CURRENTS
Volume 15, Number 4, 1992.

An Open Letter to the President-Elect

Dear Mr. Clinton:

As an economist, I recognize that, at the margin, free advice is probably worth what it costs. At the risk of overloading your agenda, however, let me suggest four specific near-term actions affecting federal regulation that would increase economic growth.

First, appoint a responsible official as administrator of the Office of Information and Regulatory Affairs. The gross annual cost of federal regulation is now about $600 billion and has been an increasing constraint on economic growth. The office with the primary responsibility to review federal regulations, however, has not been led by a political appointee for four years, and your friends in Congress have seriously limited the effectiveness of this office. You will find, as did President Carter, that an effective review of federal regulations is an important part of a coherent economic program.

Second, review the Basle standards on bank capital. Those standards on bank capital, implemented over the past several years without congressional review or approval, have seriously limited the supply of credit, primarily to small business. Moreover, those standards may be the primary common reason for the recession or slow growth in all of the major economies. As long as the government insures deposits, some regulation of bank capital is required, but those standards are badly designed and merit careful review and possible change.

Third, propose a repeal of the Davis-Bacon Act. The regulations under that act, approved in 1931 to limit the employment of blacks in the construction trades, substantially increase the cost of construction contracts financed with federal money. You have proposed a substantial increase in federal spending for public infrastructure. The value of that initiative, however, will depend on the amount and type of construction completed, not on the amount spent. You are well-advised to propose a repeal of that act as part of your infrastructure program.

Finally, above all, do no harm. The major potential new regulatory burden is your tentative early endorsement of a "play or pay'' plan for health insurance. The major burden of that measure would be on small businesses and the low-income employees of those firms. There are much better ways to address the problems of those without health insurance. Review the health care problems and policy alternatives very carefully before you commit your administration to a major health care initiative.

W.N.

Insurance and the Regulation of Medical Care

For many years the government has subsidized the demand and restricted the supply of medical care. One consequence has been a rapid increase in both the relative price and real expenditures for medical care. The relative price of medical care has increased at an increasing rate; in 1991 the relative price of medical care increased 5.8 percent--a rate, if sustained, that would double the relative price in the next twelve years. Total expenditures for medical care have increased from 5 percent to 13 percent of GDP over the past thirty years and are now the most rapidly growing component of both private payrolls and government budgets.

The primary cause of this rapid escalation of medical care prices and expenditures has been the progressive broadening of the number of people and the range of medical services covered by health insurance. The share of personal health care expenditures paid directly by patients has declined from about 50 percent to about 20 percent since 1960. Given the dominance of third-party payments, neither patients nor physicians now have an adequate incentive to control the costs of medical care.

One other consequence has been a progressive broadening of the regulation of the medical sector in an attempt, so far ineffective, to constrain the escalation of medical care prices and expenditures. The compensation rates to hospitals by Medicare, for example, have been controlled since late 1983, and control of the compensation rates to physicians by Medicare was implemented in 1992. Congress is now considering a major bill that would extend the Medicare compensation rates, with limits on balance billing, to all private payers.

Those issues--the interaction of insurance and the regulation of medical care--were the focus of the third annual Regulation conference on April 20 and May 1 of 1992. Most of the articles in this issue are selected from papers presented at that conference. As has been the case with prior Regulation conferences, the selection of papers to publish was not easy and does not reflect on the quality of the other papers. A brief summary of the other papers is a useful complement to those published in this issue.

The first panel addressed the effects of incomplete health insurance coverage. George Fisher, a practicing physician, summarized the characteristics of the uninsured. Around 35 million Americans do not have health insurance; most of this group, however, is only temporarily uninsured, usually between jobs, and the characteristics of the group are very heterogeneous. Arnold Epstein, a physician at the Harvard Medical School, summarized the results of a major study of the medical care and health status of the uninsured. The major results of that study are that the uninsured use about two-thirds of the amount of medical services as the insured (normalized for age, race, and sex but not income) and that the health status of the uninsured is somewhat worse than the insured both before and after the use of a medical service. Thomas Hoerger, an economist at Vanderbilt, summarized the evidence on who pays for the uninsured. As of 1989, hospitals supplied about $11 billion of uncompensated care, primarily to the uninsured. Services provided to the uninsured are financed, roughly, 26 percent by the uninsured directly, 20 percent by state and local governments and private donations, 10 percent by Medicare, and the rest by cost-shifting from charges to the insured. Survey evidence suggests that the average physician provides about $25,000 of uncompensated care per year, again primarily to the uninsured. The general lesson from the panel is that the lack of health insurance leads to significant problems, in terms of both the health status of the uninsured and the costs of uncompensated care, but that these are relatively small and manageable problems in a medical sector in which total expenditures are now about $800 billion a year and increasing rapidly.

The second panel summarized the effects of broader health insurance coverage on the relative prices and regulation of medical care. Gary Robbins, an economic consultant, summarized the results of a study of the effects of tax-subsidized and tax-financed health insurance on the relative price and utilization of medical care. At the margin of current conditions, over 50 percent of additional subsidies are reflected in higher prices and less than 50 percent in increased services. John Goodman, an economist at a Dallas policy institute, attributes most of the increased regulation of the medical sector to an attempt to control the increased prices and expenditures that are primarily the consequence of broader health insurance coverage. For the most part, those regulations have not been effective in offsetting the "moral hazard'' problems caused by insurance and have themselves become a source of increased costs. The general lesson of the panel is that broader health insurance has been a major source of the perceived problems of American medical care.

Other conference papers not published in this issue addressed a range of topics. Richard Scheffler, an economist at Berkeley, reviewed the record of hospital reimbursement under Medicare; one important conclusion of his paper is that the prospective payment system has increased the inflation rates on services covered by private insurers. Sheila Shulman, a public health specialist at Tufts, reviewed the record of the Orphan Drug Act; she proposes a change in test criteria to better focus on valuable drugs that are not likely to be commercially viable. John Holahan, an economist at the Urban Institute, summarized the effects of federal mandates on Medicaid spending; he concludes that those mandates have had a significant but small effect, with the largest effect on spending by the southern states. Katherine Swartz, also an economist at the Urban Institute, evaluated the "pay or play'' proposals and concluded that they are best perceived as a transition to a national health insurance program. Gerald Musgrave, an economic consultant and the author of a different article in this issue, summarized the case for "Medisave'' accounts as a means to increase the incentives of patients to control the use of medical services. The conference participants were also treated to the informed political realism of luncheon addresses by Rep. Willis Gradison of Ohio and Gail Wilensky, the health policy adviser in the Bush White House.

Where do we go from here? The major lesson that we should have learned from this conference is that the inflation in medical care prices and expenditures can only be reduced by reducing the growth of demand for and increasing the supply of medical care. There are specific, relatively small policy problems resulting from the lack of health insurance, but any measure to broaden health insurance to those who would otherwise be uninsured should be part of a broader reform to reduce the growth of the total demand for medical care. Direct regulation of medical prices and expenditures, as in any other market, would surely lead to rationing of access to medical care on some other criteria.

The more things change, however, the more they stay the same. President-elect Bill Clinton campaigned as the candidate of change, but his tentative proposals on health policy ignore the major lessons of recent decades. The uninsured would be provided health insurance by mandates on employers or additional government expenditures, and total expenditures would somehow be limited by direct controls. Those measures would exacerbate the primary conditions that have led to a perception of a health care crisis--higher prices, higher expenditures, and broader regulation. Clinton has promised to propose a major health program in the next few months. Congress would be well-advised to act more deliberately. Genuine change implies a change of direction, not of magnitude. More of the same would only increase the magnitude of our major health care problems.

W.N.

Chipping away at Industrial Policy

It is time to gloat a little. I refer to the November 20, 1992, Washington Post, specifically to the front-page story headlined "U.S. Again Leads in Computer Chips.'' The Post story reports preliminary 1992 sales-figure estimates showing that, for the first time since the mid-1980s, American semiconductor manufacturers will edge out their Japanese rivals for largest share of the world computer chip market. The article might just as well have been titled "Industrial Policy Misses Boat Again.''

The decline and fall of the American semiconductor industry have been part of the economic nationalist-industrial policy mantra for years. That collapse was supposedly most clearly revealed in the figures for aggregate world market share: in 1982 the U.S. industry had 54 percent of the world chip market, compared with 34 percent for the Japanese; by 1989 those numbers had basically flipped, with Japanese market share rising to 52 percent and the U.S. share dropping to 35 percent. It was a case, in the words Clyde Prestowitz used to title his book, of "trading places.''

Somehow, though, the sky has managed to recover from its fall over the past couple of years. In 1990, for the first time since 1979, American aggregate market share gained on the Japanese. And now, according to estimates by VLSI Research, American firms will actually edge out their Japanese competitors in 1992, 44 percent to 43 percent. It is a bitter setback for the doom-and-gloomers.

The story behind the rebounding numbers provides a valuable lesson on the perils of government's intervening to assist so-called strategic industries. Panic over the declining fortunes of American chipmakers provoked Washington to attempt a number of protectionist and industrial policy responses. All of them failed, yet the industry recovered anyway. With the benefit now of hindsight, it is clear that the industrial policy crowd completely misdiagnosed what was happening in the semiconductor industry.

In actual fact, the reports of American chipmakers' demise were always greatly exaggerated, those apocalyptic aggregate market share statistics notwithstanding. In the first place, the dramatic reversal of fortunes that the 1982 and 1989 figures seem to reveal is largely an artifact of currency fluctuations. Using a constant 1990 yen-dollar exchange rate, the apparent 37-point swing in market share differentials (the U.S. industry up 20 percentage points in 1982, down 17 in 1989) reduces to a much more modest 12-point swing (the U.S. industry down 3 points in 1982, down 15 in 1989).

Furthermore, the figures cited do not include the American "captive producers''--companies (most prominently IBM) that produce semiconductors for their internal use but not for sale. Japan doesn't have captive producers. In 1987 IBM and the other captives produced an estimated $5.1 billion worth of computer chips, as compared with $12 billion in sales by U.S. "merchant'' producers. Include the captive producers in the market share statistics and the U.S. industry never lost its lead over the Japanese.

Even so, the trends for the U.S. semiconductor industry were decidedly negative for much of the 1980s. The reason for that is that American firms were more or less routed in one particular product market: high-volume, standardized "commodity'' memory chips, the biggest selling of which are known as DRAMs (dynamic random access memory, pronounced dee-ram). Here a few words of oversimplified explanation are in order. Semiconductors may be divided into two broad classes: "commodity'' chips, which are mostly memory chips that store and retrieve data, and "design-intensive'' chips, which generally are logic chips that process and manipulate data. Commodity chips are standardized in design and function and are sold in high volumes; design-intensive chips have specialized or even customized applications and are sold in lower volumes. The market for commodity chips, as their name implies, is price-driven; design-intensive chips, by contrast, are highly differentiated with high "proprietary'' content. Competitiveness in commodity chips is a matter of manufacturing efficiency; competitiveness in design-intensive chips depends primarily on innovative design.

During the first half of the 1980s, one American chipmaker after another left the commodity memory business in the face of relentless Japanese competition. By 1986 only two U.S. firms continued to make DRAMs for sale; the U.S share of the merchant market plunged from nearly 100 percent a decade before to less than 10 percent. In the design-intensive segment of the industry, though--most notably in microprocessors--American firms maintained their preeminence.

The evacuation from the DRAM market was widely regarded as a catastrophe for American microelectronics. It was the accepted conventional wisdom that competitiveness in commodity memory chip production was the key to competitiveness in semiconductors generally. According to the influential 1987 report on defense semiconductor dependency by the Pentagon-sponsored Defense Science Board, DRAMs "in many respects represent the bellwether of the semiconductor industry.'' They "are the most challenging semiconductor chips to manufacture competitively, and their development establishes the pace for progress in semiconductor technology.''

Thus, it was thought that losing out in DRAMs had broad negative implications for American competitiveness. To quote from A Strategic Industry at Risk, a 1989 report by the National Advisory Committee on Semiconductors, ";obt;cbhe loss of position in memory is particularly disturbing because leading-edge memory drives technological advances in a broad range of process and manufacturing areas.'' The fear was that falling behind in DRAMs would start a chain reaction of subsequent losses in other areas of the semiconductor industry, not to mention the upstream semiconductor equipment industry and the downstream electronics industry.

In particular, the American lead in design-intensive chips was seen as unsustainable unless the commodity memory market could be reclaimed. The Defense Science Board report stated: "In the absence of a domestic mass-production revenue base needed to preserve a viable domestic production equipment industry, the specialty ;obthat is, design-intensive;cb producers themselves may become dependent on foreign suppliers for their materials, equipment and fabrication technology, and would then be at a disadvantage when under competitive assault by firms controlling the access to those resources.''

In the larger picture the Japanese ascendancy in DRAMs looked like yet another advance in Japan's bid to replace the United States as the world's top economic superpower. In the 1950s and 1960s Japanese companies took the lead in basic industries like steel and textiles, moved on in the 1970s to consumer industries like automobiles and consumer electronics, and then cracked into high tech with DRAMs, machine tools, robotics, and flat video screens. American economic superiority was fast disappearing as Japanese firms continued relentlessly "up the food chain.''

Such fears gave rise to a number of interventionist government policies designed to rescue the semiconductor industry. First, as a settlement of antidumping cases filed against Japanese chip producers, the U.S. and Japan entered into a 1986 agreement to establish price floors on Japanese chip exports not only to the United States, but around the world. The agreement further targeted 20 percent of the Japanese semiconductor market to be reserved for U.S. and other foreign suppliers. Next, starting in 1988, the Pentagon began bankrolling Sematech, a consortium of the largest U.S. chip producers engaging in cooperative R&D. The Pentagon's annual contribution is $100 million, or roughly half of Sematech's budget. Finally, the government offered special antitrust immunity to U.S. Memories, another consortium that was supposedly to enter actual commercial production of DRAMs. There was also talk of $500 million in federal loan guarantees for U.S. Memories, but the consortium fell apart before ever getting off the ground.

Notwithstanding all the federal aid, the American semiconductor industry never really staged a comeback in DRAMs. U.S. firms in 1991 still had only about 18 percent of the world merchant market. What, then, has accounted for the American success story of recent years? Basically, there was a major strategic shift in the course of the semiconductor industry during the late 1980s that the conventional wisdom, and its slavish followers in industrial policy circles, never saw coming.

According to the conventional wisdom, by the early 1980s the semiconductor industry had reached "maturity''; it had outgrown its raucous entrepreneurial youth and settled into a strategic model based on mass production of standardized products. Within that model, economies of scale and low-cost manufacturing efficiency dominated; the future of the industry lay along a predictable path of incremental improvements in manufacturing technology. Yes, there were segments of the industry where specialized designs could yield high profits, but they were niche markets that were becoming progressively marginalized. At any rate, producers specializing in filling those niches could never hold their own against the leaders in the high-volume commodity products.

The mature mass-production model explains why DRAMs were considered so important. Developing each new generation of chip--64 kilobits of memory, 256 kilobits, 1 megabit, 4 megabits, and so on--did indeed drive progress in manufacturing processes and equipment. If success in semiconductors was simply a matter of squeezing ever more transistors onto ever smaller slivers of silicon at ever lower cost, then indeed it was difficult to picture American companies' keeping up with the Japanese without keeping up in DRAMs.

Furthermore, it is understandable why people thought that the Japanese would dominate a mature industry. They had all the advantages to play that game. The huge vertically integrated Japanese producers had resources that dwarfed most American producers. Less expensive capital, long-term cooperative relationships with suppliers, and mastery of quality control all gave Japanese firms enormous advantages in low-cost manufacturing. By contrast, the Silicon Valley start-up business culture was condemned by Robert Reich and other industrial policy types as "chronic entrepreneurialism.'' Unless American producers consolidated or joined together in consortia (as in Sematech and U.S. Memories), that is, unless they became more like the Japanese, they would always be outmatched.

As events would have it, though, the supposedly mature semiconductor industry has had an unexpected regression into adolescence. At present, in fact, it looks like a Peter Pan that may never grow up. A shakeup in technology has turned the predictable world of standardized mass production upside down.

Because of revolutionary new design tools, chipmakers have become able to design new chips at a pace only recently considered inconceivable. The number of new chip designs has exploded from 10,000 a year in the mid-1980s to over 100,000 a year currently. As a result, the cost of producing specialized, design-intensive chips has plummeted, and the market for them has expanded correspondingly. The old combination of generic chips and customizing software is giving way to already-customized hardware. In other words, there has been a major shift in the industry's balance of power away from standardized commodity memories and in favor of specialized, design-intensive products.

While commodity memory chips remain a major segment of the industry, growth has been flat, and opportunities for profit have been few and fleeting. Japanese firms still dominate the commodity market, but vanquishing the Americans proved a Pyrrhic victory. The departure of U.S. companies did not relax the competitive pressure; competition among Japanese companies remains ferocious, and now upstart Korean producers are doing to them what they once did to the Americans: undercut them on price at every turn.

Amazingly, the massive investments that Japanese companies have made in commodity memory--which once inspired such awe and fear--are now being dismissed as a costly mistake. The recent Washington Post story, in explaining the U.S. industry's rebound, had this to say: "The Americans were aided by a Japanese blunder in choosing to invest heavily in making computer memory chips, a relatively simple type of chip that is no longer so profitable.'' If only Clyde Prestowitz, Charles Ferguson, Robert Reich, Lester Thurow, and others could be made to write that sentence on the blackboard a hundred times.

The U.S. industry, meanwhile, has concentrated its resources on design-intensive chips and has ridden their wave back to market share preeminence. Leading the way have been smaller, innovative, entrepreneurial companies that no one had ever heard of or that did not even exist back when DRAMs were being lost. Many of those upstart companies--with names like Cirrus Logic, Altera, Xilinx, and Weitek--have enjoyed rapid growth and huge profits without even manufacturing anything; they design the chips and then farm out production to subcontractor foundries.

The new perpetual-adolescence strategic model is perfectly suited to American strengths. Design innovation has always been an American strong suit, and in the current alignment creating value with a better design is much more important than cutting costs marginally on the manufacturing floor. Moreover, with a profusion of new products and the rapid acceleration of product life cycles, flexible customized production replaces standardized mass production. In such an environment the smaller, more nimble companies nurtured in the American entrepreneurial system are much better adapted than are the lumbering vertically integrated dinosaurs of Japan.

Of course, there is no guarantee that American companies will continue to exploit their advantages, or that future developments in the industry will not turn the tables back in favor of the Japanese. However the tale continues, its twists and turns up to this point have very clear public policy implications. Namely, trying to second-guess the marketplace through industrial policy interventionism is a losing proposition, especially in a turbulent high-tech marketplace where obsolescence is measured in months.

Industrial policy types have been railing for years about how the Reagan and Bush administrations, with laissez faire ideological blinders, allowed America to cede leadership in microelectronics to Japan (whatever that means). It is now apparent that everything they were saying was 100 percent wrong. They claimed to be forward-looking supporters of a "strategic'' sunrise industry; in fact, they turned out to be reactionary defenders of a sunrise industry's sunset sector. Fortunately, the various interventionist policies launched in response to their pressure proved more irrelevant than harmful; American chipmakers blithely ignored everything the industrial policy "experts'' (including some of their own CEOs) were telling them and prospered accordingly.

Unfortunately, many of the principal figures of the industrial policy crowd are now preparing to assume important positions within the incoming Clinton administration, an administration enthusiastically committed to governmental intervention on behalf of "strategic'' industries. The parade is not likely to be canceled on account of a few drops of fact.

B.L.

Is Lead a Heavy Threat?

In 1981 the Environmental Protection Agency forcibly evacuated Times Beach, Missouri, at a cost to the American taxpayer of over $60 million. The goal was to eliminate the threat posed by dioxin, then viewed as the most potent of human carcinogens. Now the U.S. Centers for Disease Control acknowledge that the risks posed by exposure to dioxin, while present, were overestimated.

Today lead has replaced dioxin at the top of the federal government's list of toxic threats, and in fall 1991 the Centers of Disease Control lowered the safety threshold for blood-lead content from twenty-five to ten micrograms per deciliter. Feared for its potential impact on child development, the presence of lead has rapidly given impetus to a vast array of government programs from required lead testing for all children receiving Medicaid assistance to the creation at the Department of Housing and Urban Development of the Office on Lead-Based Paint Abatement and Poisoning Prevention, which will spend almost $75 million in fiscal year 1993 to assist in the removal of lead from homes. Although the use of lead in consumer paints was banned in 1973, it is estimated that as many as 57 million homes still have lead-based paint. According to HUD, the cost of safely removing that paint will average more than $7,000 per unit. Testing alone can cost several hundred dollars per unit. Mandating either or both at the point of sale for housing will increase the cost of purchasing a new home. The Environmental Defense Fund estimates that deleading the 24 million homes most in need of abatement will cost approximately $240 billion.

Those policies are in addition to state and local actions, such as New York City's decision to spend $3 million to reduce lead levels in the city's water supply, and other federal actions, such as an education project of the President's Commission on Environmental Quality (spearheaded by the Environmental Defense Fund) and the cleanup of lead-contaminated Superfund sites. Despite such intense activity, leaders within the environmental establishment claim that existing efforts are inadequate. That has led some observers to speculate that the actual goal is to remove lead from the periodic table of elements.

While one would expect such drastic action if there were a scientific consensus on the threats of lead exposure, there is no scientific consensus. While scientists near universally agree that lead is a dangerous neurotoxin capable of stunting childhood development at moderate to high blood levels, they do not agree on the threshold at which those effects begin. Indeed, the history of lead research is marked by an acrimonious debate over the relative risks posed by lead poisoning and at what levels public action should be encouraged because, as with most toxic substances, the damage from lead is a function of the dosage.

The concern that lead exposure could retard the intellectual development of young children arose in 1979 as a result of a study conducted by the University of Pittsburgh's Herbert Needleman, now chairman of the board of the Alliance to End Childhood Lead Poisoning, a Washington, D.C.-based advocacy group. The study purported to show that children with relatively high, but nontoxic levels of lead had demonstrably lower IQs than their less-exposed counterparts. Although the IQ drop was relatively small--three to four points--if millions of children were afflicted, the result would cause significant concern because early exposure to low levels of lead could impair a substantial portion of America's youth.

Needleman's data did not go unchallenged, however. Beginning in 1981, several experts began to question the methodology Dr. Needleman used to get his results. At issue was whether he had sufficiently controlled for confounding variables such as schooling, socioeconomic background, child age, and parental IQ that could significantly affect children's IQ scores. One critic, University of Virginia psychologist Sandra Wood Scarr, claimed that a cursory review of Needleman's original data revealed that they supported none of the conclusions he wished to draw. Critics not only accused Needleman of failing to account for confounding variables, but questioned whether he, intentionally or not, had manipulated his data to arrive at the conclusion that low-level lead exposure could harm children.

The challenges to Needleman's research--hardly conclusive, as no expert has been afforded the opportunity to evaluate his raw data thoroughly because Needleman now claims to have lost them--prompted an investigation by the National Institutes of Health's Office of Scientific Integrity and the University of Pittsburgh. The report has yet to be released pending an appeal by Dr. Needleman, and so the validity of his research remains clouded in doubt. Given that Needleman's research lies at the heart of the federal government's lead risk assessment, the charge of scientific misconduct is cause for concern.

Federal health officials claim that Needleman's study is not the sole basis for federal policy, however. Dr. James Mason, head of the Public Health Service, cites eighteen "sophisticated studies'' from around the world that justify public concern about lead: "It is on these studies--not on any single study--that the federal policy has been based.'' What is interesting is that the particular studies Dr. Mason cites do not support the government's reducing the standard for safe lead exposure levels to ten micrograms per deciliter. Several of the studies cited do not analyze lead levels that are low enough to be relevant to the debate. Moreover, others show no statistical correlation between low-level lead exposure and IQ levels. For example, Dr. Mason cites a study from England, although the author of the British studies, Dr. Marjorie Smith, has claimed that there is no such evidence about lead exposure. Dr. Smith asserted that "it is still not possible to conclude with any certainty that lead at low levels is affecting the performance or the behavior of children.'' She contended that "parental IQ is the most important influence on child IQ,'' though she noted that several other factors such as family size, social class, and quality of marital relationships were also significantly related to a child's IQ. Smith concluded that there was "no overall evidence that tooth lead concentrations were related to child IQ once these other factors were taken into account.''

Of the international studies, the only reliable one that found any connection between low-level exposures to lead and reduced IQs was conducted in Edinburgh, Scotland. After adjusting for confounding variables, the study found an IQ decline of less than 1 percent, a range that is barely perceptible given the margin of error in childhood IQ tests of plus or minus 3 to 5 percent. As a result, it is difficult to argue, on the basis of those results, that lead is a primary factor in determining a child's IQ. As Dr. Smith noted in an analysis of a study by the Institute of Child Health in England, "moderate elevations in body lead burden play only a minor role, if any, in determining a child's IQ when compared with parental and socioeconomic factors.''

Other studies that are frequently identified include longitudinal studies conducted in the United States and Australia. In those studies the scientific evidence does not appear to support the policy of lowering the lead threshold to ten micrograms per deciliter. Those studies do, however, reinforce the scientific consensus on the potential damage to childhood intellectual development from moderate lead levels--twenty to forty micrograms per deciliter. Nonetheless, as noted in the recent Port Pirie, Australia, cohort study published in the New England Journal of Medicine, "the deleterious effects of lead are not large, and ... only a small fraction of the overall variation in IQ can be attributed to lead exposure.''

The threat of lead poisoning, while real, is not so severe as many activists assert. At worst, it is only a minor player in retarded childhood development. There is no conclusive evidence to suggest that the detrimental effects of lead exposure occur at blood lead levels below twenty micrograms per deciliter. To claim the existence of an international consensus on the threat of lead at levels well below that level is further belied by the fact that the U.S. threshold is lower than Canadian and European thresholds. Even the lead poisoning document in which the Centers for Disease Control defended the lower standard, Preventing Lead Poisoning in Young Children, fails to recommend any remedial action other than continued monitoring for lead levels below twenty micrograms per deciliter.

Lead poisoning is often viewed as primarily a problem of the inner city. All estimates concur that inner city black children are among those at greatest risk from lead poisoning, as they are for many other afflictions from malnutrition to urban violence. It should be noted that not only can malnutrition increase the absorption of lead into the bloodstream, but the lack of proper nutrition and other factors have their own impact on childhood IQ.

Sadly, many of the efforts to help those children may only compound their suffering. Lead programs, such as the testing and remediation of low-income dwellings, will only increase the cost of housing for that segment of the population. Some cities are already experiencing that phenomenon. Certainly, the threat of being homeless is greater than the threat of living in a home with lead paint. Moreover, relying primarily on testing and remediation at the point of sale for home deleading would take more than two decades to delead the majority of dwellings.

An EPA representative says that the lessons from past experience in regulating asbestos should be particularly instructive in the case of lead. Indeed they should, as millions of dollars were spent on what was often an inconsequential or even a nonexistent health risk. Unfortunately, it is not clear that those lessons have been learned. In New York City a Greenwich Village public school shut down temporarily after a lead abatement contractor raised the alarm of potential lead poisoning from flaking paint. According to the New York Times, abatement costs for the school will exceed $500,000--money that will not be spent on textbooks, teachers' salaries, or school lunch programs.

Moreover, as with asbestos, improper remediation actually increases the threat of lead. A 1990 Boston study found that the blood lead levels of children in the deleaded homes went up, even though the children had been relocated during lead removal process. While deleading methods have improved since then, the study points to the danger of improper deleading. Should existing and proposed lead "education'' efforts result in a scare similar to that with asbestos, it is reasonable to expect that much of the deleading will do more harm than good.

Because money spent on lead abatement and remediation programs cannot also be spent on other, more serious problems, the opportunity costs of lead programs are outrageously high, and the potential lead hysteria created by government "education'' programs is unconscionable. As with asbestos, efforts aimed at reducing threats to children could actually have the opposite effect; and as with dioxin, many of the efforts may be based on faulty assessments of the potential risks. Before the government embarks on yet another series of environmental risk initiatives, it should ensure that its priorities are grounded in sound scientific evaluations of risk. Unfortunately, with lead, that does not appear to be the case.

Jonathan H. Adler
Competitive Enterprise Institute

Regulation Vol. 15 No. 4, © 1992 by the Cato Institute.

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