August 15, 2012 7:02 pm

America has lost the battle over government

By Jeffrey Sachs

With Congressman Paul Ryan as the Republican vice-presidential candidate, the US election is shaping up to be a full-throated ideological brawl. President Barack Obama champions public investment and social support for the poor, while Mitt Romney and Mr Ryan call for a smaller state with lower taxes and spending. Yet for all the rhetoric, the small-government agenda has already prevailed. No matter who is elected on November 6, dangerous cuts in public goods and services are already in train.

There is considerable controversy about Mr Ryan’s budget plan, which exemplifies an aggressive Republican pitch to cut government spending, tax rates and social protection. Mr Ryan would reduce the top rate of personal income tax from 35 per cent to 25 per cent and slash transfer programmes for the poor, such as Medicaid and food stamps. His plan would also eliminate Mr Obama’s healthcare legislation. Radical stuff.

There are also deep doubts about Mr Ryan’s claim that top tax rates can be reduced in a “revenue neutral” way by plugging loopholes. Mr Ryan invites these doubts by offering few details on how such loophole-plugging would work. It is more likely than not we would repeat the history of the Ronald Reagan and George W. Bush tax cuts: revenues would plummet and the supposed offsets would never materialise. Today’s enormous deficits would become even larger.

Still, American liberals (those to the left of the political centre), who are now vehemently blasting Mr Ryan’s budget should take note. Their candidate has also already accepted a brutal shrinkage of government programmes in coming years. The similarities of the Obama budget and Mr Ryan’s are striking.

Mr Ryan’s plan calls for federal revenues of 18.4 per cent of gross domestic product in 2016 and 18.5 per cent in 2020 (though his lower tax rates would probably put those targets out of reach). His budget outlays come in at 19.7 per cent and 19.5 per cent in 2016 and 2020, respectively. Of the total outlays in 2016, Mr Ryan targetsdiscretionary programmes at 5.9 per cent of GDP; social security, 5 per cent; Medicare, 3.2 per cent; other mandatory spending, 3.7 per cent; and interest payments, 1.9 per cent.

Now consider Mr Obama’s budget unveiled in February. Federal revenues are targeted at 19.1 per cent of GDP in 2016 and 19.7 per cent of GDP in 2020, only about 1 percentage point above Mr Ryan’s revenue targets. In Mr Obama’s 2016 budget targets, discretionary spending is set at 5.9 per cent of GDP; social security, 5 per cent; Medicare, 3.2 per cent; other mandatory spending, 5.8 per cent; and interest payments, 2.5 per cent.

In fact, Mr Obama’s overall discretionary spending targets are essentially the same as Mr Ryan’s. Whether Mr Obama or Mr Romney wins, the “non-securitydiscretionary budget – for education, job skills, infrastructure, science and technology, space, environmental protection, alternative energy and climate change adaptation – is on the chopping block. Mr Obama’s budget would shrink non-security discretionary programmes from an already insufficient 3.1 per cent of GDP in 2011 to 1.8 per cent in 2020. That is the “liberalalternative.

In bemoaning Mr Obama’s budget, I do not mean to equate it with Mr Ryan’s. Mr Ryan’s budget is nothing short of heartless in the face of the dire crisis facing America’s poor. It is also reckless, guaranteed to leave millions of children without the quality of education and skills they will need as adults. Yet the sad truth is that the Democrats offer no progressive alternative. Both parties are accomplices to the premeditated asphyxiation of the state.

Viewed from an international perspective, the constricted range of the US fiscal debate is striking. Total US government revenues (combining federal, state and local governments) in 2011 came in at about 32 per cent of GDP. This compares with an average of 44 per cent in the EU and 50 per cent in northern Europe.

Many Americans will say that they are dodging the European curse by keeping taxation so low but they should look again. Northern Europe (Germany, the Netherlands, Denmark, Finland, Norway and Sweden) gets great value for its tax revenues: lower budget deficits, lower unemployment rates, lower public debt-to-GDP ratios, lower poverty rates, greater social mobility, better job training, longer life expectancy, lower greenhouse gas emissions, higher reported life satisfaction and greater macroeconomic stability.

America’s two political parties depend on wealthy contributors to finance their presidential campaigns. These donors want and expect their taxes to stay low. As a result, social divisions, broken infrastructure, laggard educational attainments, high carbon emissions and chronic budget deficits are likely to continue no matter who is elected, even though the public supports higher taxes on corporations and the rich.

Only a big political realignment, perhaps spurred by a third party bold enough to campaign on free social media rather than expensive television advertising, is likely to break the status quo. Until then, the demise of public goods and services will continue apace.

The writer is the director of the Earth Institute at Columbia University and author of ‘The Price of Civilization’

Copyright The Financial Times Limited 2012.

Brazil’s economy
Facing headwinds, Dilma changes course
The government announces plans to privatise infrastructure, and disappoints striking bureaucrats
Aug 18th 2012

IN RECENT years Brazil’s government has been able to avoid tough spending choices. Faster economic growth and falling tax evasion have translated into steadily rising revenues, allowing the federal government to hire more workers and pay them more, as well as to boost pensions and social transfers (see chart 1).

But the fat times are over. In 2011 economic growth was only 2.7%; this year 2% looks optimistic. Tax revenues are rising only a little faster than inflation. The government can no longer satisfy everyone.

The noisiest demands come from public-sector workers. Teachers at federal universities have been on strike for three months; they have recently been joined by federal police, tax officials and staff at some regulatory agencies. Around 300,000 have walked out, almost half the federal workforce. Police have blocked roads and worked to rule at airports, causing travel chaos. Striking customs officials have left goods stuck in ports. The strikers’ demands would swell the federal government’s salary bill by up to 50%; inflation is running at 5.2%.

The president, Dilma Rousseff, has made clear her irritation. Most federal employees have had big pay increases since 2003, when her Workers’ Party (PT) came to power. On average, federal salaries are now around double the private-sector rate for equivalent jobs, points out Raul Velloso, a public-finance specialist in Brasília.

Ms Rousseff has said that any pay rises will be limited to the lowest paid, or tied to productivity—and that public money would be better directed to helping private companies avoid lay-offs. Strikers have been threatened with docked pay and state governments authorised to use their own staff as cover. All this marks a big shift: the strikes are being led by the Central Única dos Trabalhadores, a powerful group of unions with strong links to the PT.


Even if the president wins this battle of wills, it has already disrupted her plans. For months officials have been promising new measures to boost growth by cutting the custo Brasil, as the fearsome cost of doing business in the country is known. To turn an honest centavo, businesses must cope with awful roads, high energy costs, archaic labour laws and a Byzantine bureaucracy. But announcements were postponed as the government reworked its sums to find some crumbs for the strikers.


On August 15th, before an audience of business leaders at the presidential palace, Ms Rousseff unveiled plans for auctions to bring private firms into building and running infrastructure. Investors will be invited to build or upgrade and then operate toll roads totalling 7,500km (4,700 miles) and railways covering 10,000km. Investment will total some 133 billion reais ($66 billion), the government estimates, with almost half spent in the next five years. The auctions will start early next year. Among the projects to be handed over are some from the government’s flagship Growth Acceleration Programme (PAC) of hitherto public investment.

Contracts for ports and airports will follow. Partnership with the private sector was the “thriftiestapproach, said the president: “We want better infrastructure to cut costs for businesses and taxpayers, and most of all to ensure more and better-paying jobs.”

Brazil’s current-account surplus relies on shipping out mountains of soya beans, iron ore and such like—the stuff is mostly moved along bumpy roads to antiquated, badly run ports, only to sit idle before loading, sometimes for weeks. Air passenger numbers have doubled in the past decade and are expected to do so again in the next. The country’s rail network is an eighth the size of that in the United States, and much of it is in terrible condition. Although federal spending on infrastructure has risen recently, excluding housing it is still only 1.1% of GDP.

Ms Rousseff, like her party, is instinctively hostile to anything akin to privatisation. But she has clearly concluded that without private-sector involvement, the infrastructure Brazil needs will never be built. Clearing such a backlog would strain any government—and in Brazil, where current spending has long crowded out investment, it is simply impossible. To make matters worse, around two-thirds of federal spending goes on pensions or other non-discretionary items, points out Mr Velloso (see chart 2). And even when the cash is there, an incompetent public sector often cannot get projects off the drawing board. Infraero, the state firm that mismanages Brazil’s airports, often fails to carry out budgeted improvements. Many PAC projects are running years behind schedule.


A policy shift away from short-term boosts to demand towards ambitious infrastructure upgrades should increase Brazil’s long-term growth, says Gray Newman of Morgan Stanley, an investment bank. But bringing in private firms cannot turn things around immediately.

Cumbersome and illogical planning and environmental laws often halt infrastructure projects for months—or for ever. This week a federal court ordered a halt to work on Belo Monte, a controversial hydroelectric scheme in the Amazon, for example. And contracting out can work only if the PT overcomes its distaste for decent private profits: the many risks in project-execution mean that otherwise investors will stay away.

The other half of the government’s promised attack on the custo Brasilmodest but broad-based tax cuts—has still not been confirmed. It has hinted that a cut in payroll taxes granted last year to sectors heavily exposed to foreign competition, such as shoes and software, may be extended to all employers. Three or four of the 28 taxes on electricity could also be abolished, reducing some of the world’s highest bills by 10-20%.


Both moves would benefit consumers and cut business costs across the economy. They would also signal a change of direction: previous tax cuts have been narrow and temporary. But budgetary pressures may mean that they are watered down or further delayed. Brazilian business must hope Ms Rousseff holds her nerve.

The human microbiome
Me, myself, us
Looking at human beings as ecosystems that contain many collaborating and competing species could change the practice of medicine
Aug 18th 2012

WHAT’S a man? Or, indeed, a woman? Biologically, the answer might seem obvious. A human being is an individual who has grown from a fertilised egg which contained genes from both father and mother.

A growing band of biologists, however, think this definition incomplete. They see people not just as individuals, but also as ecosystems. In their view, the descendant of the fertilised egg is merely one component of the system. The others are trillions of bacteria, each equally an individual, which are found in a person’s gut, his mouth, his scalp, his skin and all of the crevices and orifices that subtend from his body’s surface.

A healthy adult human harbours some 100 trillion bacteria in his gut alone. That is ten times as many bacterial cells as he has cells descended from the sperm and egg of his parents. These bugs, moreover, are diverse. Egg and sperm provide about 23,000 different genes. The microbiome, as the body’s commensal bacteria are collectively known, is reckoned to have around 3m. Admittedly, many of those millions are variations on common themes, but equally many are not, and even the number of those that are adds something to the body’s genetic mix.

And it really is a system, for evolution has aligned the interests of host and bugs. In exchange for raw materials and shelter the microbes that live in and on people feed and protect their hosts, and are thus integral to that host’s well-being. Neither wishes the other harm. In bad times, though, this alignment of interest can break down. Then, the microbiome may misbehave in ways which cause disease.

That bacteria can cause disease is no revelation. But the diseases in question are. Often, they are not acute infections of the sort 20th-century medicine has been so good at dealing with (and which have coloured doctors’ views of bacteria in ways that have made medical science slow to appreciate the richness and relevance of people’s microbial ecosystems).

They are, rather, the chronic illnesses that are now, at least in the rich world, the main focus of medical attention. For, from obesity and diabetes, via heart disease, asthma and multiple sclerosis, to neurological conditions such as autism, the microbiome seems to play a crucial role.

A bug’s life

One way to think of the microbiome is as an additional human organ, albeit a rather peculiar one. It weighs as much as many organs (about a kilogram, or a bit more than two pounds). And although it is not a distinct structure in the way that a heart or a liver is distinct, an organ does not have to have form and shape to be real.

The immune system, for example, consists of cells scattered all around the body but it has the salient feature of an organ, namely that it is an organised system of cells.

The microbiome, too, is organised. Biology recognises about 100 large groups of bacteria, known as phyla, that each have a different repertoire of biochemical capabilities. Human microbiomes are dominated by just four of these phyla: the Actinobacteria, Bacteroidetes, Firmicutes and Proteobacteria. Clearly, living inside a human being is a specialised existence that is appropriate only to certain types of bug.

Specialised; but not monotonous. Just as ecosystems such as forests, grasslands and coral reefs differ from place to place, so it is with microbiomes. Those of children in Malawi and rural Venezuela, for instance, contain more riboflavin-producing bugs than do those of North Americans.

They are also better at extracting nutrition from mother’s milk because they turn out lots of an enzyme known as glycoside hydrolase. This converts carbohydrates called glycans, of which milk has many, into usable sugars.

That detail is significant. Glycans are indigestible by any enzyme encoded in the 23,000 human genes. Only bacterial enzymes can do the job. Yet natural selection has stuffed milk full of them—a nice example of co-evolution at work.

This early nutritional role, moreover, is magnified throughout life. Like the glycans in milk, a lot of carbohydrates would be indigestible if all the digestive system had to work with were the enzymes that it makes for itself.

The far larger genome of the microbiome has correspondingly greater capabilities, and complex carbohydrates are no match for it. They are relentlessly chewed up and their remains spat out as small fatty-acid molecules, particularly formic acid, acetic acid and butyric acid, that can pass through the gut wall into the bloodstreamwhence they are fed into biochemical pathways that either liberate energy from them (10-15% of the energy used by an average adult is generated this way) or lay them down as fat.

The fat of the land

This role in nutrition points to one way in which an off-kilter microbiome can affect its host: what feeds a body can also overfeed or underfeed it. One of the first analyses of such an effect was Jeffrey Gordon’s work on bacteria and obesity. In 2006 Dr Gordon, who works at the Washington University School of Medicine, in St Louis, Missouri, published a study that looked at the mixture of bacteria in the guts of fat and thin Americans.

Fat people, he discovered, had more Firmicutes and fewer Bacteroidetes than thin ones. And if dieting made a fat person thin, his bacterial flora changed to match.

Experiments on mice suggest this is not just a question of the bacteria responding to altered circumstances. They actually assist the process of slimming by suppressing production of a hormone that facilitates the storage of fat, and of an enzyme that stops fat being burned. This may help explain an otherwise weird observation from agriculture, which is that adding antibiotics to cattle feed helps fatten beasts up—though cattle treated in this way put on muscle mass as well as fat.

Having shown that gut bacteria are involved in obesity, Dr Gordon wondered if the converse was true. In a study he conducted in Malawi, he revealed at a meeting last year, he found that it is. Having the wrong sort of bacteria can cause malnutrition, too.

To show this, he and his team looked at 317 pairs of twins (some fraternal, some identical). In 43% of these pairs, both members were well nourished. In 7% both were malnourished. Crucially, though, in 50% of them one twin was well nourished and one malnourished.

As in the case of overweight and slim Westerners, the well-nourished and malnourished twins had different microbiomes. The bugs in the malnourished children lacked both the ability to synthesise vitamins and the ability to digest complex carbohydrates. And when Dr Gordon transplanted some of the microbiomes into specially prepared mice which had, up until that point, had sterile guts, the bacteria induced the same results in the rodents as had appeared in the people they were taken from. Thus it would seem bacteria might cause malnutrition even in someone whose diet would otherwise be sufficient to sustain him.

If that is true (and the human studies to prove the point have yet to be done) it is an extraordinary result. Some malnutrition, obviously, is caused by an inadequate diet. But in the case of twins, their diet can be assumed to be the same and therefore, in the case of the discordant twins, to be adequate. It might thus be possible to treat quite a lot of malnutrition by rejigging a sufferer’s gut bacteria.

Even more surprising than the microbiome’s contribution to diseases of nutrition, though, is its apparent contribution to heart disease, diabetes, multiple sclerosis and many other disorders.

The link with heart disease is twofold: an observation in people, and an experiment on mice. The observation in people was made by Jeremy Nicholson of Imperial College, London. Dr Nicholson, who studies the links between metabolic products and disease, has shown that the amount of formic acid in someone’s urine is inversely related to his blood pressure—a risk factor for cardiac problems.

The connection appears to be an effect that formic acid has on the kidneys: it acts as a signalling molecule, changing the amount of salt they absorb back into the body from blood plasma that is destined to become urine. Since the predominant source of formic acid is the gut microbiome, Dr Nicholson thinks the mix of bacteria there is a factor in heart disease.

Stanley Hazen of the Cleveland Clinic in Ohio has come up with a second way that the microbiome can affect the heart. He and his colleagues worked with mice specially bred to be susceptible to hardening of the arteries. They found that killing off the microbiome in these mice, using antibiotics, significantly reduced their atherosclerosis—though why this should be so remains obscure.

The link with diabetes was noticed in morbidly obese people who had opted for a procedure known as Roux-en-Y, which short-circuits the small intestine and thus reduces the amount of food the body can absorb. Such people are almost always diabetic. As a treatment for obesity, Roux-en-Y is effective. As a treatment for diabetes, it is extraordinary. In 80% of cases the condition vanishes within days.

Experiments conducted on mice by Dr Nicholson and his colleagues show that Roux-en-Y causes the composition of the gut microbiome to change. Dr Nicholson thinks this explains the sudden disappearance of diabetes.

The diabetes in question is known as type-2. It is caused by the insensitivity of body cells to insulin, a hormone that regulates the level of blood sugar. Insulin sensitivity is part of a complex and imperfectly understood web of molecular signals. Dr Nicholson suspects, though he cannot yet prove, that some crucial part of this web is regulated by the microbiome in a way similar to the role played by formic acid in the case of high blood pressure. The intestinal bypass, by disrupting the microbiome, resets the signal, and the diabetes vanishes.

Signal failures

Besides heart disease and type-2 diabetes, Dr Nicholson also thinks several autoimmune diseases, in which the body’s immune system attacks healthy cells, involve the microbiome. A lot of immune-system cells live in the gut wall, where they have the unenviable task of distinguishing friendly bacteria from hostile ones. They do so on the basis of molecules (generally proteins or carbohydrates) on the bacteria’s surfaces. Occasionally a resemblance between a suspicious-looking bacterial marker and one from a human cell leads the immune system to attack that cell type, too. As with many of the links between the microbiome and ill health, it is not clear whether this is just bad luck or reflects circumstances in which the interests of some set of bugs in the microbiome diverge from those of the ecosystem as a whole.

Autoimmune diseases linked by Dr Nicholson to the microbiome include type-1 diabetes (caused not by insulin resistance, but by the autoimmune destruction of insulin-secreting cells), asthma, eczema and multiple sclerosis. Again, the details are obscure, but in each case some component of the microbiome seems to be confusing the immune system, to the detriment of body cells elsewhere.

In the case of multiple sclerosis, a confirmatory study was published last year by Kerstin Berer and her colleagues at the Max Planck Institute for Immunobiology and Epigenetics in Freiburg, Germany. They showed, again in mice, that gut bacteria are indeed involved in triggering the reaction that causes the body’s immune system to turn against certain nerve cells and strip away their insulation in precisely the way that leads to multiple sclerosis.

These and other examples of microbiomes going awry raise an intriguing question. If gut bacteria are making you ill, can swapping them make you healthy? The yogurt industry has been saying so loudly for many years: “Top up your good bacteria!” one advert enjoins. The implication is that an external dose of suitable species acts as a tonic to health.

A question of culture

Clinical trials have indeed shown that probiotics (a mixture of bacteria found, for example, in yogurt) ease the symptoms of people with irritable-bowel syndrome, who often have slightly abnormal gut microbiomes. Whether they can cause a beneficial shift in other people is not known. A paper published last year by Dr Gordon’s group reported that in healthy identical twins the microbiome is unaffected by yogurt; when one twin was asked to eat yogurt regularly for a couple of months while his sibling did not, no change in the microbiome was seen.

Yogurts are limited in the range of bacteria they can transmit. Another intervention, though, allows entire bacterial ecosystems to be transferred from one gut to another. This is the transplanting of a small amount of faeces. Mark Mellow of the Baptist Medical Centre in Oklahoma City uses such faecal transplants to treat infections of Clostridium difficile, a bug that causes severe diarrhoea and other symptoms, particularly among patients already in hospital.

According to America’s Centres for Disease Control and Prevention, C. difficile kills 14,000 people a year in America alone. The reason is that many strains are resistant to common antibiotics. That requires wheeling out the heavy artillery of the field, drugs such as vancomycin and metronidazole.

These also kill most of the patient’s gut microbiome. If they do this while not killing off the C. difficile, it can return with a vengeance.

Dr Mellow has found that treating patients with an enema containing faeces from a healthy individual often does the trick. The new bugs multiply rapidly and take over the lower intestine, driving C. difficile away. Last year he and his colleagues announced they had performed this procedure on 77 patients in five hospitals, with an initial success rate of 91%.

Moreover, when the seven who did not respond were given a second course of treatment, six were cured. Though faecal transplantation for C. difficile has still to undergo a formal clinical trial, with a proper control group, it looks a promising (and cheap) answer to a serious threat.

Perhaps the most striking claim, however, for links between the microbiome and human health has to do with the brain. It has been known for a long time that people with autism generally have intestinal problems as well, and that these are often coupled with abnormal microbiomes. In particular, their guts are rich in species of Clostridia. This may be crucial to their condition.

A well functioning microbiome is not one without internal conflicts—there is competition in every ecosystem, even stable, productive ones. Clostridia kill bacteria competing for their niches with chemicals called phenols (carbolic acid, the first antiseptic, is one such). But phenols are poisonous to human cells, too, and thus have to be neutralised. This is done by adding sulphate to them. So having too many Clostridia, producing too many phenols, will deplete the body’s reserves of sulphur. And sulphur is needed for other things—including brain development. If an unusual microbiome leads to the gut needing extra sulphur, the brain may pay the price by developing abnormally.

Whether this actually is a cause of autism is, as yet, unproven. But it is telling that many autistic people have a genetic defect which interferes with their sulphur metabolism. The Clostridia in their guts could thus be pushing them over the edge.

The microbiome, made much easier to study by new DNA-sequencing technology (which lets you distinguish between bugs without having to grow them on Petri dishes), is thus a trendy area of science. That, in itself, brings risks. It is possible that long-term neglect of the microbes within is being replaced by excessive respect, and that some of the medical importance now being imputed to the microbiome may prove misplaced.

Whether or not that is true, though, there is no doubt that the microbiome does feed people, does help keep their metabolisms ticking over correctly and has at least some, and maybe many, ways of causing harm. And it may do one other thing: it may link the generations in previously unsuspected ways.

Generation game

A lot of the medical conditions the microbiome is being implicated in are puzzling. They seem to run in families, but no one can track down the genes involved. This may be because the effects are subtly spread between many different genes. But it may also be that some—maybe a fair few—of those genes are not to be found in the human genome at all.

Though less reliably so than the genes in egg and sperm, microbiomes, too, can be inherited. Many bugs are picked up directly from the mother at birth. Others arrive shortly afterwards from the immediate environment. It is possible, therefore, that apparently genetic diseases whose causative genes cannot be located really are heritable, but that the genes which cause them are bacterial.

This is of more than merely intellectual interest. Known genetic diseases are often hard to treat and always incurable. The best that can be hoped for is a course of drugs for life. But the microbiome is medically accessible and manipulable in a way that the human genome is not. It can be modified, both with antibiotics and with transplants. If the microbiome does turn out to be as important as current research is hinting, then a whole new approach to treatment beckons.