Hiding the true cost of health care

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In his latest WSJ ($) Business World column, Holman Jenkins, Jr. again addresses America’s broken health care finance system. Mr. Jenkins is an unusually gifted writer on business issues, and his prior columns in this area (here, here and here) have been typically insightful. In this week’s column, Mr. Jenkins addresses one of the main economic problems with America’s health care finance system that is dominated by third party payors for health care services and products — i.e., the system’s propensity to hide the true cost of such services and products from the consumer:

The problem is we hide from consumers what their health care is costing them, though hiding the cost in no way relieves them of having to pay the cost.
This is not the fruit of anybody’s design but of dumb acceptance of a system that has evolved unplanned over half a century. In 1940’s, the IRS allowed companies to pay their workers in untaxed health-care benefits, a subsidy that means a high-end worker now gets a 40% discount on health insurance and a low-end worker gets nothing. Then there’s Medicare, now grown out of all expectations, in which the richest generation of seniors in history gets “free money” to spend on health care, though the free money is actually provided by the involuntary contributions of workers.

Mr. Jenkins then points out that politicians, being adaptable sorts, have come to embrace the third party payor system as a means for political handouts and cost shifting:

Though a product of nobody’s explicit plan, politicians have learned to love the incentives implicit in this hidden-cost economics. To take an example more or less at random, Connecticut legislators recently voted to mandate that health insurers cover at least $350 a year in wigs for chemotherapy patients. Who wouldn’t want chemotherapy patients to have wigs? But now everybody in Connecticut who wants health insurance has to pay for wig coverage.
Duke University’s Clark Havighurst, one of the true sages of the health-care debate, has noted that “the systematic hiding of health-care costs from those who pay them” gives rise to the ultimate “moral hazard,” allowing politicians to spend the public’s money on health care in ways the public would never choose for itself either in the marketplace or the voting booth. “The consequence of the shell game in which costs are moved wherever employees/consumers/voters are not looking” is that health care is regulated in ways “that make sense only because price tags have been generally removed. Several whole percentage points of the nation’s gross domestic product are thus diverted wastefully to health care from other uses.”
He also notes the seldom-emphasized regressive nature of the transfer: “The United States has structured things so that lower and middle-income premium payers bear heavy burdens so that the elite classes can continue to enjoy the style of health care to which they are accustomed.”
You don’t hear this much from policy wonks and health-care economists. Treating cost as a factor in medical choices is considered somehow illiberal, though it’s the poor who’ve been priced out of the health-insurance market. But, say it again, in the final analysis there’s nobody to “shift” costs to. The health-care bill always comes home to working Americans in the form of higher taxes, lower take-home pay or unaffordable health care.

Indeed, Mr. Jenkins points out that the current political discourse over health care finance in the Presidential campaign reflects the politicians’ intransigence in changing the third party payor system:

Democrat John Kerry’s plan is astonishingly banal in the way it re-enacts the original sin, throwing yet more tax money at health spending while avowing disingenuously that “the rich” will pay for it. But our indictment here is of the conditioned cowardice of the health-care policy community at large. How can you expect better of Mr. Kerry when the arbiters of good policy (like, say, a recent Washington Post editorial) judge candidate health plans by a single criterion: Which would commit the most resources to health care?
There not being unlimited funds to spend on health care, Mr. Kerry’s plan would only speed the day when politicians, no longer able to write blank checks with the private sector’s money, would face directly the choice of whether to curb consumption or raise taxes to pay for it. That’s the job description of Europe’s national health systems, which are not exercises in beautiful egalitarianism but exercises in rationing for those not rich enough to jet off to a private clinic and get the treatment they seek.
Yet the same health-care wonks who mumble around the real problem of hidden costs are happy to be quoted finding fault with Health Savings Accounts, the heart of the Bush approach, which has the intolerable advantage of actually being aimed at the problem.
Better than HSAs, in our view, would have been flatly eliminating the tax deductibility of employer-paid health insurance and letting the system adjust. But HSAs are a much-better-than-nothing strategy, a way of rebalancing the tax incentives to encourage consumers to buy some or all of their health care directly from providers, demanding value for money.

An example of the type of mainstream skepticism toward HSA’s that Mr. Jenkins mentions above is this recent NY Times article. Although insurance will always be a substantial component of America’s health care finance system, Mr. Jenkins is correct that the current system’s failure to allow consumers to shop and determine what health care services and products to purchase is at the root of our spiraling health care costs.
Along these lines, I shook my head in amazement as I read President Bush’s comments on health care finance from last night’s debate. He started out pretty well:

I think government- run health will lead to poor-quality health, will lead to rationing, will lead to less choice. Once a health-care program ends up in a line item in the federal government budget, it leads to more controls.
And just look at other countries that have tried to have federally controlled health care. They have poor-quality health care.
Our health-care system is the envy of the world because we believe in making sure that the decisions are made by doctors and patients, not by officials in the nation’s capital.

But then, in response to Kerry’s promises of gifts to various voter groups, the President reverses field and touts his administration’s own give-aways:

We’ve increased VA funding by $22 billion in the four years since I’ve been president. That’s twice the amount that my predecessor increased VA funding. Of course we’re meeting our obligation to our veterans, and the veterans know that.
We’re expanding veterans’ health care throughout the country. We’re aligning facilities where the veterans live now. Veterans are getting very good health care under my administration. . .

Which only serves to underscore Mr. Jenkins’ point — so long as we continue to allow the health care finance system to mask the true cost of health care services and products to the public, the more the politicians will manipulate that system to troll for votes. Hat tip to Alex Tabarrok of Marginal Revolution for pointing out the above contradiction.

Cards down Stros in NLCS Game 1

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The Cardinals took advantage of the Stros’ shaky middle relief to overcome yaks by Beltran, JK, Berkman, and Lamb in beating the Stros 10-7 in the first game of the 2004 National League Championship Series at Busch Stadium in St. Louis on Wednesday night.
The Stros had a couple of leads in this one after Beltran’s yak in the first and JK’s in the fourth, but neither lead lasted long. Brandon Backe pitched reasonably well for 4 2/3rd’s innings, but the roof fell in on Chad Qualls — who was dinked to death in the Cards’ 6 run sixth — and then on Chad Harville, who gave up the Edmonds‘ three run double that put the game away for the Redbirds.
One thing I did not understand about this game is why Manager Garner pitched Backe on three days rest when he could have started Pete Munro tonight and allowed Backe to pitch on his regular rest cycle in Thursday’s Game 2. As noted above, Backe pitched reasonably well, but ran out of gas quickly in the fourth. My sense is that the Stros would have gotten more out of him in the Thursday game.
Oh well. Game 2 is Thursday night as the Stros try to steal one from the Cards in St. Louis. And steal it that will have to do given that Munro is the unlikely starter in this one. Hope that the Stros’ bats keep crankin’ because it is almost certain that the Cardinals’ bats will.

Reviewing the track record of an urban boondoggle

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Earlier posts here and here explored the economic absurdity of urban rail systems in modern American cities, which is a hot topic in Houston these days given the recent launch of Metro’s Light Rail System earlier this year.
Now, the long-range empirical data refuting the economic basis of such systems is emerging. In this article, Wendell Cox analyzes the $10 billion cost relating to creation and maintenance of the Washington, D.C. “Metro” rail system over the past 30 years. His findings are insightful:

No US urban area has built more new high-quality urban rail than Washington, DC, which spent $10 billion, most of it from national taxpayers, on a more than 100 mile system. Of course, it would be unfair to have expected Washington?s ?Metro? subway to have made a difference in area-wide traffic, since, as noted above, transit is about downtown. Predictably, at the
metropolitan area level, Metro?s impact has been virtually absent. In 1970, before the first section of the system opened, the Census Bureau reported that 15.3 percent of area workers used transit to get to work. By 2000, transit?s work trip market share number had dropped 29 percent, to 10.9 percent. Perhaps even more astounding is the fact that Census data indicated a five
percent reduction in actual work trip usage from 1990 to 2000, a period during which the system was expanded more than 25 percent.
Over the past 20 years, traffic in the Washington area has become the fourth worst in the nation, following only Los Angeles (which has opened a metro, light rail and commuter rail), San Francisco (where BART has made no difference) and Chicago (with the nation?s second most extensive rail system). The problem in Washington is that so many planned freeways were cancelled. In Houston, where capacity has been built to keep up with demand, traffic is better than in 1986, and the area has improved to 10th worst traffic in the nation from having been the worst in 1985.

Read the entire article. As we ponder why these public boondoggles continue to proliferate despite the increasingly clear evidence of their enormous cost relative to their relatively small public benefit, I pass along an astute commentator’s observation regarding the politics of such systems from one of my earlier posts:

Concentrated benefits and dispersed costs are one economic reason for the existence of inefficient public projects. The many who stand to lose will lose only a little, whereas the few who stand to gain will gain a lot. Of course, if other public projects exist where overall costs outweigh benefits, then $6 a year per project could add up to quite a hefty boondoggler?s bill.

Wingwomen?

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I continue to be amazed at the entreprenurial spirit of some young folks. This NY Times article reports on a new business that brokers attractive young women to accompany young men to social gatherings for the purpose of making the young men appear more attractive to other women at the gathering. Amazing.
Hat tip to Marginal Revolution’s Tyler Cowen for the link to the article, and Tyler’s point that women judging a man by the quality of his girlfriend or wife is known in economic circles as a “sufficient statistic.”

Stros 2004 Review: NLCS Series Preview

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The Stros and the Cards tee it up tonight in Game 1 of the NLCS in St. Louis, and it you go by the statistics from the season to date, the Cards should win in a cakewalk.
However, statistics are merely indicators of probable performance, and the season-to-date statistics fail to take into consideration two key factors. First, although they lagged earlier in the season, the Stros’ statistics over the past two months have been every bit as good as the Cardinals’ statistics during that period. Second, the Stros have been playing “on edge” for the past two months in their unlikely drive for the playoffs while the Cards, who put away the NL Central title for all practical purposes shortly after the All-Star break, have been on cruise control. Some teams find it difficult to regain that competitive edge in a playoff series after a long stint of relatively meaningless games.
So, I look for this series to be closer than most pundits believe, although the gaudy Cardinals runs created against average statistics (“RCAA,” explained here, courtesy of Lee Sinins) this season certainly reflect the fact that the club had the best regular season record in the Major Leagues:
Albert Pujols 75
Jim Edmonds 73
Scott Rolen 57
Larry Walker 12
John Mabry 7
Reggie Sanders 4
Tony Womack 3
Ray Lankford -1
Colin Porter -1
Bo Hart -2
So Taguchi -4
Roger Cedeno -5
Yadier Molina -5
Hector Luna -6
Cody McKay -6
Edgar Renteria -12
Marlon Anderson -14
Mike Matheny -23
To compare, here are the Stros players’ final regular season RCAA:
Lance Berkman 69
Carlos Beltran 46 (28 with the Stros, 18 with the Royals)
Jeff Bagwell 17
Jeff Kent 12
Mike Lamb 11
Craig Biggio 8
Jason Lane 3
Eric Bruntlett 2
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Chris Burke -3
Orlando Palmeiro -4
Richard Hidalgo -9
Adam Everett -11
Morgan Ensberg -12
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26
The Cardinals’ 152 RCAA was the highest in Major League Baseball this season by over 40 runs, and over 100 runs better than the Stros’ team performance. The Cards’ top three hitters — Pujols, Edmonds, and Rolen — were among the top ten hitters in the National League this season, and no other team came close to matching that kind of top hitting performance.
However, that performance is in the past and what’s important is right now, and there appear to be a few kinks in the Cardinals’ machine. Rolen has a gimpy knee that did not respond to rest over the last month of the season, and he is coming off an 0-12 performance in the Cardinals’ divisional series victory over the Dodgers. Accordingly, if Rolen is unable to perform in the NLCS at his performance level for most of the season, the Stros’ hitting lineup actually matches up quite well with that of the Cards — i.e., two top hitters who are slightly better than the Stros’ top hitters (Pujols and Edmonds versus Berkman and Beltran), but the Stros have more above-average hitters than the Cards (Bags, Kent, Bidg and Lamb versus Walker, Mabry and maybe Sanders).
The pitching matchup is similar. Again, the Cardinals’ pitching staff overall had an extraordinary season, garnering a 68 runs saved against average score (“RSAA,” explained here), which is over 20 runs better than the Stros pitching staff’s solid performance. Here are the Cardinals pitchers’ RSAA through the end of the regular season:
Chris Carpenter 14
Steve Kline 13
Julian Tavarez 13
Jason Isringhausen 11
Ray King 11
Jason Marquis 10
Kiko Calero 7
Al Reyes 5
Cal Eldred 3
Randy Flores 3
Cody McKay 1
Josh Pearce 0
Jeff Suppan 0
Woody Williams 0
Rick Ankiel -1
Danny Haren -2
Mike Lincoln -2
Jason Simontacchi -2
Carmen Cali -4
Matt Morris -12
And, for comparison purposes, here are the Stros pitchers’ RSAA:
Roger Clemens 32
Brad Lidge 26
Roy Oswalt 22
Wade Miller 10
Dan Miceli 6
Octavio Dotel 5
Andy Pettitte 4
Chad Qualls 3
Russ Springer 3
Dan Wheeler 3
Darren Oliver 1
Brandon Backe 0
Mike Gallo -2
Chad Harville -2
David Weathers -2
Jeremy Griffiths -3
Ricky Stone -3
Kirk Bullinger -6
Jared Fernandez -6
Pete Munro -9
Carlos Hernandez -10
Brandon Duckworth -11
Tim Redding -15
Again, one can see possible kinks in the Cards’ pitching armor, too. Although they have six pitchers with double digit RSAA’s, the Stros top three pitchers (Clemens, Oswalt and Lidge) have performed signficantly better than the Cards’ top three pitchers, the best of whom (Carpenter) is injured and not pitching. Moreover, the Cards continue to trot out Matt Morris as a starter and he is having a Redding-like horrible season, and even the Cards’ closer Isringhausen has been showing signs of late-season fatigue. Thus, a good case can be made that the Stros’ pitching staff comes into this series in better shape than the Cards’ staff, even with Clemens and Oswalt being relegated to Games 3 and 4. The fact that Lidge comes into the NLCS relatively well-rested is big advantage for the Stros.
So, where does that leave us? Well, the Cards are probably the better team overall, but the Stros are plenty good and playing with boatloads of good karma right now. My sense is that the Cards will prevail in a six or seven game series, but that it would not be shocking if the Stros win the series. Let’s get ready to rumble and hang on for a wild ride!

Checking in again on the Nigerian Barge trial

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The defendants began putting on their cases this week in the Enron-related Nigerian Barge trial in Houston federal court, and already there have been some significant developments.
Attorneys for defendants and former Merrill Lynch executives James Brown and Daniel Bayly rested their cases on Tuesday without putting their clients on the stand. In white collar criminal cases, this is a highly risky move. Juries in such trials generally expect to hear the defendant’s story. Even though they are not supposed to hold the defendant’s decision not to testify against the defendant, juries nevertheless often do so.
In recent high profile white collar cases, neither Martha Stewart nor Jamie Olis testified, and their juries both voted for conviction. On the other hand, Frank Quattrone did testify during his trial and his jury voted to convict, anyway. So, electing to testify certainly does not ensure an acquittal in white collar cases, but my experience is that electing not to testify in such cases ratchets up the risk of conviction significantly. Meanwhile, William Fuhs, one of the Merrill Lynch defendants in the Nigerian Barge case, did elect to testify yesterday. He will be subjected to the prosecution’s cross-examination today.
Left unstated in the mainstream media’s accounts of the trial is the continued dubious nature of the government’s case in this trial. The government spent three weeks putting on its case in chief, which consisted almost entirely of testimony from former Enron executives who admitted that they were liars and cheats. Each of these witnesses stated that they had lied about the Nigerian Barge transaction to prosecutors initially, but now allege — after copping plea bargains with the government — that they are telling the truth in supporting the government’s theory that the Nigerian Barge transaction was a sham.
The government’s theory of the case is that Enron orally promised Merrill Lynch through its main liar — Andrew Fastow — that Enron would either buy the barges back or broker a deal for the barges in six months at an agreed rate of return for Merrill Lynch. Therefore, reasons the government, Merrill Lynch was not truly at risk with regard to the transaction and, thus, Enron’s booking of the deal as a sale was fraudulent.
However, it is undisputed at the trial that the deal documents — entered into after Fastow’s oral inducements to Merrill — did not include any such Enron agreement to repurchase or broker the barges. Likewise, it is undisputed that the written agreement between the parties includes the standard provision that Merrill could rely only on Enron’s written representations in the deal documents and could not rely on any prior oral representations (such as Fastow’s oral promises) in electing to enter into the deal. Consequently, it is undipusted that Merrill Lynch could not have enforced Fastow’s oral promise against Enron in civil court had Fastow not arranged to have one of his off balance sheet partnerships buy the barges from Merrill.
So, where does all that leave us? The government’s case relies on the theory that the unenforceable oral promise of someone who the government says is a liar and cheat — i.e., Fastow — rendered Merrill’s risk in buying the barges non-existent. Or, stated another way, the moral obligation of a liar and cheat to do something that he is not legally required to do is such a sure thing that Merrill was not at risk in entering into the transaction.
Quare: Inasmuch as it is undisputed that Fastow is a liar and a cheat, and that the deal documents did not obligate Enron to buy or broker the barges for Merrill’s benefit, how could Merrill not be at significant risk of having to hold the barges for a long term where its only known exit strategy from the deal was a liar and cheat’s unenforceable moral obligation to take Merrill out?
I have said it once, but I am compelled to say it again — this case is an abomination that would not be prosecuted but for the fact that the government believes that they can obtain a conviction against anyone who associated with the disgraced Enron. That is a dangerously poor reason for the government to exercise its awesome power to take away the freedom of citizens.

Malibu, OU style

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What is the world coming to if a Texan cannot even look for a vacation spot in Malibu these days without the risk of bumping into this particular agent? Hat tip to Craig Depken for the link.

Presidential candidates and Econ 101

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Edward Lotterman is a Twin Cities-based economist who writes a smart column for the Twin Cities Pioneer. Earlier posts have referred to his thoughts on the addictive nature of governmental subsidies and the market’s superior ability to react to OPEC’s attempts to manuever the market to its advantage.
In this article, Mr. Lotterman addresses the candidates’ statements regarding economic policy, and he finds little to be enthusiastic about in either candidates’ positions:

This election, most economists are dismayed by the economic positions espoused by Republican President Bush and Sen. John Kerry, D-Mass. Their campaign ads and stump-speech clips frustrate most of us. Many of their proposals would make our nation worse off, rather than better. Still, there are differences in how each man’s proposed policies are harmful.
In 2004, Kerry is wrong on many different economic things, including trade, employment, Social Security and health care, among others. Bush is wrong on one enormous thing: tax cuts and their effects on budget deficits and the national debt. Bush’s positions on some other issues are more pleasing to economists than Kerry’s, but often skirt core questions to focus instead on peripheral matters that have great symbolism but little import.

First, Mr. Lotterman examines the candidates’ positions on Social Security reform:

In response to news about Social Security, Kerry recently thundered, “When I am president there will be no decrease in Social Security benefits and no increase in (Social Security) taxes.” This stand is just another way of saying, “I am a coward who is going to push this issue forward into someone else’s presidency, even if it means any eventual solution will be much more difficult.” I know of few economists who could endorse Kerry’s position.
On Social Security, Bush advocates personal accounts as a panacea for all problems. Many economists see some form of mandatory personal accounts as one component of a reformed retirement system. But the economic arguments for personal accounts are subtle. Moreover, they would do next to nothing in solving the most pressing problem, the impending retirement of tens of millions of baby boomers.

Turning to health care, Mr. Lotterman also does not much like what he hears:

On health care, Kerry says he will do great things: lower health care premiums, cover all uninsured households and lower drug prices. But he presents no realistic plan for financing these expensive options. He implies these are freebies that will spring from reductions in “waste and inefficiency” in health care.
He doesn’t say how he will eliminate such “waste and inefficiency.” This position is as intellectually bankrupt as those borrow-and-spend Republicans who say they will close deficits by eliminating “waste and inefficiency” in government. Somehow, no one ever seems to do it.
Bush wants to broaden health care savings accounts and limit damages in malpractice lawsuits. A majority of economists probably would endorse these measures. Even so, most would see them as tangential to more fundamental factors driving health costs.

And on issues of free trade and environment? Again, Mr. Lotterman is skeptical of the candidates’ positions:

On trade, a strong majority of economists would opt for Bush’s espousal of trade liberalization over Kerry’s implicit protectionism. Yet, many are skeptical of the president’s true commitment to opening trade, given his quick resort to steel tariffs in his first term and their doubts about his willingness to confront domestic sectors such as cotton and sugar that will be hurt in any serious new trade agreements.
While Bush claims credit for much environmental improvement, most objective observers are critical of his administration’s record. Even Russell Train, a Republican who headed the Environmental Protection Agency under Presidents Richard Nixon and Gerald Ford, has come out against him for this reason. Environmental economists also would fault his heavy reliance on poorly targeted subsidies to traditional energy sources. And, like his father, George W. is passing up the opportunity to shift pollution control from command-and-control regulation to widespread use of emissions taxes or tradable permits.
Kerry essentially promises more of the same regulatory approach that has prevailed in the past four decades. His environmental and energy platforms contain many glowing promises, but no policy specifics. Moreover, when he makes sweeping promises like, “As long as I am president, there will be no nuclear storage at Yucca Mountain,” he is just pushing a growing problem onto someone else’s watch — at a cost to society as a whole.

So, is this a Presidential election in which there is a viable candidate for sound economic policies? Or are we simply left with evaluating which candidate is “less bad” in terms of economic policy?

Stros finally conquer the Braves

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Carlos Beltran hit two key yaks and then Bidg and Bags keyed a five run outburst in the seventh to put the game away as the Stros beat the Braves 12-3 in the fifth and deciding game of their National League Divisional Series on Monday night at Turner Field in Atlanta.
For the first time in their 43 year existence, the Stros now move on to the next playoff series, which is the National League Championship Series against the Cardinals. The first two games are Wednesday and Thursday nights in St. Louis, and then the next three games will be in Houston at the Juice Box on Saturday through Monday. I expect Pete Munro and Brandon Backe to pitch Games 1 and 2 in St. Louis, so the Stros need to keep their hitting shoes on.
Roy O battled like the gamer he is on three days rest and left the Stros with a 3-2 lead after five innings on the strength of Beltran’s first yak and two runs that were keyed by JK‘s second inning double.
However, this game was won in the sixth inning and the top of the seventh after the Braves had closed to 3-2 in the bottom of the fifth. First, in the top of the sixth, Beltran answered the Braves rally with his second solo yak to extend the Stros lead to 4-2. Then, in the bottom of the sixth, Chad Qualls came back from the trauma of blowing the Game 4 lead and put down the Braves in order for the first time in the game.
In the top of the seventh, Bidg keyed an incredible two out rally with a two strike single to plate a completely juiced Viz from second, who knocked down Estrada, allowing Bidg to race around to third when the throw to the plate got away. Beltran promptly knocked in Bidg for a 6-2 lead, and then Bags lifted the burden of failed playoffs past with a massive two run tater to left to give the Stros an insurmountable 8-2 lead. The Stros tacked on three more in the eighth (including Beltran’s fourth and fifth RBI’s) just to make sure that the Braves knew that their prior playoff dominance of the Stros was over for good. The Stros ended up with 17 hits as they continue their remarkable late season run to the next stage of the playoffs.
I have been a Stros fan for all the time I have lived in Houston, which is over 32 years now, and I have been a season ticket holder for the past 20. I get up on Tuesday mornings at 3 a.m. to help cook for a large Christian men’s breakfast group at my church in The Woodlands, but I found myself watching this game until the very end at almost 11:00 p.m. despite my early wakeup call and the fact that the game was already well in hand. When the final pitch made the win certain, I called my older son at college — who is a lifelong Stros fan and was watching the game just as intently as I was — and we laughed with each other on just how good it felt for Bags, Bidg and the rest of the Stros finally to win a playoff series after we had pulled for them together for so many years.
That one magic, joyous conversation between a father and a son made enduring every disappointment of the Stros’ past failures well worth it.

Iraq Oil-for-Food Probe hits Houston

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This New York Times article reports that federal investigators are focusing on four American oil companies and three U.S. citizens with Houston connections who allegedly received vouchers for oil from Saddam Hussein as he sought to flout United Nations sanctions.
The U.S. companies include Exxon Mobil Corp., ChevronTexaco Corp. and Houston-based El Paso Corp. Exxon, El Paso, and Chevron previously confirmed that they were among companies to receive subpoenas. The Times also reported that the U.S. attorney’s office in Manhattan is investigating corruption allegations against the former head of the U.N. Oil-for-Food program, Benon Sevan.
The companies and the individuals were identified in the Central Intelligence Agency‘s 1,000-page report on the Hussein regime’s campaign, although the names were redacted from the publicly released version. While confirming that sanctions had prevented Iraq from obtaining weapons of mass destruction, the report by arms inspector Charles Duelfer’s report describes efforts by the Hussein regime to manipulate the Oil-for-Food program in its favor by circumventing U.N. mandates and federal law. Others identified in the Duelfer report as receiving the vouchers include Bayoil, a closely held Houston oil company, and three individuals who campaigned to end the Iraq sanctions, including long-time Houstonian Oscar Wyatt. Together, the Duelfer report alleges that the companies and individuals received vouchers from the Hussien regime valued at 111 million barrels of oil.
The U.N. Security Council blocked Iraqi oil sales to punish Hussein following Iraq’s 1990 invasion of Kuwait. During the 1990s, U.N. Security Council members such as France and Russia sought to end sanctions by contending that they were primarily harming Iraq’s civilian population. As a compromise, the U.S. and Britain agreed to the Oil-for-Food Program, which was intended to allow carefully monitored sales of Iraqi oil to pay for humanitarian supplies.
Consequently, the allocation of vouchers — which are negotiable instruments that could be traded for Iraqi oil — was not necessarily criminal in nature and that no one has been charged with a criminal offense in connection with the investigation. However, a May 2002 Wall Street Journal ($) article reported that the Hussein regime had skimmed hundreds of millions of dollars and that several U.S. companies had been major consumers of Iraqi oil.
Relying on captured Iraqi documents and interrogations of Mr. Hussein and other Iraqi officials, the Duelfer report estimates that the Hussien regime illegally collected $11 billion through selling the oil below market price and receiving the difference through kickbacks. The report alleges that Mr. Hussein peddled influence through giving oil vouchers to powerful foreigners and foreign organizations.
Major oil companies have been under increasing pressure to line up new supplies as reserves in more-stable regions have declined, and this search often puts them in contact with countries with rampant corruption and unstable governments. As a result, it is not unusual for such companies to receive subpoenas and be the subject of such investigations.
The Duelfer report lists hundreds of foreign companies and individuals who allegedly received Iraqi oil vouchers — including Mr. Sevan — but not the U.S. companies and citizens. However, the names were included in versions sent to congressional committees and officials have confirmed their accuracy. Many of the names were disclosed in January when documents purportedly taken from Iraqi oil-ministry files were published in an Iraqi newspaper.