The Lancet last week published the findings of its international 37-expert commission on “Delivering Affordable Cancer Care in High-Income Countries.” The prestigious British medical journal’s broadside against oncology’s “culture of excess” is drawing notice in medical circles and especially fevered attention in the land of the National Health Service. But readers interested in the medical options—or lack thereof—that ObamaCare will soon deliver should take note as well.

The report does observe recent advances in the fight against cancer, including one estimate that since 1980 “anticancer medicines increased life expectancy in the average patient with cancer by nearly 1 year, at a mean cost in the USA of $6,500.” If that sounds like good news, the report’s authors are less sanguine. Instead, their findings are long on laments that the “rapid development of new technologies” and other innovations are helping drive the world’s $895 billion-and-growing “cancer burden.”

The report does confront a vexing moral issue, and it makes nuanced concessions—about the tradeoffs between cost and innovation, for instance—that are unusual from the likes of the Lancet. By way of example, take the case of sipuleucel-T, one of a class of “molecularly targeted therapies” that “are revolutionizing the treatment of cancer.” Sipuleucel-T has been shown to improve survival by several months for patients with metastatic prostate cancer.

The authors lament that the therapy costs roughly $100,000 a head. “The treatment is proven to be effective,” muses the report, “but how shall we determine its value?” The report’s royal “we” returns again and again to such questions, claiming that “we overdiagnose, overtreat and overpromise.” And the main cure the report proposes lies not necessarily in more or better medicine, but in more allegedly enlightened forms of rationing and price controls.

The obvious answer is that “we” ought to have no business determining value, since the choice properly belongs to the patient, his family and care givers. But a government that puts itself, as Britain’s has, in the role of providing—and withholding—medical care must make such choices in the patient’s stead.

“Countries seeking to provide universal access to health care for all its citizens,” wrote the U.K.’s rationing body NICE in a statement accompanying the Lancet report, must consider the “opportunity costs often incurred by use of some expensive new anticancer drugs that offer modest benefits.”

Those choices are especially stark in Britain, which maintains one of the most comprehensive publicly funded health-care systems in the world. But the United States may not be far behind. The authors hope that ObamaCare’s various commissions will “lead to a wider application of cost-effectiveness based criteria for determining treatment entitlements in America.” They even recommend integrating cost-effectiveness with the Food and Drug Administration’s clinical approvals, along with tighter regulation of off-label drug use, which would be a disaster for terminally ill patients.

The reality is that cancer care accounts for merely 5% of total U.S. health spending, and making progress against one of the world’s leading causes of death is a leadership role that the world’s rich countries should be playing. Costs will come down and benefits will improve as genomic science allows doctors to better target therapies to subsets of patients.

One of the report’s co-authors, Karol Sikora of CancerPartnersUK, tendered an opposing view in a Daily Telegraph op-ed, writing that “society has to decide how much to put on the price of life.” A telling word that “society.” The tragedy of Britain’s socialized medical system, and perhaps soon of America’s, is that “society”—government—is now burdened by moral dilemmas that properly belong in the realm of individual choice.

Now, dwindling oil production along Alaska’s northern edge means the pipeline carries less than one-third the volume it once did — and the crude takes five times as long to get to its destination.

That leisurely flow means the oil is above ground longer and more exposed to Alaska’s frigid weather; the crude sometimes arrives chilled to 40 degrees. As the flow and temperature continue to drop, experts say the risks of a clog or corrosion increase, as do the odds of ruptures and spills.

Unless a technological solution can be found, the arcane physics of crude flow may force the multibillion dollar, 48-inch-wide steel pipeline to shut down — and determine the fate of the largest oil field ever found in the U.S.

There’s one other, seemingly simple fix: Add more oil.

“If I could ask for one thing, it is to figure out how to get more oil into this pipe,” says Tom Barrett, president of the pipeline’s owner, Alyeska Pipeline Service Co.

But production from Alaska’s giant oil fields has been falling for years. Turning that around would require drilling in new areas, some of them environmentally sensitive and most controlled by the federal government.

Saving the pipeline has become a political issue in Alaska. The pipeline, which employs 2,000 people, still delivers more than 11% of the oil produced in the U.S. Almost all of it ends up in refineries in Washington, California and Hawaii. The end of the pipeline would likely translate into higher gasoline prices, which hit an average of $3.98 a gallon last week, the highest in nearly three years.

Oil companies and many Alaskan officials argue more lands should be opened to drilling so that the pipeline can get the crude it needs to flow fast and safely. Royal Dutch Shell PLC, which wants to drill off the state’s coast, recently met with senior White House officials to press its case.

Some environmentalists and federal officials say the oil companies are using the pipeline to bully the government into pushing through drilling permits or allowing access to areas that should remain protected, such as the waters off Alaska’s northern coast. So far, oil companies have expressed little interest in the controversial Arctic National Wildlife Refuge.

“We have a lot of overblown rhetoric that the sky is falling and that we need to open the federal lands and waters because of low flow in the pipeline,” says Lois Epstein, Arctic program director for the Wilderness Society, who prefers to find ways to coax more oil out of state lands in and around existing drilling sites.

The time available for arguing about the matter is dwindling.

Exploring for oil and then building the connector pipes and pump stations needed to start up a new oil field can take from five to fifteen years in Alaska. With each passing year, the pipeline is getting colder and its operation more precarious. If the pipeline is shut down, by law it must then be dismantled.

Shutting the pipeline would force refineries to find new and more expensive supplies of crude oil. And President Barack Obama’s efforts to decrease oil imports would suffer a major setback.

The pipeline “is a strategic national asset,” says Peter Slaiby, Shell’s top executive in Alaska.

Oil was first discovered at the northern edge of Alaska in 1968, when the Prudhoe Bay State No. 1 well drilled through a section of oil-bearing sands the depth of a 50-story building.

The well’s owners, Atlantic Richfield and Humble Oil, now parts of BP PLC and Exxon Mobil Corp., respectively, had found a giant. It turned out to be the largest oil field ever discovered in the U.S. and one of the largest in the world. But all that crude was underneath frozen tundra, 250 miles north of the Arctic Circle.

The oil was worthless unless it could be taken to global markets. That required an engineering marvel: the first pipeline to operate in Arctic conditions, an 800-mile-long tube from the oil fields to the port of Valdez.

Environmental opposition was fierce. An act of Congress was required to break a stalemate and secure the right-of-way. Seventy thousand workers took more than three years to build the conduit, commonly known as TAPS, which ended up costing nearly $8 billion, plus interest, in 1970s dollars.

In June 1977, after months of testing, the pipeline was ready. “Gentlemen, start your engines,” a pipeline operator called out on the radio, according to a petroleum engineer who was listening. And the crude began to flow.

For years, the Alaskan North Slope, as the area is called, boomed as companies tapped the giant reservoirs, feeding raw crude to refineries that turned it into the gasoline that Americans pumped into their cars. The operation generated profits for the pipeline’s owner, Alyeska, a company now owned by several of the world’s most powerful energy companies: BP, Exxon Mobil, ConocoPhillips, Chevron Corp. and Koch Industries Inc.

The volume of crude increased each year for the first 11 years as more and more wells were turned on. At its peak, in 1988, the pipeline carried more than two million barrels a day, about 3% of global crude.

When first tapped, the oil reservoir was pressurized from millennia of being compacted by the weight of the earth. Wells flowed without any coaxing. By 1988, oil companies had removed so many barrels that the pressure had begun falling, and so had the amount of oil that flowed to the surface.

Declining pressure and falling oil production are the norm for oil fields, and the North Slope is no exception. Today, the amount of oil being pumped is dropping by about 6% a year.

The lower the volume of oil flowing through the pipe, the slower it moves. It’s like a garden hose: Open up the spigot only slightly and the water will move slowly; turn the spigot to wide open and the water will move quickly through the hose to the other end.

In the case of the pipeline, the slow flow means the crude spends more time above ground in the cold Alaskan winters; the average January temperature is -10 Fahrenheit at one point in the route.

According to Alyeska, if the current trend continues, the winter temperature of crude in the pipeline could drop to 32 degrees by 2013 and ice crystals will begin to form inside it, putting it at higher risk of a rupture.

The problems facing the pipeline were made very clear in January, when a leak on the North Slope forced two back-to-back winter shutdowns for a total of 148 hours. Temperatures inside the pipeline dropped by almost two degrees a day. Much longer, says E.G. “Betsy” Haines, Alyeska’s oil movement director, and wax in the crude would have begun congealing, potentially turning TAPS into the world’s largest tube of ChapStick.

After the January leak, a federal oversight agency found that the low volume of oil flowing through the pipeline “has resulted in numerous integrity challenges that have not been fully addressed.” Among its concerns: ice can create plugs that damage valves and sensors; wax buildup can cause corrosion. Either can leave the pipeline vulnerable to ruptures and spills.

Alyeska engineers are brainstorming fixes to raise the temperature in the pipeline, such as adding more insulation. Another possibility involves a refinery along the route owned by Koch Industries’ Flint Hills Resources unit. Already, the refinery takes 100,000 barrels a day off the pipeline, uses some to make jet fuel, diesel and other petroleum products, and then puts 60,000 barrels of crude warmed by the refinery back into the pipeline. On a recent March day, this operation warmed the crude in the pipeline by 12 degrees.

Koch has been doing this at no cost to Alyeska, and the pipeline owner would like to draw even more heat from the refinery. But Koch says it has plans to start charging for the winter-heating service.

Mr. Barrett, the head of Alyeska, says any changes or upgrades that would warm the crude are expected to run into the hundreds of millions of dollars.

This may end up being too expensive for Alyeska owners to justify. BP, which owns 46.9% of Alyeska, says as long as the pipeline is running, it will make required investments to insure system safety.

John Miller, a former chairman of Alyeska, who is now a consultant in Anchorage, says unless more oil is added, “costs are going to go up incredibly.” Companies are charged a fee for each barrel of crude they move through the pipeline. This revenue pays for the pipeline’s operation and upkeep. As the cost of maintaining the pipeline increases and there are fewer barrels transported, the per-barrel fee will rise rapidly.

Since the January incident, anxiety in Alaska over the pipeline has soared. Oil revenues from taxes and royalties make up 85% of the state’s general revenues and provide an annual check for all residents.

Without a simple or cost-effective engineering solution, stakeholders have pushed for a political fix. Gov. Sean Parnell recently proposed cutting taxes on oil producers who drill on state land near existing wells — where federal permits aren’t required — in order to encourage more drilling. But that died in the Legislature.

A generation of production from the North Slope has taken 16.2 billion barrels from the frozen earth, according to the state. But a lot remains to be tapped under the tundra, perhaps more than 10 billion barrels. Most of this oil is more challenging to extract, and likely poses greater risks to the pipeline itself since it’s more abrasive.

Oil companies are having a hard time getting permits for new exploration from the federal government.

Shell earlier this year canceled plans to drill in the Beaufort Sea this summer because, after five years, it couldn’t get a federal air-emission permit for an offshore drilling rig. Its plans for drilling in the Chukchi Sea on Alaska’s northwest coast are also held up by a legal dispute. Exxon Mobil is also waiting for federal environmental approval, and in February, the federal government denied ConocoPhillips a permit the company had been working on for five years.

Even if permits are approved and the lawsuit is resolved quickly, Shell’s Mr. Slaiby says it would take 15 years to produce oil from the remote Chukchi Sea. He says he believes the pipeline would still be operational.

As oil prices have risen, congressional pressure on the Obama administration to expand access to domestic oil and natural gas has increased. Last week, the White House hosted a meeting with Shell on its proposed Alaska projects, to “facilitate the conversation” between the company and the multiple federal agencies whose approval Shell needs, a senior administration official said.

Interior Department Deputy Secretary David Hayes says he recognizes the seriousness of the problems facing the pipeline, but disagrees that the answer is to speed through permits in the environmentally sensitive Arctic region.

“You can’t look to the federal government as the problem here,” he says.

Some environmentalists think the more reasonable answer is to let the pipeline die a natural death.

“We have a pipeline well past its expiration date and there is an obsession with keeping the pipe full and flowing in perpetuity,” says Brendan Cummings, an attorney with the Center for Biological Diversity, which has sued to block Shell’s exploration plans. “It may be nearing the end of its useful life anyway.”

Credit: By Russell Gold

This week marks the first anniversary of ObamaCare, and if you are wondering where that coercive law is headed, we’d point to a case in federal court. That’s where Judge Rosemary Collyer has ruled that Americans have a legal obligation to accept subpar government health benefits.

It remains a remarkable fact that America obliges most citizens over the age of 65 to take that rickety government health plan known as Medicare. Judging by today’s growing number of health-savings options (HSAs, medical FSAs), some Americans would prefer to maintain private coverage upon retirement, rather than be compelled into second-rate Medicare. Yet the idea of patient choice offends many in government, and in 1993 the Clinton Administration promulgated so-called POMS rules that say seniors who withdraw from Medicare Part A (which covers hospital and outpatient services) must forfeit their Social Security benefits.

Several senior citizens in 2008 challenged the government, suing to be allowed to opt out of Medicare without losing Social Security. The plaintiffs paid their Medicare taxes through their working lives and are not asking for that money back. They simply want to use their private savings to contract for health services they believe to be superior to a government program that imposes price controls and rations care. They also dutifully contributed to Social Security and — fair enough — prefer to keep those benefits.

As recently as the fall of 2009, Judge Collyer provided support for the plaintiffs. She rejected the Obama Administration’s argument that the plaintiffs were lucky to get Medicare and therefore had suffered no “injury” and lacked standing. She noted the Clinton POMS are simply part of a government handbook and never went through a formal rule-making. She also refused the Administration’s request to dismiss the suit, noting that “neither the statute nor the regulation specifies that Plaintiffs must withdraw from Social Security and repay retirement benefits in order to withdraw from Medicare.”

Yet in a stunning reversal, Judge Collyer last week revisited her decision and dismissed the case. In direct contravention to her prior ruling, the judge said the Medicare statute does — with a little creative reading — contain a requirement that Social Security recipients take government health care. The Medicare statute provides that only individuals who are “entitled” to Social Security are “entitled” to Medicare. Therefore, argues the judge, “The only way to avoid entitlement to Medicare Part A at age 65 is to forego the source of that entitlement, i.e., Social Security Retirement benefits.”

This is convoluted enough, but Judge Collyer’s truly novel finding comes with her implicit argument that to be “entitled” to a government benefit is to be obligated to accept it. This is a startling break with existing legal understandings and raises profound questions as to whether Americans have a duty to accept other “entitlements,” say, food stamps or public housing. Or, as the plaintiffs attorney, Kent Masterson Brown, warns: “Anyone concerned with what will happen when the bureaucrats start writing the thousands of pages of rules that will govern” ObamaCare need only look at this ruling. “Nothing will be optional.”

That might explain why the Obama Administration fought this suit so vehemently. The government fisc — and taxpayers — would benefit if some seniors pay for their own health care. But for many liberals, the goal isn’t saving money or providing choices. The goal is to force all Americans into the same programs to fulfill their egalitarian dreams. The plaintiffs appealed this week to the D.C. Circuit Court of Appeals, and we hope for freedom’s sake they prevail.

Abstract (Summary)

Each year brings another two million-plus workers to the labor force (new workers plus the re-entry of discouraged workers). [...] we would need monthly job gains of 460,000 to achieve full employment in time for the 2012 presidential elections.

(c) 2011 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

The latest employment reports have not been encouraging. At the rate of 36,000 new jobs a month — the number gained in January — we will never get back to full employment. Even if we keep adding jobs at the December rate of 121,000 new jobs, we wouldn’t achieve full employment in this millennium.

President Obama has urged us to be “patient” with this jobless recovery. But it’s worth asking how long it will take to get back to the employment levels we experienced before the recession of 2008-09. How patient will we need to be?

Consider the math of full employment. We now have a labor force of 153 million people, of whom 14 million are officially counted as “unemployed,” defined as not working and actively seeking a job. Were we fully employed (defined as 5% unemployment) there would be 7.7 million unemployed workers. So our “excess” unemployment currently hovers around 6.3 million workers.

That number is our initial target for job creation. The trouble is that it’s a moving target.

Population growth and immigration bring a steady stream of new workers into the labor force every year. They want jobs, too. So our job-creation target grows every month. At the trend growth rate of 1.2% annually, we get another 1.8 million labor force participants a year, and with them, the need for another 1.8 million new jobs.

In the past couple of years the labor force hasn’t grown quite so rapidly. This is because a lot of would-be workers concluded that job prospects were so poor that actively seeking a job would be a waste of time.

The Labor Department calls these people “discouraged” workers, and it recently counted one million of them in the country. It defines another two million would-be workers as “marginally attached” — not actively seeking a job but ready to take one.

The withdrawal of so many workers from the labor market has been a major factor in keeping a lid on the official unemployment rate, despite lackluster job creation. But that flow moves in both directions. If the economy picks up steam, these discouraged workers will re-enter the labor market looking for jobs, moving the job-creation target further away.

To get back to full employment tomorrow, we could get by with another seven million new jobs. To reach full employment by the end of this year, we would need at least nine million new jobs (some 750,000 a month). There’s simply no way we will experience that kind of job creation.

Each year brings another two million-plus workers to the labor force (new workers plus the re-entry of discouraged workers). Thus we would need monthly job gains of 460,000 to achieve full employment in time for the 2012 presidential elections.

We created that many jobs one time in the last four years (May 2010). That fact should be scary for Democrats.

The White House keeps hoping for monthly job gains of 250,000. But even gains of that magnitude — more than double the average gain last year — would not get America back to full employment until 2018.

The math of joblessness is exceedingly bad news for American workers. It’s also a sobering reminder of how ineffective stimulus policies have been.

—

Mr. Schiller is a professor of economics at the University of Nevada, Reno and author of “The Economy Today” (McGraw-Hill, 2010).

Credit: By Brad Schiller

The Federal Reserve is at the end of its rope.

On Wednesday, the central bank probably will wrap up its latest meeting with a decision to do . . . nothing.

Fed officials may update their postmeeting statement from last time to acknowledge the U.S. economy’s recent improvement and even may nod at rising inflation expectations. But they aren’t likely to call off their $600 billion government-bond-buying campaign.

Nor are they expected to introduce any new measures, much to the relief of inflation hawks. But despite stock market bullishness, this is hardly a “mission accomplished” moment for the U.S. economy.

For all the Fed has done, it hasn’t managed to spur job creation.

U.S. output may be returning to prerecession levels, but the total number of nonfarm workers still is more than seven million shy of its December 2007 peak, and in fact is back at 1999 levels.

More broadly, the Fed’s failure reflects a longstanding flaw in its approach. For years, it has been pushing interest rates lower, doing so after each successive downturn as inflation became less and less of a concern. But that wasn’t simply due to successful monetary policy. Technological innovation, the globalization of the work force and demographic change had plenty to do with it, too.

Instead of being a cure-all, the Fed’s policies spawned two great asset bubbles, first in stocks, then in real estate. Economic rebounds and job creation lagged behind, despite the Fed’s Herculean efforts.

That is especially true today. Some say the Fed ought to double down, that policy makers actually have been too gun-shy. Yet the limits of monetary policy are becoming clearer. History suggests any further easing probably would do too much for the stock market and asset prices, and too little for jobs.

The only real fix is to lower the cost of U.S. workers relative to foreign rivals and machines, or else raise their bang for the buck. The latter, while clearly preferable, requires education and training that won’t turn things around overnight.

The Fed, meanwhile, has tried its hardest to generate separate, asset-based sources of income and spending. But that has bred backlash and complacency. The Fed, in other words, is out of silver bullets.

Big U.S. companies have cleaned up their balance sheets and, flush with cash, appear open to using it in 2011 on factories, stores and even hiring.

“We preserved cash” over the past few years, said Jim Flaws, chief financial officer of Corning Inc. “Now we’re turning around and feeling comfortable about our outlook and spending it.”

The maker of specialty glass and ceramics is investing $300 million to expand its research and development center near its headquarters in Corning, N.Y., adding about 100 researchers and Ph.D.s. It also is spending $800 million on a liquid-crystal display factory in China and building more LCD capacity in Taiwan.

Engine maker Cummins Inc., meantime, plans to add about 2,500 U.S. jobs in 2011, many requiring engineering or other technical skills. In 2010, Cummins raised its U.S. employment by only 185 people. The company has about 14,800 U.S. employees.

At the end of the third quarter, cash held by 419 nonfinancial companies in the Standard & Poor’s 500 list was up 49% from three years ago — before the start of the recession — while total debt was up a more modest 14%, according to an analysis by The Wall Street Journal.

The improvement in just the past year was even more pronounced: cash was up 10.6% from the 2009 level, while debt grew 2%.

Profits are higher, too, after companies slashed their work forces and closed less-efficient operations. Total U.S. corporate profits in 2010′s third quarter rose 26% from a year earlier to $1.64 trillion, the highest in four years, according to government data.

With this stronger foundation, coupled with new confidence about the global economy, corporations are looking to expand. Many are focusing on the faster-growing economies of Asia, Latin America and Africa, rather than the sluggish markets of Europe and the U.S. Others plan to enlarge existing operations through new equipment, products, factories and research labs.

While the mood is much improved from a year ago, executives say their outlook faces potential hurdles. Executives fret that the cost of energy, raw materials and other commodities will keep rising and that high unemployment will continue to restrain consumer spending. While the credit crunch that helped lead to the recession has eased, CEOs remain jittery about the threat of trade barriers and volatile currency-exchange rates.

The Republican gains in Congress in November’s election added new questions to the outlook for health-insurance costs borne by companies. Since then, some party leaders have said they aim to reverse or at least starve the Obama health-care law; meantime, lawsuits challenge some aspects of it. “You don’t know where it’s going to go,” said Robert J. Olson, CEO of Winnebago Industries Inc., a maker of motor homes.

For many pharmaceutical companies, the health-care law will be 2011′s biggest challenge. The closing of the “doughnut hole,” a gap in Medicare Part D prescription-drug coverage, will cost drug makers revenue and profit because they must give a discount on brand-name drugs for people who fall in the gap.

Dave Holveck, CEO of Endo Pharmaceutical Holdings Inc., estimated that closing the Medicare hole will cost his company between $20 million and $30 million in annual revenue.

Profit growth for corporate America likely will slow in 2011, partly because companies will be up against tougher year-earlier comparisons and partly because higher sales are prompting them to invest more in plants and equipment and, in some cases, hire more workers. Dean Maki, chief U.S. economist at Barclays Capital in New York, expects 2011 profit growth to slow to about 8% from the 26% surge seen in the third quarter.

The degree of both confidence and planned spending varies across industries; companies with the greatest global reach, particularly in emerging nations, are the most bullish, while those largely dependent on U.S. consumers are the most reserved.

Continued growth in the mining and energy businesses around the world is expected to fuel a wide range of U.S. companies, including those that make mining equipment.

“The next two years are going to be pretty good” as emerging markets remain strong and truck demand bounces back in the U.S., predicts Tim Solso, CEO of Cummins. Cummins plans to boost capital spending 50% in 2011 to about $600 million from 2010. It is adding plants in China and India and building a technical center in Seymour, Ind., for huge engines used in mining equipment and oil rigs.

Meantime, consumer-dependent companies remain wary, although they feel better than they did a year ago. During 2010, Royal Caribbean Cruises Ltd. deferred buying equipment and funding projects. Now, it plans to be a bit less cautious as it examines investments and head-count increases, said Royal Caribbean CEO Richard Fain.

A good portion of the company’s investments will go to ships in Europe and Asia, where Mr. Fain sees higher growth. It also is buying equipment to reduce fuel consumption and beginning a computer-systems project it had deferred.

Investment by U.S. companies in equipment and software in the third quarter was up 15% from a year earlier to $1.08 trillion, nearly matching prerecession levels, government data show.

Corporations received more incentives to invest Dec. 17, when President Obama signed into law a tax compromise reached by Congress that, among other things, lets companies deduct from taxable income 100% of certain types of investments in 2011.

That and other tax incentives in the bill should provide at least a modest boost to business investment, said Thomas Duesterberg, CEO of the Manufacturers Alliance/MAPI, a public policy and economics research organization in Arlington, Va.

3M Co., a conglomerate whose thousands of products include medical supplies and Post-it notes, plans to raise capital spending to between $1.3 billion and $1.5 billion in 2011 from an estimated $1 billion to $1.1 billion in 2010. Most will involve expanding capacity in fast-growing foreign markets, including China, India, Singapore and Brazil, the company said.

Tractor Supply Co., a farm and ranch retail chain, is more comfortable making capital expenditures in 2011 for two main reasons: It has built up its cash reserves and it is beginning to see the average price per order increase, which means its customers are stronger.

Tractor Supply in 2011 will spend $50 million to erect a 840,000-square-foot distribution center in Kentucky and $20 million to retrofit four other distribution centers, said its chief financial officer, Anthony Crudele.

After two years of selling warehouses, ProLogis will spend $800 million to $1 billion this year on new warehouses in the U.S., Europe and Asia. “It’s driven by the amount of demand we’re beginning to see in the marketplace as companies look to grow their inventories again,” said ProLogis CEO Walt Rakowich.

Likewise, Kohl’s Corp. plans to open 40 of its discount stores in 2011, which would bring its total to about 1,130, said CEO Kevin Mansell. While that’s more than the 30 stores Kohl’s opened in 2010, it is below prerecession levels of 75 to 100 annually. Mr. Mansell said Kohl’s is waiting for consumer demand to return before expanding at its pre-recession pace.

In addition, Kohl’s and other retailers are grappling with inflation, especially on products from Asia.

General Electric Co. said it aims to boost R&D spending to $5 billion in 2011, up from the estimated $4 billion in 2010, and is expanding research operations in Brazil, China and Michigan. Intel Corp., meantime, said it will spend $6 billion to $8 billion on manufacturing technology at its U.S. chip factories over the next 2 1/2 years.

Acquisitions are another option. Illinois Tool Works Inc., whose products range from commercial dish-washing equipment to auto parts, had cash and equivalent short-term securities of $1.65 billion at the end of the third quarter, up from $943 million a year earlier. The company told analysts in December it expects to step up its acquisition pace in 2011.

—

Paul Glader contributed to this article.

Credit: By James R. Hagerty and Dana Mattioli

Medicare Chief Donald Berwick

David B. Rivkin Jr., Elizabeth Price Foley. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 30, 2010. pg. A.15

Earlier this month, the Food and Drug Administration banned doctors from prescribing Avastin, a potent but costly drug, to patients with advanced-stage breast cancer. According to the FDA, the drug doesn’t offer “a sufficient benefit in slowing disease progression to outweigh the significant risk to patients.” Yet in some clinical trials Avastin has halted the spread of patients’ cancer for months, providing respite to women and their families wracked by physical and psychological pain.

Ponder the FDA’s justification — there wasn’t “sufficient” benefit in relation to Avastin’s risks. Sufficient according to whom? For your wife, mother or daughter with terminal breast cancer, how much is an additional month of good-quality life worth? And what costs should be weighed? Like all drugs, Avastin has side effects including bleeding and high blood pressure. But isn’t the real cost to these women a swifter, less dignified death? The FDA made a crude cost calculation; as everyone in Washington knows, it wouldn’t have banned Avastin if the drug cost only $1,000 a year, instead of $90,000.

The Avastin story is emblematic of the government’s broader agenda to ration care based on cost and politics. Once ObamaCare comes into full force, such rationing will be pervasive. When the government sees insufficient benefit, all but the wealthiest and most politically connected will have to go without.

Think it can’t happen here? Think again. The 2009 stimulus bill spent $1.1 billion to research “comparative effectiveness.” That’s the same approach used by Britain’s National Health Service to ration care, weighing cost against factors such as the ever-elusive concept of quality of life. And in an interview that year, President Obama confessed that “the tougher issue . . . is what do you do around things like end-of-life care.” Pushed to articulate a solution, he replied, “It is very difficult to imagine the country making those decisions just through the normal political channels.” He asserted that we needed “some independent group” to “give [us] some guidance.”

He got that wish. ObamaCare created a commission — the Independent Payment Advisory Board — tasked with limiting spending on Medicare. Its recommendations will be binding, unless Congress can come up with equivalent cost-savings of its own. For the first time, an unelected group will be empowered to limit health spending for the vulnerable elderly.

ObamaCare proponents derided fears of “death panels” as a product of tea partiers’ fevered imagination, and they lamented when Congress removed the provision that would have provided for end-of-life counseling that might coax the elderly away from life-sustaining but expensive treatments. Not to fear: The administration has resurrected that provision through regulations, and Medicare will now pay for such counseling as part of elderly “wellness assessments.” Yes, the “death panels” charge is somewhat crude, but combine cost-based rationing with end-of-life counseling and, well, here we are.

There’s an enormous difference between government-imposed rationing and treatment decisions in the private sector. When insurance companies deny coverage — for example, on grounds that treatment is “experimental” or not “medically necessary” — they do so based on contract language agreed to in advance by subscribers. If you don’t like what a particular insurer offers, you’re free to shop around. Moreover, you and your doctor have extensive rights to appeal the insurer’s denial, and wealthy patients can pay for the care out of their own pockets.

But when the government denies approval of a medication, there will often be no appeal and no escape. For example, while doctors can still prescribe Avastin for other kinds of cancer — allowing them to prescribe it “off-label” to breast-cancer patients — this is merely fortuitous, something that’s not the case with many other drugs. The next time the FDA bans a drug because its benefits are not “sufficient,” patients may not be so lucky. FDA disapproval will be the equivalent of the emperor’s thumbs-down.

This whole scheme doesn’t stand up to legal scrutiny. Government-imposed cost-benefit rationing raises serious constitutional concerns. Individual bodily autonomy is one of the oldest recognized rights. Its constitutional significance is reflected in Supreme Court decisions acknowledging the rights to refuse unwanted treatment and to access treatments such as contraception and abortion. Freedom to make medical decisions is central to the autonomy and dignity encapsulated by the majestic word “liberty” in the Constitution’s due process clauses.

This isn’t to say that government can never interfere with bodily autonomy. State governments can, for example, force citizens to submit to certain treatments (like vaccinations) because of their unique “police power” to protect citizens’ health and safety. And the federal government can ban trade in snake oil treatments through its power to regulate commerce.

But even when Congress uses its enumerated powers, it cannot do so in ways that violate individual rights. It cannot, for example, decide to pay for the health care only of a certain racial group, or only of citizens who agree not to criticize the government. Such laws would violate equal protection and freedom of speech. Congress’s spending power is limited by other important constitutional provisions. One of those is the right to bodily autonomy.

When it comes to that right, courts have held that laws cannot impose an “undue burden” on access to life-preserving treatment. And there’s no greater burden than blocking access to such medical treatments on the grounds that the average person, according to a government agency’s reckoning, won’t benefit sufficiently.

If the government wants to reduce health-care spending, it can impose higher beneficiary cost-sharing, means-testing or other limits on eligibility that would be perfectly constitutional. But it can’t restrict every American’s access to proven treatments. With regard to medical care, the government must weigh delicate considerations of cost, quality of life and other factors individually — not collectively — in order to preserve citizens’ rights and dignity.

If government can limit Americans’ choice of effective medical treatments, there’s no limit to its control over our bodies, and the right to bodily autonomy is an illusion. In the context of the new health law, the FDA’s Avastin decision is the tip of a looming iceberg of government rationing. It must be challenged.

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Mr. Rivkin, an attorney in Washington, served in the Justice Department under President George H.W. Bush. Ms. Price Foley is professor of law at Florida International University College of Law and the author of “Liberty for All: Reclaiming Individual Privacy in a New Era of Public Morality” (Yale, 2006).

During the last half century, the Supreme Court has established a zone of privacy protected by the Constitution. It includes a couple’s choice to use contraception recommended by their physician (Griswold v. Connecticut, 1965) and a woman’s choice to have an abortion provided by her physician (Roe v. Wade, 1973). How can freedom to make these choices with your doctor be protected and not freedom to choose a hip replacement or a Caesarean section? Either your body is protected from government interference or it’s not.

The Obama health law requires that nearly everyone enroll in a “qualified” plan, then says plans can pay only doctors who implement whatever regulations the Secretary of Health and Human Services imposes to improve health-care “quality” (Section 1311). That covers everything in medicine. Never has the federal government dictated how doctors treat privately insured patients, except on narrow issues such as drug safety. If challenged, this provision is likely to meet disapproval from a pro-privacy court.

The new health law is defended on the basis of the Congress’s power to regulate interstate commerce. While the Supreme Court has stretched the meaning of interstate commerce to justify congressional lawmaking in many areas, the definition is not boundless.

Some members of Congress hoped that the Court’s ruling in Gonzalez v. Raich (2005) would give them a constitutional EZ Pass to control health care. In that case, the Supreme Court ruled that federal agents had the authority to stop Angel Raich from consuming home grown marijuana for medical purposes, though it was permitted in her state and advised by her doctor. Amazingly, the Court said her homegrown supply–six stalks in all–could have “a substantial effect on supply and demand in the national market for that commodity.”

In September 2005 Sen. Patrick Leahy (D., Vt.) grilled John Roberts, then the nominee for Chief Justice, demanding assurances that he would stand by the Raich ruling instead of trying to restrain congressional lawmaking on health care. The surprise came in the Supreme Court’s next term, when in the words of Justice Clarence Thomas, the Court made a “hasty retreat” from Raich.

Oregon had passed a Death with Dignity Act setting standards for doctors to administer lethal drugs to terminally ill patients who requested them. The Bush administration argued that assisted suicide was not “legitimate” medical care, and therefore federal agents could halt the use of the drugs.

The Supreme Court ruled 6-3 against the Bush administration’s interference in Gonzales v. Oregon (2006). Such intrusion, the court said, “would affect a radical shift of authority from the States to the Federal Government to define general standards of medical practice in every locality.” That’s what the Obama health law does.

For example, it requires doctors to record patients’ treatments in an electronic medical database and monitors doctors’ decisions. Dr. David Blumenthal, the Obama administration’s National Coordinator of Health Information Technology, explained in the New England Journal of Medicine last April that “embedded clinical decision support”–his euphemism for computers telling doctors what to do–will manage the quality of doctors’ decisions. The Supreme Court is likely to view these controls as a “radical shift” in authority from the states to the federal government, and even more important, a threat to privacy rights.

Before the current health debate, the public discussed government interference in medical decisions largely in one context: abortion. When a lower federal court struck down the Partial-Birth Abortion Ban Act in 2004 (a decision later reversed by the Supreme Court), Planned Parenthood of Los Angeles CEO Mary Jane Wagle said “this ruling is a critical step toward ensuring that women and doctors–not politicians–make private, personal health care decisions.” During the litigation, federal authorities requested access to medical records to determine whether the partial birth procedure was ever medically necessary. Privacy advocates defeated nearly every request.

Advocates for women’s rights need to reassess the impact of the new health law. Whether you are a man or a woman, pro-choice or pro-life, you lose freedom and privacy under this law.

Ms. McCaughey is the author of two books on the writing of the U.S. Constitution and a former Lt. Governor of New York.

Credit: By Betsy McCaughey

As always, bulls and bears have their argument, with bulls pointing to a recovery in confidence, stabilizing economic data in the U.S., surging corporate profits, modest valuations, and strong trends in the world at large. Bears fret about the threat of inflation eroding profits, banks with toxic loans still weighing down their balance sheets, high unemployment, easy money lulling the world into a false sense of complacency, and mounting debts on government ledgers.

Much of this argument may be irrelevant to the markets, which look primed to go up, not in a straight line, but up just the same.

Over the past decade, the fate of publicly traded companies, which tend to be larger and more global in scale, has detached from the fate of national economies. U.S. businesses rely on the domestic market for a shrinking portion of their revenue and profits, and many — including household names like Microsoft, Intel and Caterpillar — make far more overseas than they do at home.

These global companies, whether European or American, increasingly look to China for future income — the recent imbroglio over Google notwithstanding. And throughout the crisis most of them have been registering impressive gains in productivity and efficiency. How? The old fashioned way: by firing droves of workers and making better use of technology to trim inventories and utilize resources.

The dramatic sell-off in global equities between September 2008 and March 2009 was caused by panic; by the fact that as credit markets froze, equity markets were the only source of reliable liquidity. If you were faced with someone calling in your loan, for instance, you couldn’t refinance but you could sell stocks at the click of a button and have your money in the morning.

The panic also stemmed from the cratering of financial companies’ income, which made the entire market look suspect. Profits did plunge for several quarters throughout almost every industry and every country but began to recover far more rapidly than most expected.

Today, there is increasingly bullish sentiment among investors, or so surveys tell us. But even so, the Dow is only up 6% year to date, while global and emerging markets — where growth is humming — have done worse. U.S. mutual funds have seen inflows into bond funds and outflows from domestic equity; investors have withdrawn $2.6 billion more than they put in, which means that the “average” investor isn’t acting at all bullish. Money-market funds, which are yielding basically nothing, still have $3 trillion, though outflows have been picking up.

What’s more, U.S. corporate balance sheets are as flush with cash as they’ve ever been, in the neighborhood of $2 trillion. Conservative and cautious, companies haven’t been quick to spend that stash. They haven’t been buying back stock (which would be good for the market); they haven’t been undertaking aggressive spending (good for other businesses); they haven’t boosted dividends; and they haven’t been hiring.

But those trillions will be spent, on mergers, acquisitions and capital spending. With trillions on the sidelines, there is fuel to move markets higher.

Then there is the global growth story, which is revolving around China but includes Brazil, Canada, Australia and many parts of East Asia. There is also strong positive momentum developing in India, and cash is once again piling up in the sovereign wealth funds of the oil states of the Middle East. That growth is generating cash, which is looking for return. The China Investment Corporation recently released a list of its holdings, which showed that it had begun to invest — albeit very quietly — in U.S. stocks ranging from Apple to Coca-Cola. That is a harbinger.

In short, much of our economic data doesn’t matter to the prospects for the market. Corporate profits themselves bear more relation to an increasingly complex and interlinked global system than they do any national economy. Companies go where the growth is, and with leaner inventories than the world has ever known and sparser work forces, they can make profits even when national economies sputter.

There’s a final reason to believe that the markets are headed higher. With interest rates so relatively low, even a modest increase in rates (which we’ve seen in recent days) isn’t enough to make bonds an attractive investment for institutional and individual investors needing returns. Pension plans, 401(k) plans, mutual-fund managers and financial planners have all seen steep losses, and they all need outsized returns to meet expectations. Bonds simply don’t offer that prospect. Only equities do.

None of the reasons why markets are likely to move up depend on a strong U.S. economy or robust growth in Europe. The jarring contrast between how companies and the overall economy are faring may yet produce a populist backlash, especially if unemployment lingers at 10%. But for now, there is little standing in the way of markets, and much to propel them forward.

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Mr. Karabell is president of River Twice Research and the author, most recently, of “Superfusion: How China and America Became One Economy” (Simon & Schuster, 2009).

Credit: By Zachary Karabell

For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.

This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.

The poor demand, especially from foreign investors, sent the bonds’ prices sharply lower and yields higher. It lifted the yield on the 10-year note to 3.9% — its highest since last June, and approaching the psychologically important 4% mark. That mark has been pierced only briefly since the financial crisis in 2008.

Investors’ response marked a big shift from auctions in recent months in which major foreign buyers, such as central banks, had snapped up Treasurys. It could spell trouble for the U.S. housing market; the rates on many mortgages are linked to the yield on the 10-year note.

The move up in its yield coincides with the impending end of the Federal Reserve’s program to support the mortgage market. The Fed has bought $1.25 trillion of mortgage-backed securities, bolstering their prices and thus holding down their yields.

In the past two days, mortgage rates have also ticked up. The average 30-year mortgage rate rose to 5.13% on Thursday from 5.06% on Monday, according to HSH Associates in Pompton Plains, New Jersey.

Concerns about the U.S. budget deficit are beginning to hurt the Treasury market, says Steve Rodosky, head of Treasury and derivatives trading at bond giant Pacific Investment Management Co. He says he is increasingly worried about the U.S. fiscal outlook. “The government needs to take real action rather than pay lip service” to addressing the fiscal problems.

In all, the U.S. government is expected to sell $1.6 trillion in debt this year, including the $118 billion sold this week.

There are some temporary factors behind the lackluster demand for this week’s Treasury offerings, such as a reluctance by Japanese investors to make new investments ahead of their fiscal year-end March 31.

While this could be just “noise” in the markets, “I think it involves a greater, long-term concern about deficits in the U.S. last 10 or 20 years, about Social Security being in a deficit,” said Brian Fabbri, chief economist North America at BNP Paribas. “And all of the concerns about the U.S. have been heightened by concerns about Greece.”

The jitters in Treasurys haven’t spread to other markets. Stocks remain near 18-month highs. The Dow Jones Industrial Average came within 45 points of the 11000 mark on Thursday before falling back. It closed up 5.06 points at 10841.21.

Bruce Bittles, a strategist at R.W. Baird & Co., said he remains bullish on stocks for now. But he said if the yield on 10-year Treasurys creeps above 4%, that would be an important signal to start dialing back his clients’ stock holdings. “In a debt-based economy like we have in the U.S., it doesn’t take much of a hit from bond yields to cause some real pain,” by raising costs to finance economic activity, Mr. Bittles said.

The dollar has rallied, even as Treasurys have sold off. Usually, concerns about budget deficits send a currency lower. But investors appear to be betting on better prospects for a recovery in the U.S. than in Europe.

Adding to the focus on the Treasury market’s woes this week has been an unusual development in an important, but usually ignored, market: interest-rate swaps. These common derivatives entail contracts that typically involve trading one stream of interest income for another. And in the past week, investors are being paid more to own U.S. Treasurys than U.S. corporate bonds.

This development “is causing a lot of people to start scratching their heads, trying to understand what’s going on,” said BNP’s Mr. Fabbri. One explanation, he said, may be investors are more comfortable with the risks of owning bonds backed by U.S. corporations than the government. The big question is whether this fall in demand for Treasurys, and spurt in their yields, will prove temporary or is the start of a trend.

For the most part, investors have taken at face value statements from Federal Reserve officials, including Chairman Ben Bernanke on Thursday, that the Fed isn’t about to start raising the short-term rate it controls. But a growing number of investors expect at its next policy-making meeting in late April, the Fed may step back from its pledge to keep short-term rates low for an “extended period.”

Longer-term interest rates aren’t set by the Fed but move on their own, in response to supply and demand. And some argue that the bond market has been too confident about these longer-term rates remaining low — at a time when the economy is slowly improving and the government is running huge budget deficits.

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Deborah Lynn Blumberg, Min Zeng and Prabha Natarajan contributed to this article.