Cap and Trade – A Horrible Idea – Let’s Abolish Cars and Build a Real Rail System Instead
May 13, 2009
Cap and Trade Is a very bad idea, right now.
First, a history lesson. President Clinton’s first term was a disaster, in large part, because he spent most of his first two years pursuing three very liberal ideas—gays in the military, universal health care, and a federal tax on BTU usage.
These three ideas were, at the time, in 1993-1995, so controversial, that they not only threatened to sink President Clinton after only one term, but resulted in 1994 in the largest shift in a mid-term election in the House of Representatives and the U.S. Senate in United States History.
The House lost more than fifty Democratic seats and went Republican for the first time in a long time; and the Senate also suffered huge democratic losses; all due to Newt Gingrich and the Contract with America, which was a direct and overwhelming refutation of Clinton’s liberal agenda.
Much the same thing happened in the first two years of Jimmy Carter’s term; Carter pardoned all of the draft-dodging Vietnam protesters hiding out in Canada, and virtually declared war on the CIA and all of the US military operations around the world, which led to terror operations and revolutions around the world intensifying, culminating in the Iranianian Revolution and the taking of the U.S. Embassy in Teheran and the holding of 52 U.S. hostages for over a year, a spectacle so embarassing to the United States, repeated night after night on national TV as it was, that virtually every Democrat in office lost his seat by 1980, and the Republicans and Ronald Reagan were swept into power, with a whole new agenda of re-arming America and restoring her lost prestige abroad.
Getting back to Clinton, the BTU Tax was an idea very similar to the current notion of Cap and Trade. Cap and Trade, like the BTU Tax, is essentially a tax on carbon usage. The idea is, if we tax carbon-based fossil fuels enough, and make them costly enough, it will force everyone, including consumers and energy companies, to seek non-carbon based alternatives.
There are three basic problems with cap and trade (actually, there are many more, but I will discuss three here) that make it a bad idea for now. First, we are in a recession that is actually more of a depression. Cap and Trade is a large TAX INCREASE that will suck spending power out of the hands of consumers. Consequently, it will kill the marginal propensity of consumer demand, and attack the very object of the Stimulus Bill.
I don’t have to be a doctor to know, that you don’t give a man a sleeping pill, just when you’ve given him a shot to wake him up, while he’s still groggy and coming around.
Right now, the American economy is like a man who can’t wake up. Cap and Trade would be like a sleeping pill to that man. The Stimulus Bill was like a cup of coffee or a shot of epinephrine—a stimulant to wake him.
Cap and Trade is like a sleeping pill that would suck away his vital energy.
Second, in order to invest in, and build, energy alternatives, there has to be a venture capital and investment banking, and regular banking systems, in place. Today, those systems are impaired, crippled or functioning at about half capacity. Consequently, Cap and Trade can’t work under today’s economic conditions. Consequently, no infrastructure would develop under Cap and Trade to produce renewable energy alternatives until the banking and lending systems come back on line.
All we’ll have is a tax that makes oil and gas and coal more expensive, but no alternatives will develop for many years yet, due to the impairments of the banking, VC and R & D systems.
Third, even if the banking, VC and R & D systems were perfect, there is no energy alternative that could come on line sooner than ten years from today to replace current oil, gas and coal based consumption.
Wind and solar currently provide less than 1% of current energy needs; energy needs keep GROWING at an exponential rate, if you include the third world, and none of the so-called renewable energy forms are anywhere close to being ready to assume more than a micro-share of the energy load, whether we’re talking about wind, solar, geothermal, capturing energy from ocean waves, and so forth.
It’s been fifty plus years since the hydrogen bomb, but no one has yet developed and sustained a fusion reaction that can last and power an energy generating plant. That technology seems as remote as the so-called “WARP” engines on the starship Enterprise on STAR TREK.
That leaves us with one, and only one realistic alternative, and that is nuclear power plants. They are tanned, rested and ready, and the newest generation of nukes have much higher capacity factors and higher safety factors than ever before.
The problem with nukes is, you still need about two billion dollars to build a single plant, about 3-4 years to get the necessary permits to build a plant in the U.S. and another 3-4 years to build the plant and get it on line.
That’s 6-8 years and two billion dollars to get each plant on line, and most of the two billion dollars will have to be absorbed by the consumer in electricity costs. Let’s figure that we build fifty of those plants—that’s a hundred billion dollars in construction costs alone that have to be absorbed back again by means of utility bills to the consumer over the next ten-twenty years. That’s on top of the cap and trade tax costs.
In short, it’s a very expensive proposition to jettison oil, gas and coal.
It’s too bad that the United States didn’t commit to a nukes policy back in 1955, when nuclear power was cheap and we could have covered the US with nuclear power plants for a fraction of the cost of today.
If we had committed to such a policy then, we could have been completely independent of Middle Eastern Oil as of 1970.
Even as late as 1975, we still could have committed to nukes for a fraction of today’s costs, and been independent of Middle Eastern Oil by the 1990s.
However, the wacky left and particularly eco-wacky californians, continuously opposed nuclear power in this country for decades. Nuclear power could have given us full independence from the Middle East a long, long time ago, and spared us these last two wars in Iraq and Kuwait.
The problems we face today are a consequence of our leaders living life as if we can’t shape the future. But we can and must shape the future.
The future is not shaped by dice rolling or by random events. The future is shaped by decisions we make and by policies we need to hew to in order to shape the probabilities and likelihoods of the future outcomes to be.
A responsible United States Government would have made us one hundred percent reliant on nuclear energy for our power production as soon as humanly possible, once we unlocked the secrets of the atom, back in the 1950s.
Our failures to do so may have been the result of many causes, and I won’t speculate here on the role of the oil and gas companies, the so-called, Seven Sisters, and their multinational interests linked to Middle Eastern oil producing states, but clearly nuclear energy would have a lot cheaper over the last sixty years than two wars fought directly by the US in the Middle East, and five wars fought by proxy between Israel and the oil-producing states.
Had we eliminated oil dependence early by committing to the atom, we would have changed history decisively and for the better.
Cap and Trade is not the answer.
A federally-sponsored program of accelerated conversion to Nuclear Powered electric generation, followed by a fifty to one hundred year phase in of solar, wind and fusion power, is the answer.
All electric companies should be abolished in favor of one company modeled and based on the Tennessee Valley Authority, that will erect Nukes until the United States is 100% nuclear based electric power, and zero percent coal or oil.
Combing this with a program of converting all cars to electric power would also solve another problem as well. This is clearly doable in the next five-ten years.
This is the kind of program that would involve spending money on a specific problem, creating jobs, and stimulating the economy. It’s better than cap and trade because it puts dollars into the economy instead of taking them out. Also, it federalizes the utilities, which do a horrible job.
Finally, the electric grid needs to be updated using superconductors and the latest electric technologies, including quantum conductors and new metals to conduct electricity. With superconductors, electricity can be sent from location to location without any loss of power or current. This would eliminate the need for transformers and high voltage lines, etc. Again, a vast federal program committed to upgrading the grid is needed.
These steps would be much better than cap and trade.
A final note about cars–Why do Obama and the Democrats want to prop up the car industry if they are truly worried about Global Warming? Cars contribute more than 50% of the hydrocarbon emissions in the US that contribute to global warming.
Instead of paying consumers a $4,000 tax credit to buy new cars with high gas mileage, wouldn’t it make more sense to get people to STOP DRIVING CARS AND TAKE MASS TRANSIT?
In short,
1) Let the U.S. Auto Industry DIE.
2) Put an enormous carbon tax on all car purchases. Make any new car cost around $50,000 to buy.
3) Apply that tax backwards to used cars as well.
4) Massively subsidize AMTRAK and all local mass transit across the nation, and let people ride the trains and Mass Transit free for the next five years. Yes, I said it, FREE OF CHARGE for the next five years. Why? To get them used to doing it. The massive federal stimulus bill to build rail, subway, light rail throughout the US would be in the TRILLIONS of dollars, as well as to subsidize AMTRAK everywhere so it’s FREE OF CHARGE. That would be a net STIMULUS to the economy and create the world’s finest light and heavy rail systems. We could also finally build HIGH SPEED RAIL SYSTEMS modeled on France, England and Japan to cover longer distances that could go 300-400 miles per hour, that could eliminate many shorter airplane routes, unclogging the skies of needless plane flight. This is a win, win, win plan. We get rid of filthy autos and planes and replace them with electric trains. And net net net create jobs.
5) Starting in 2014, you can slowly re-introduce fees again for Mass Transit and AMTRAK once we’ve started to eliminate all of the automobiles.
6) Start reclaiming the inner cities by closing roads and creating pedestrian zones and mass-transit zones, and creating more and more parks in which no cars can come into the city, until finally, all cities will have no cars or trucks at all.
7) The goal would be to eliminate cars and trucks by 2025, and convert everyone to mass transit and rail.
8) Electric cars only would be allowed eventually, powered by the nuclear grid. These would be cheap and affordable.
This is a far reaching and thoughtful plan. Abolish the internal combustion engine as we know it and force all americans out of their cars and onto trains, buses, subways and light rail.
This is the true path to ending global warming and reaching a green economy.
Art Kyriazis
Philly/South Jersey
Home of the World Champion Phillies
up
REPLY TO BLOG BY PROF. KARLAN ON BRIAN LEITER’S BLOG
April 10, 2009
I read with interest the following post by Prof. Pamela Karlan to Brian Leiter’s Law School Reports Blog at
http://leiterlawschool.typepad.com/leiter/2006/04/high_gpas_at_to.html:
April 19, 2006
High Undergraduate GPAs at Top Law Schools: What Do They Mean and What Are Their Consequences for Legal Education?
Pamela Karlan, a distinguished expert on voting rights and civil procedure at Stanford Law School, writes:
I read, with both interest and a fair amount of distress, the 75th percentile LSAT rankings. The distress came from seeing the staggering 75th percentile GPAs.
These could reflect at least three states of the world, two of them unfortunate. First, and most optimistically, the 40 schools on your list could all be admitting kids with amazing undergraduate academic achievements. (A 3.96 means, for example a student with 34A’s and 2 B+’s as an undergraduate; a 3.85 could mean half A’s and half A-’s.)
Second, the GPA’s could reflect rampant grade inflation at undergraduate institutions. Leave aside the abstract debate over whether the current generation of students is so much abler than its predecessors that good students should never see a grade below A- or B+. Most law schools have mandatory means or curves, and I’m aware of none where that mean is over around 3.4. (Even at the schools that don’t have official means, I would guess the actual mean is no higher than that.) Thus, virtually all law students will have lower, substantially lower, GPA’s in law school than they had in college. (E.g., at my own institution, 25% of the students had GPAs equivalent to what the number 1 student in the normal graduating class is likely to have.) This drop has a number of unfortunate consequences. Many of us are familiar with a huge demoralization effect the day first-semester grades come out and people who’ve been told all their lives that they are “A’s” at everything that’s measured hear for the first time that they’re “B’s.” They give up, and simply float through the remaining five semesters. Many have a self-protective defensive reaction: if the law doesn’t love them, then they distance themselves from it. In addition, at law schools where there are course-selection strategies that allow students to manipulate their GPA’s, students are then drawn not to taking what’s good or useful for them, but rather what’s most likely to boost their GPAs back toward the range they’ve internalized as normal. The high UGPAs mean that many of our students have never really learned to bounce back from academic disappointment (the “C” I got my first semester of college is one of the best things that ever happened to me) and like learning to ride a bicycle, it’s harder to learn that the older you get.
Third, to get those astronomical UGPA’s, students necessarily had to be either (a) extraordinary across the board for their entire undergraduate career (the student who bombs the first year of college because she wasn’t yet ready for the work or who was planning to be a physicist before he realized he didn’t have the mathematical ability can’t get one of these sky-high GPAs) or (b) strategic and risk-averse, taking only the kinds of courses in which they’d get A’s, from the time they were 17 or 18 years old. I’d bet it’s more the latter than the former. One of the things I always though the U.S. had over many other advanced countries was that we didn’t expect students to specialize in only what they were good at when they were still teenagers. But in order to get a 3.9 UGPA, students really can’t take things well outside their comparative advantages. Many of us see the consequences of this in what our students do: they’re passive and non-entrepreneurial in their job choices, going to large firms not because that practice particularly attracts them, but because it seems less “risky” right out of law school than going to smaller firms or government jobs. Many of them haven’t exercised their intellectual imaginations in years. Many are in fact not particularly well educated, since the science majors took few writing courses, the humanities people took perhaps one semester of economics and flee any quantitative subject, and the social and hard scientists know no American (let alone world) history at all.
Now, of course, we’re talking here only about the 75th percentile. Perhaps we could find the students who are comfortable with risk, entrepreneurial, academically and intellectually adventurous, and resilient among the other three-quarters of the class. But even the 25th percentile at top 20 schools have staggering UGPAs. And that sets the tone for the student body.
I’m not sure, as long as US News drives so much of the world, that there’s anything to be done. But it’s frustrating if what we’re trying to do is to train imaginative, entrepreneurial, courageous, resilient lawyers with broad perspectives that one of the central criteria for admitting students undermines our chances of doing that.
(end of Prof. Karlan’s comments).
Now I actually knew Pam growing up–she was one of a circle of debaters I knew who grew up debating in connecticut (she went to Hopkins Grammar School and then to Yale) and she’s enjoyed a great deal of success as a law school academic, although she’s way too liberal for my tastes (what law school academic isn’t liberal?).
On the plus side, I don’t think she’s a communist, but if she is, i’m not down with that at all.
My father fought those jerks in the greek civil war, and they were rat bastards, the communists. I can’t believe the democrats are actually meeting with castro in cuba right now.
Anyway, here were my comments in reply to her post:
An addendum to the comment above on grade inflation and test scores.
1) it is well-known that the ETS re-normed the SATS, LSATs, GREs and MCATs at least one standard deviation approximately sixteen years ago. Consequently, our generation of the 1970s and 1980s had a mean on the SAT and other standardized tests that was one standardized deviation higher than the current generation of students–our IQ in short, averaged around 100, while theirs literally averages 85. If you pin the bell curve tail on the donkey, that makes the top 1/2 % of the current generation dumber than the top five % of the previous generation.
So the students aren’t getting smarter, they’re getting dumber. That’s what renorming the test means.
I worked teaching all of the standardized tests for more than twenty years and wrote the pilot materials for the LSAT for Princeton Review in the early 1990s.
2) Grade inflation ain’t so except in the courses where professors are giving easy grades. At colleges that are conservative like Drexel, William and Mary, Hamilton, and so forth, grades are given out fairly and with rigor. It’s at some of the humanities departments that standards have fallen, and as certain classics and history professors have noted, along with scholarship–you can hardly find an actual greek, latin or byzantine professor today in a major ivy league university. When I visited Harvard, Prof. Finley was lecturing on Ancient Athens. Today, you’re more likely to hear some humanities teacher deconstructing gender based issues in some unknown text from last week, or worse still, deconstructing something from the internet.
3) TV, the internet, cellphones and laptops have definitively made current law students stupider. They don’t know how to write, they don’t know how to read books, and their research skills are shallow and poor. Most important, they lack the skill of memorization. I used to know where every single book was in certain law libraries, just as I knew where they were in huge undergrad libraries for years. That was a lot more useful skill than Boolean searches, which are not a thorough method of seeking out facts unless you already know the subject matter at hand.
4) Westlaw and Lexis led us to the horror that is Google.
5) Google is driving the book and newspaper out of existence, leading us to a famous Asimov short story of science fiction in which (in the near future) everyone forgets how to read and do math because computers do it for us–until a nuclear war destroys the machines and we become helpless, until one day a boy re-discovers how to do math by hand, and is proclaimed a genius.
This is the orwellian place we are all headed.
In addition to the foregoing comments, I would have also pointed out that Prof. Karlan’s basic point is wrong.
She assumes that students get high grades in college, and then come to Stanford Law and get lower grades because the competition is tougher.
This is actually ass backwards. I know Pam from when she was 18 and kicking back beers at college debate tournaments, so I know she likes to pontificate without factual basis from time to time, so here are some facts;
1) except for the top ten law schools, most law school applicants don’t have a 3.90 GPA or a very high LSAT. The vast majority of law students and lawyers are trained at 2d, 3d and 4th quartile schools as rated by US News and World Report rankings, or at local state law schools. Those students make up the vast majority of the bar.
2) students who go to Stanford, Yale, Harvard law schools only rarely practice law in the “real”world. They usually become law professors, judges, politicians etc. or work for rarified law firms. It’s unusual to see these folks work with actual clients or appear in actual courtrooms. Pam is a perfect example of this. She’s spent her life in the classroom, not in the real world.
3) Pam admits to getting a C or two at Yale, and I admit to that with Harvard. Because those schools were hard, back in the day. They were not easy, there was no grade inflation and the competition was brutal in most of the classes. Plus I was a premed on the side. So my GPA in college was nothing pretty, although it was definitely higher than a B average and i was recommended for honors, had a cum laude on my thesis and a summa on my general exam.
4) When I went to law school, after working a while, I thought it was MUCH EASIER than college. To be honest, I barely cracked a book open, worked forty hours a week at law firms collecting cold hard cash, and found the work at law school to be trivial. It was in law school that i got racks of As and only a couple of Bs. It was funny how many As I got. I won Am Jur Awards and Best Paper Awards (best grade in my class) every single semester I was in law school. It became like a joke how smart I was in law school, and yet, I really wasn’t working 1/8th as hard as I did in college.
Consequently, I don’t really know what Pam is talking about, not at all. My grades were disappointing to me in college but I worked my ass off to get them; but my grades in law school were terrific, and I hardly broke a sweat.
Next, as far as training law students to be imaginative, entrepreneurial or creative, I think that’s a deeply flawed and dangerous thing to do.
The last thing I as a businessman want my lawyer to be is creative, imaginative or entrepreneurial. I want my lawyer to be a lawyer, that is, an unimaginative little nebbish who grinds out papers and hands them to my enemy at 5pm on friday afternoon, or gets deals done by smiling and being at peace and harmony with everyone in the bar.
Creativity, imagination and entrepreneurship, I’m afraid, is reserved for the Schumpeterians of the world, that is to say, the guys at Business School, and that’s why Wharton has a Center for Entrepreneurship, and why I and my colleagues at various Business Schools teach Entrepreneurship, Innovation and Creativity at Business Schools around the North east directly, rather than teaching the stultifying subject of law. Law by its nature cannot be innovative, because it is precedential and must be followed to the letter of the law; whereas an inventor or entrepreneur is not bound by precedent and can be innovative.
I actually find Pam’s notion of what a good lawyer is to be incomprehensible. A good lawyer should be boring, ethical and should be able to repeat a statute from front to back thirty times in a row. Not creative, not innovative, not entrepreneurial, but efficient like a swiss army knife or a swiss watch. Efficiency and practice make for good lawyering. Also long hours spent learning how to write briefs exactly like everyone else writes them. The last thing you want to do in a brief is to introduce anything new, creative or innovative. Judges hate that. They just want you to follow the 8,000 appellate rules they’ve set forth for how to write the brief.
Good lawyers, then, are basically automatons. Clever and hard working automatons, but robots, essentially. In another century, they will in fact be replaced by AI possessing machines for many of their tasks, I predict. They’re already being outsourced to India for much of their robotic work such as document discovery, which was once thought to require intelligence and training. See my point?
Whereas good businessmen are creative, innovative and entrepreneurial.
5) A logic, rhetoric, oratory, philosophy background gets you through law school very easily; math and science make it trivial. All law problems are basically logic puzzles, and all law essays are basically debate/oratory speeches made in a philsophy manner of analyzing each question from both sides. This was perfectly normal to me. Undergrad teachers kept trying to make a marxist out of me, so they didn’t like my impartiality. Law professors loved it.
6) Law exams are graded without your name on the paper. No favoritism can creep into the grading. Undergrad is rife with favoritism and bias towards certain undergrads that the professors play favorites towards.
7) My friend NS who went to school with Pam at Yale thought Stanford Law was a joke after Yale undergrad; he thought it was a vacation. We used to get together frequently in Cali and hang out. He never seemed to work too hard.
8) My friend DB who went to harvard with me and then to Stanford Med thought Stanford Law was a joke after harvard undergrad and stanford med. He worked 40 hours at a top patent firm and saved all his money. Again, he had plenty of free time, he hardly worked at law school.
9) Law Schools should require all incoming students to study the following;
semester of logic, semster of intro to western philosophy
semester of oratory/rhetoric/speech
do two semesters of competitive speech/rhetoric/debate/parli
do two semesters of mock trial
spend a summer working at a law firm
spend a summer working at legal aid
spend a summer working for a judge
spend two years minimum working in business or somewhere between college and law school. The armed forces would be the best of all.
give preferential admission to army veterans, ROTC and reservists and end their anti-military culture.
sharply curtail the number of attorneys taking the bar nationally. End all state bars and apply one national bar, and only pass around 5,000 persons into it annually, and make them travel to one of three reginal centers nationally to take the exam, such as SF, CA, Chicago and New York, and only give the exam once a year.
Require proficiency in Spanish for ALL attorneys, since Spanish is required to speak to most clients on both coasts.
10) Science and business grad school were much more challenging and interesting than law school or undergrad. I would NEVER recommend to my own children to attend law school, maybe take a law class in business school, but not attend law school. The best combination out there today is the MD-MBA combined program, which I think is ideal in today’s economy.
These are some of the practical changes I would make to the legal eduction process.
I would probably close all but a handful of the existing law schools in the united states. Or, perhaps, people could obtain law degrees for reasons other than being a lawyer–for academic or scholarly purposes, as in europe, but not to be a lawyer or to make money. I’d convert a lot of the programs to MBA programs, actually.
we have way too many lawyers in this country and we need to reform the legal profession, reform tort law, and sharply regulate the profession before it drives all of the doctors, drug makers and other competent businessmen out of this country for good.
One final note, and this is about Pam’s constitutional law book, which she authored with Cass Sunstein, Mark & Rebecca Tushnet, Louis Seidman & Geoffrey Stone. This casebook has been ranked one out of five stars by nearly everyone who ranked it on Amazon dot com. I happen to be a fan of Pam, of Cass Sunstein (except for his dumping Martha Nussbaum, who I’m a bigger fan of, for that stupid Irish younger woman professor at Harvard who’s the big Obama fan) and I really am a big fan of Mark and Rebecca Tushnet–Rebecca was one of Harvard’s best debaters ever in the 1990s–and Mark is a very smart guy–but apparently brains doesn’t mean you can write a casebook as good as Larry Tribe’s.
Here’s a sample comment from Amazon dot com;
3 of 3 people found the following review helpful:
1.0 out of 5 stars Terrible Casebook, December 13, 2008
By kiki (Baltimore, MD) – See all my reviews
It’s a casebook, so it’s not supposed to be great reading, but this one is by far the worst casebook I’ve ever had. The only thing a casebook needs to do to achieve mediocrity is contain cases. This doesn’t, not really. It gives you the cliff’s notes of important cases. One sentence blurbs about others. And pages and pages of rambling, aimless, academic debate. It may be a good book for Con Law professors and others who have already read all of the cases discussed. For someone trying to learn con law, it is useless. It is also organized very poorly. Any class organized around this book is doomed from the start. If your professor uses this book, take another class. If you can’t take another class, buy the Chemerinsky treatise and rely on that instead. Professors: DO NOT USE THIS BOOK.
the website address is above, if you want to check out the remarks and the book yourself. Perhaps there will be a revised edition. I realize that Pam writes and talks a lot. As I said, part of her strength, and her weakness, is that she talks and writes too much, and perhaps she spreads herself a little thin.
When I was a litigator, I litigated civil rights matters in the trenches, and won them. It’s not as hard as it seems. You need to have a firm grasp of the history of the United States from 1776 through about 1900 to understand the reconstruction and civil war era, in order to make some sense of what the 13th, 14th and 15th amendments mean.
I actually think Justice Scalia had some pertinent remarks on US v. Cruikshank in the recent gun rights case. He noted that the US Supreme Court in that 1874 case took the right of bearing arms away from african american militia men under the second amendment, because of white supremacist views which were going on at the time. the dispute was that armed militias of african americans and republicans were fighting ku klux klansmen in Mississippi and elsewhere in the south, and the african american plaintiffs claimed a second amendment right to bear arms as a militia.
The US Supreme Court said no, that’s only a federal right against the federal government, not against the states, ignoring incorporation under the 14th amendment.
Scalia basically says now that Cruikshank was wrong, and that african americans had the right to arm themselves as a militia in 1874 and defend themselves against the Klan in the 1870s.
I think that’s an interesting point of view. Of course, an armchair liberal like Karlan would never consider that Scalia would have anything interesting to say.
But here at the Sophist, we think there are two sides to every question.
–art kyriazis
philly/nj home of the world champion phillies
–art kyriazis
COMENT ON TIME’S COVER STORY ON STEM CELL RESEARCH OF FEBRUARY 9, 2009
February 10, 2009
Time Magazine just did a cover story on stem cell research, which is commendable. They also entitled the story “The Quest Resumes,” which is commendable, focusing on the fact that the Federal Government, under the Obama Administration, may finally allow (this may already have been approved by executive order) federal funds for stem-cell research at federally funded research institutions.
However, the subtitle of the article is “After eight years of political ostracism, stem-cell scientists like Harvard’s Douglas Melton are coming back into the light—and making discoveries that may soon bring lifesaving breakthroughs.” Time Feb 9, 2009 at p. 36.
Now, let’s examine that for a second—In Massachusetts, where Prof. Melton plies his craft, the Commonwealth and State of Massachusetts, like the State of California, has voted state support of stem-cell research at institutions of higher education. Therefore in Massachusetts, like California a bastion of biotechnology, the biotech lobby was able to secure state support for stem-cell research during the eight-year long federal ban on such research. So compared to the other 48 states, Prof. Melton was actually at an advantage because his lab was in Massachusetts.
Because of the federal funds ban, a great deal of stem cell-research has begun to spring up in places like Southeast Asia, as the Time Magazine article correctly notes, and as it well-known in the biotech industry. But a lot of it is also staying put in Cali and Mass due to those states putting up seed money for biotech research that is stem cell oriented.
Next, Prof. Melton works as co-director of the Harvard Stem Cell Institute (HSCI), which Harvard has committed substantial resources to supporting over the past eight years and well into the future. According to their 2008 report, their annual spending has grown in the past two years from just over $5 million to over $16 million in fiscal year 2008, most of that culled from private and corporate donations. HSCI currently has no less than eight ongoing challenge grant research projects sponsored for $75,000 each, all of them stem cell oriented.
Now I am a powerful supporter of stem-cell research, and I strongly advocate that the federal government support stem cell research. The question I have for Time Magazine is, and maybe perhaps for the Federal Government, is HSCI the most needy recipient for federal funds for stem cell research? The article omits that HSCI is well-funded by private donors, and omits that Massachusetts provides state support (it is not clear if HSCI accepts Massachusetts money) and therefore the article in Time is somewhat misleading.
The argument for funding HSCI federally has to be this; we, e.g. HSCI, made a good faith effort to get the ball rolling the past three years through private financing, we have already a lab in motion with research projects, so if you fund us, we will be three years closer to getting results than any other academic lab you choose to fun. Consequently, their NIH grant requests will carry a certain heft.
On the other hand, they are not as dramatically in need of the money as some other labs who don’t have any private funding at all.
A more useful article would have been to depict the overall situation in the rest of the United States, and some of the labs outside CA & MA.
This is an interesting issue and one on which arguments on both sides would and could be marshalled.
It should be pointed out that I strongly support the work of Prof. Melton and the work of HSCI. Those initiatives were put into place by then President Lawrence Summers, along with the Broad Institute initiative, a few years back, and clearly they have had the effect of putting Harvard back on the map in terms of genetics and molecular biology research.
The good news about the Time article is that the words “Stem Cells” made the cover, along with a nice bio-photo. If nothing else, Americans this week can forget about the economy and the war for a moment and realize that stem cell research is an answer to many of our problems that don’t involve boundaries and account balances and fumes spewing out of our cars.
–art kyriazis philly/south jersey
home of the world champion phillies
T-CELL SCIENCES, INC. – CASE STUDY – WHARTON SCHOOL CASE STUDY – 1994 – Arthur J. Kyriazis University of Pennsylvania April 22, 1994
January 26, 2009
this is an actual case study I did at Wharton about fifteen years ago for Steve Sammut’s class on advanced patent portfolio management theory. This case is of interest because it concerns a biotech company, and because, re-reading it after a long time, it actually reads very well. Even before I had all the experience I do now, I actually had a good feel for what to do with the management of a biotech company even back then, so here it is. And yes, I did get an “A” in the class, of course. Dr. Sammut used to run the tech transfer office for Penn during the 1990s.
–art k
ps enjoy!
T-CELL SCIENCES, INC. CASE
by Arthur J. Kyriazis
MGMT 898 – PROF. SAMMUT
Wharton School (WEMBA)
University of Pennsylvania
April 22, 1994
Issues
T-Cell Sciences, Inc. (“T-Cell”) is a 1983 Cambridge, MA biotech/pharmaceutical startup sired by Patrick Kung, a “recognized pioneer in immunological research.” The main issue appears to be defining T-Cell’s ultimate market niche even as it undergoes the process of transition from a venture-funded start-up to a more mature publicly held corporation. Specifically, in the coming months and years, should T-Cell (1) concentrate upon basic across the board immunological R&D; (2) concentrate upon basic immunological R&D with a focus on diagnostic drugs and product(s); or (3) focus upon strategic alliances with large pharmaceutical companies with an eye cast towards the development and delivery of therapeutic pharmaceutical drugs?
It would appear that until the arrival of James D. Grant as CEO in November of 1986, the main issue might well have been a different one altogether, namely whether T-Cell would reorganize or liquidate. In early 1986, T-Cell was a company in trouble and one which was not being particularly well-run or well-managed, even though it had brilliant scientists and innovative technologies full of commercial promise. Even though startups might be expected to lose money at the outset, T-Cell’s losses in 1985 and 1986 totalled nearly $2 million, compared with $5.5 million capitalization from December of 1983 throught January of 1986. This apparently necessitated a public offering in May of 1986, which raised $11.1 million, followed by the hiring of Mr. Grant in November of 1986, and his hiring of a well-heeled financial CFO immediately thereafter.
In addition, up through Grant’s arrival, T-Cell had only developed two products of any consequence, ACT-T-SET, and CELLFREE, and only two joint venture/research alliances/R&D contracts of any consequence, the Syntex USA contract and the Pfizer contract, and had failed to show any revenue from product sales through 1986, and only $13 million in revenue from contracts in 1986.
In brief, one may surmise from the case study that a great deal of money was spent at T-Cell, until Grant’s arrival, on basic immunological research, without a very well defined sense of where the research was going, or how it would be profitable or generate a return to the company and to the investors. This might have been a result of Dr. Kung’s diffuse vision of the company’s market niche as somehow doing R&D better or faster, and perhaps a touch of the academic fondness for the intrinsic value of broad based academic research as opposed to targeted research and strategic alliances directed to product development and ultimate profit.
Grant’s arrival placed T-Cell on a radically different footing and he appears to have turned the company around. Losses were reduced by nearly a million dolars from 1986 to 1987, and for the year ending in April of 1987, T-Cell reported positive product sales revenue of nearly $400,000 together with contract revenues of nearly $2 million. In addition, Grant apparently negotiated the deal with Yamanouchi Parmaceutical, which as he characterizes it places T-Cell on a sound cash flow footing for the foreseeable future. In addition, Grant has introduced a sound line of command and professionalized the management of the company by hiring a financial officer and a regulatory affairs officer, paying attention to patent management issues, and spending time painting a sound, attractive picture to shareholders, potential investors and to regulators. Finally, Grant’s status an a former FDA head bodes well for the regulatory hurdles awaiting T-Cell’s products.
T-Cell’s Strengths
T-Cell’s strengths are many. First, it has a distinguished corps of researchers led off by Dr. Kung, who appears to be a leader in the field of T cell research. It is situated in Cambridge, MA, in the heart of the Harvard-MIT research community, and can be expected to easily draw upon an outstanding technical scientific staff for its research needs. Also, the scientific advisory board includes people like Dr. Mark Davis and others who are world-recognized scientific leaders.
Second, T-Cell has introduced two product lines in 1986, the ACT-T-SET and CELLFREE technologies, which assuming patent protection and FDA approval, are potentially product mainstays for the company. These two products are expected to have applicability in the diagnosis of various stages of immune system stimulation and white blood cell activity. Dr. Kung and Mr. Grant expect R&D to eventually identify other new products in the same T cell related vein with applicability in the diagnostic field.
Third, T-Cell has two joint ventures, with Syntex and Pfizer, and now a third, with Yamanouchi, which promise to focus on specific product development, with the obvious potential of delivering a drug to market which can be of wide therapeutic applicability and therefore be a cash mainstay for the company. The Syntex and Pfizer ventures aim to produce therapeutic drugs targeted at common medical ailments, including breast cancer, type 1 diabetes, rheumatoid arthritis and cytomegalovirus. The Yamanouchi venture aims to develop products to diagnose rheumatoid arthritis and lung cancer. An added benefit is the global ability to develop and market products and drugs in Japan and the rest of the world while awaiting FDA approval for their sale in the United States.
Fourth, T-Cell now has James D. Grant, who must be reckoned as an important asset of the company at this juncture. His management skills have put T-Cell on a sound business footing; his contacts have resulted in new joint venture(s); and his FDA expertise should translate into FDA product approvals.
Which Fields or Options are Most Attractive for T-Cell?
The basic R&D approach is wrong for this size company. What the company needs to do is ultimately make a decision between developing diagnostic products/drugs on its own, or on developing them with partners. Grant appears to be committed to a strategy of hedging his bets by pursuing both options. He is willing to commit some money to R&D and to diagnostics, while courting and signing deals with large pharmaceuticals for strategic alliance(s) aimed at delivering specific types of therapeutic products/drugs. Grant also feels that the diagnostic(s) division, once profitable, should be spun off because of the competition in that field.
Recommendations
Grant probably has it right. The therapeutic emphasis is the best way for T-Cell to go right now. The joint venture/strategic alliance approach is a sound one. If successful, the development of even one drug marketed to a patient population as widespread as the breast cancer or lung cancer populations promises immediate payoff for T-Cell’s efforts and a handsome reward for its investors.
With diagnostic drugs on the other hand, even if approved and even if proprietary, it is hard to see how T-Cell will be able to exploit the discoveries, so that Grant is probably correct when he surmises that this division or these proprietary discoveries will ultimately be spun off. Of course, licensing and franchising are options we have discussed which absent from Grant’s discussion(s).
The best way for T-Cell to go would be to continue to solicity these contracts and joint ventures. T-Cell has recognized, proven scientific talent and recognized expertise in this very specific area of immunological research.
One specific recommendation is that the company hire a patent portfolio manager and begin to concentrate on patenting more of its discoveries, as well as concentrate on getting products to FDA submission stage. This manager must also concentrate on getting the researchers to recognize when a discovery may or might be patentable or commerciable in some respect. These two steps will make the company attractive to investors and a steady stream of patent application(s) and FDA approval applications are evidence that a company has been doing its homework.
These steps, if followed, should result in a successful new round of equity financing and/or an invitation to buy the company out altogether. In either event, the company will have attained a substantial goal. Finally, T-Cell should keep Grant around. Given the company’s history, investors could get extremely nervous if he were to depart suddenly or unexpectedly.
–Arthur J Kyriazis, 1994
THIS WAS AN ACTUAL CASE STUDY I WROTE FOR THE WHARTON SCHOOL IN THE SPRING OF 1994.
–art kyriazis
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