's going to involve targeted microeconomic support. So this is things like subsidies and tax credits and tariffs and the rest, but not horizontal policy. So like a corporate tax rate reduction, something like that. Again, we hear that called industrial policy. It's really not industrial policy. And then finally, it has to be nationalist. There has to be some sort of made in the USA component to this, or else, again, you're just dealing with something like federal procurement or these horizontal policies I just mentioned.
There are tons of past examples of industrial policy beyond all the Bidenomics stuff I just mentioned. The Jones Act, ethanol mandates, automotive import quotas from the 1980s, steel tariffs under President George W. Bush or under President Trump, DOE, Department of Energy loan programs. You may remember Solyndra. There are a lot of others. Support for clean coal, the U.S. any dumping law. I could go on.
So there's a lot of these things. And what I tried to do in the paper is use those historical examples to provide a roadmap of where the potential problems with industrial policy in the United States lie. So we looked at economic problems like the knowledge problem or just classic issues with budgetary overruns and all that kind of jazz. We looked at political problems that arise because, of course, industrial policies are crafted by politicians, not wonky academics or even better, angels. We looked at...
geopolitical problems. Industrial policies very often invoke responses from America's trading partners or potential adversaries. So you end up with trade wars, even with close allies, subsidy races. Everybody starts subsidizing all the same things. International institutions are weakened. American foreign policy objectives are put at risk because of these new geopolitical tensions. So the bottom line from the paper, and I hope a bottom line that you'll take away from all of this today.
is not that industrial policy always fails. That's a bit of a caricature of the libertarian argument. Instead, the argument is that industrial policy's costs, all of those economic, political, geopolitical things I mentioned, far outweigh its actual tangible benefits. That industrial policy, in practice, is hard to control and to constrain. It's hard to terminate once these programs get rolling. It generates all sorts of bad, unintended consequences. Again, economic, geopolitical, or...
related to our domestic political system. And that other countries' possible successes with industrial policy don't really tell us a lot about American industrial policy due to differences in economic systems and political systems and the rest. And anyway, those other countries have a lot of failures, too. So with that, I think, again, the paper proves useful because we're starting to see many of these very same problems materialize when it comes to American industrial policy today, particularly with respect to electric vehicle subsidies. In terms of tariffs, well, we've had tariffs on Chinese EVs and these new tariffs on Biden's EVs, but mainly the tariff flaws we've seen have come from other tariff programs in place. And those are pretty much established through lots of academic research so far. They're mostly paid by Americans, not by China and other foreign governments. They're imposing substantial economic costs on American consumers, but also American manufacturers, leading to actually reduced manufacturing output, reduced manufacturing employment overall. They've caused all sorts of foreign retaliation that the United States has then responded with billions more in subsidies for affected exporters, mainly farmers.
about 20 billion in those emergency subsidies. They've produced cascading and copycat protectionism. So a tariff in one place produces a tariff in another place and produces a lot of people lobbying for tariffs and all sorts of things because suddenly they're essential to national security or some sort of economic strategy. We haven't seen big changes in Chinese government policy. We've seen cronyism throughout the implementation of these rules, mainly related to tariff exclusions and those processes. And we've seen politics prevent really any substantial reform or termination of these tariffs despite all those big...
problems mentioned, and despite some pretty major abuses in U.S. law by both the Trump administration and now the Biden administration when it comes to implementing those tariffs. On the subsidy side, well, it's too early to declare libertarian victory and all these things, but we are again starting to see warning signs. Knowledge problems have poked up almost everywhere. Projects are being delayed or canceled or scaled back because of higher interest rates than we expected, more inflation than we expected, labor crunches and other things that have made projects suddenly become economically infeasible. Some of those very things are actually been caused by the very same industrial subsidies that we're funneling to all these industries. Waning EV demand is, again, something that the experts didn't predict. Apparently now automakers think we need more hybrids, not as many EVs. That's causing some of these plans to run into problems. Global overcapacity has materialized that was unexpected. It's putting battery projects at risk.
Charging stations are proving to be a big problem because you need a lot of EVs to get a lot of charging stations, but you need a lot of charging stations to get people to buy EVs. It's kind of this chicken and egg problem that we haven't worked out quite yet. We've seen opportunity cost issues. And what I mean by that is the policies that we haven't pursued because we spent $2 trillion on industrial policy. There's no budget room for tax reforms like full expensing. There's no political capital or time for permitting reform and regulatory reform. Those actually promised as part of the IRA. Immigration reforms that were in previous industrial policy bills have also been scrapped.
We've seen politics get involved in implementation. Social conditions like child care mandates or DEI offices are being attached to various IRA subsidies. We're seeing favoritism for the United Auto Workers Union and certain swing states because it's an election year as always. And then there's been a boom in lobbying overall related to all of these issues. We're seeing bureaucratic delays and confusion. I mentioned public charging stations. We were supposed to have a bunch of those now. We only have maybe a dozen or less.
We have ever-changing subsidy rules by the Treasury Department. You can get a subsidy for this auto, but then a week later you can't. You can lease it and get this subsidy. You can have a trade agreement for minerals. All sorts of confusion because of the bureaucratic implementation of these electric vehicle subsidy rules. Scott Lincecum is Vice President for General Economics at the Cato Institute. The Cato Institute went to Argentina last month to co-host The Rebirth of Liberty in Argentina and beyond. Among the speakers, Argentina's new president, Javier Malay, and various Cato scholars. Upon their return, I sat down with Cato's Ian Vasquez and Daniel Raisbeck to give a sense of what the event accomplished.
Ian, if you don't mind, I'd like to start with you. The Cato Institute put on a rather large, high-profile event in Argentina. And some of the speakers, of course, Cato scholars, Didger McCloskey, Joan Norberg, among others. Can you tell us what was the purpose of that event and what do you think it accomplished? In Argentina, they were calling it the classical liberal summit. So it really was sort of the event of the year in Argentina where we brought together President Millet, a couple of members of his cabinet, one of his top advisors, and leading classical liberals from Argentina in the world to discuss the record and relevance of classical liberalism and also to propose very specific policies and ways, policies for Argentina in a number of areas and ways to limit power and restore the rule of law there.
And so the purpose really was to give a big picture about classical liberalism, its grand narrative of human progress. And then specifically, what should Argentina be doing in the areas of monetary and fiscal policy, free trade and education and human capital and that kind of thing? And so we think that that's been it was helpful to lend support to the ideas that Millet says are inspiring his government and that in itself is rather a unique situation. And then also be very. very specific about what Argentines can do. And of course, in the process, create connections between top thinkers and members of his government, opinion leaders and other reformers that attended. Daniel, this is the classical liberal tradition in Argentina is really, I think, worth highlighting here.
Yes, absolutely. In fact, our partner think tank holding the conference, Libertad y Progreso, is one of the many classical liberal think tanks in Argentina with a very long tradition, which I've mentioned in one or two articles in the past year. all as a result of the Millet phenomenon. But I think the important thing to realize is that as talented as Millet is, as a communicator and as a politician, I think his ideas don't arise in a vacuum in Argentina. And there's been, as I say, a long tradition of classical liberalism. And I think it all came out in the conference as well, because you had over or around 800 participants. And you could really tell that these are ideas that are taken very seriously, at least in certain important circles within Argentina. And I would say to a greater extent, probably than in most other Latin American countries.
Ian, taking seriously classical liberal ideas in Argentina, at least in recent years, this has been driven largely out of necessity. Has it not? Well, yes. But remember, during the elections, the official candidate was the Peronist candidate. And that's another tradition in Argentina that's not such a happy tradition that goes back 80 years when General Peron established the corporatist state. And that's really the reason why Argentina is in such ruin and has not up until now been able to get out of that.
system of unions, government, and special big corporations making decisions for everybody and carving out privileges for themselves. That's really been the problem that has led to a huge amount of statism and cycles of debt devaluation and debt default and economic crises. went to the voting booth last December, actually in the first round, which was before that, they did have a choice between a center-right candidate that was part of the opposition and the libertarian alternative, Millet. And so, yes, much of the vote was a vote that was rejecting the past 20 years of Peronist rule that ended up in economic crisis, but they very clearly chose the libertarian alternative. And this really was the first time that a major politician wasn't just proposing, tinkering around the edges of the...
the system, but rather a paradigm shift to revive the classical liberal tradition that made Argentina a rich country over 100 years ago, and in very clear terms, putting it in terms of cultural change, in terms of fundamental and far-reaching reform. And so there is a popular mandate to undertake a libertarian agenda. Danielle, you and I spoke for the Cater Daily podcast not that long ago about sort of the end of the honeymoon for Millet, at least initially. We still see inflation trending downward in- Argentina, in terms of the large bulk of his program that he requires some legislative support in order to get accomplished. Is that looking better in recent months or is it about the same? Yes, it is looking much better. In fact, on the final day of the conference, when President Millet himself spoke and before that, they were debating his big law in Congress and they actually passed it. And he had had a setback before, which I think we discussed. And there had to be some negotiation inevitably, as it is politics after all. So it was somewhat.
watered down, but I think it was an important political triumph because it was actually the first political triumph for Millet's government in Congress. So it proved that he does have the ability to govern. And he says that he has in his drawer a much more ambitious agenda and many actually laws plans to further liberalize and deregulate the economy. For now, I think that means he's on a good path politically. And of course, the big test will come rather in October of next year of 2025 when they have a legislative election. And that's a big opportunity because his party is really minimal at the moment in Congress. So if he can get...
greater representation. It'll strengthen him politically, of course. But I think there's a lot of road to cover until then. And beyond inflation, there are some worries recently in terms of the black market dollar or the blue dollar, which has been rising. They still have exchange rate controls and capital controls. So these are just some things that we are keeping our eye on in terms of the monetary policy. And as long as they can get that...
under control and take the right decisions, then the better I think they will be positioned for 2025. But for now, I think the Argentine people are giving him a vote of confidence and they realize that the pain in terms of the economic contraction is worth it as long as inflation is coming down and as long as they're seeing light at the end of the tunnel. But we shouldn't underestimate that the task at hand is titanic. He is going up against 80 years of statism where he doesn't have a majority in the Congress, where Peronists and other very powerful special interests in government, government agencies and so on, are still... a formidable obstacle. And so the passage of that law, the lay basis, the basis law that Daniel was referring to during a conference was significant in two ways. One, it showed just how big the obstacles are because originally when he presented that law to Congress several months ago, it had something like 630 or so articles. And by the time he reintroduced it and it got through in the Senate, it only had something like 200 and some articles. So there has to be a lot of political compromise. That's understandable.
The importance of that going through is that he was able to show that he is able, in these very difficult conditions, to push through at least some important parts of his agenda. And his strategy is to get things stabilized in the macroeconomy and get some things through in order to get enough popular support so that he can continue to push his agenda, especially after the midterm elections, which he hopes he'll have a larger support in Congress. Ian, I can remember a conversation you and I had a few years ago about the... sort of the decline into statism of a good deal of Latin America. And one of the points that you made is that there ceased to be, at some point, this full-throated defense of freedom, this full-throated support for trade, liberalization, respect for the individual and private property rights. And so Millet appears to be this kind of candidate who, whether or not he heard that conversation, was somebody who's taken up that mantle very strongly and making it very clear to the broad public that these are the ideas that
create so much wealth and prosperity and harmony. That's right. I mean, we have to recognize that the classical liberal tradition has never been strong in Latin America. There have been advocates of that a couple of hundred years ago that were important, but now forgotten. But in Argentina, it was strong in the 19th century. That's the reason why it became one of the richest countries in the world after it established a very classically liberal constitution in 1853. And then progressive ideas started to creep in so that by the time that
Perón and his friends did their coup d'etat and then became elected, they were able to introduce very liberal ideas that have put Argentina into this cycle of crises and low growth or no growth. And so in Argentina's case, reviving that tradition is different because it actually did have a very strong tradition. And so when we talk about Millet being anti-system and making Argentina great again, that actually does make sense from the perspective of a libertarian. We're not talking about... a liberal democracy that you're trying to undo. We're talking about an illiberal democracy that you're trying to return to its great liberal traditions. In terms of the coverage of this event, it was huge.
Can you talk about sort of the reception of this event in Argentina? Well, it was covered in every press outlet on television. The president's own networks were pushing it out. The president's own personal social media was pushing it out before, during, and after the event. I think we have something like 800 or so different.
articles and interviews that were written as a result of this. We're still going through that. Certainly it was covered internationally. And so in that sense, everybody knew about the event and what people were saying at different times. And it certainly didn't hurt that Elon Musk decided to join us for a session via Skype and live, I'm sorry, via Zoom and LiveX to discuss innovation and the importance of what's going on in Argentina. Just some of those clips generated millions, I think something like more than 20 million.
views. So it got quite a bit of attention. Central bank digital currencies are not simply another form of money. They pose significant risks to financial privacy, freedom, and markets. In a new book from the Cato Institute, Digital Currency or Digital Control, monetary and financial economic expert Nicholas Anthony provides everything you need to know to get up to speed on CBDCs so you can know what is at stake. Digital Currency or Digital Control is available now from online retailers and at cato.org. That will do it for this edition of Cato Audio. I'm Caleb Brown. Talk to you again next month.